California’s Bioenergy Programs – Update to Options for Bioenergy Facilities

1. California’s Bioenergy Programs – Update to Options for Bioenergy Facilities Paul Clanon & Judith Iklé California Public Utilities Commission April 1, 2008 Conference Call Bioenergy WG

2. CPUC Programs Available to Bioenergy Facilities • Net Energy Metering (NEM) Tariff • Self Generation Incentives Program (SGIP) • Feed-In Tariff (FIT) – 2 options • AB 1969 (Yee, 2006) • AB 1613 (Blakeslee, 2007) • Qualifying Facilities (QF) • Renewable Portfolio Standard (RPS) Program • Bilateral Power Purchase Agreements (PPA)

3. Program Guidelines - Facility/Seller Options • Net Energy Metering Tariff: Customer credited for onsite generation up to their annual onsite load • Self Generation Incentive Program: Provides upfront incentive to offset the capital investment for system installation • Utility Feed-In Tariff : Generator paid for output of biogas facility for 10,15, or 20 years based on CPUC adopted fixed price at start of contract • Qualifying Facility Contract: Generator has access to the Grid and is paid the avoided cost of power as determined by the CPUC • Renewable Portfolio Standard Contract: Generator paid negotiated price through RPS solicitation between utility and seller • BilateralPower Purchase Agreements: Price negotiated between utility and seller

4. Program Eligibility by Facility Capacity * Eligible technologies change on 1/1/08

5. Net Energy Metering for Bioenergy • Net Energy Metering: • Onsite generation provides customer with credit for net monthly power productionat the generation portion of their rate • Helpful to customers whose renewable generating potential is comparable to their annual consumption • NEM Eligible Technologies: • Biogas-fired generators and fuel cells • Differs from other types of NEM because it does not offset the distribution or transmission rate components NEM credit rates effective 10/5/07 Ranges indicate Winter - Summer rates

6. Net Energy Metering – Eligibility and Enrollment • Program Guidelines • Statewide cap 50 MW • Facility capacity cap: • 1 MW • Statewide, 3 generating facilities may be from 1 to 10 MW in addition to the 50 MW cap Current Enrollment* *As of October 2007

7. Self-Generation Incentive Program (SGIP) for Bioenergy • Incentive Program • Since 2001, SGIP has provided an incentive to offset the upfront capital costs for bioenergy facilities • Funding pays for cost of installing generation equipment • Eligible Technologies • Through 12/31/2007 – biogas fueled Combined Heat and Power (CHP), internal combustion engines, small turbines, and fuel cells • After 1/1/2008 – biogas fueled fuel cells only • AB 2778 (Lieber, 2006) limited the number of eligible technologies • Annual Funding • $83 million/year

8. Pricing Characteristics of SGIP • Incentive Limitations • Minimum system size 30 kW • Total system size up to 5 MW • Maximum incentive size 1 MW • Only the renewable fuel cell option will remain after 1/1/08 and a 1 MW plant is eligible for funding up to $4.5 million Incentive Levels and Complete* Installations *as of 12/31/2007

9. Feed In Tariff for Bioenergy • CPUC is authorized to require utilities to offer feed-in tariffs that apply to bioenergy under 2 scenarios • Scenario 1: Applies to all renewable fueled generation under 1.5 MW • AB 1969 (Yee, 2006) requires utilities to purchase power from water/wastewater treatment plants • CPUC Decision D.07-07-027 expands AB 1969 FIT to include any renewable generators • CPUC implementation ongoing; tariffs effective 2/14/08 • Scenario 2: Applies to all CHP up to 20 MW • AB 1613 (Blakeslee, 2007) requires utilities to purchase power from CHP facilities (included biogas fueled facilities) • CPUC implementation just starting, tariffs likely to go into effect in 2009

10. Pricing Characteristics of Feed-in Tariffs (Scenario 1: AB 1969) • Fixed price is determined by Market-Price Referent (MPR), as adjusted by time of delivery and season • Price schedule extends 10-20 years and is listed in tariff • Tariffs transfer Renewable Energy Certificates (RECs) from generator to utility • Two options under tariff (depending on customer’s choice): • Full sale of production • Excess sales (after onsite usage) Sample Tariff Levels for AB1969 (Illustrative prices)* *These numbers are illustrative only, for a 15-year contract. There are a number of factors that will affect these the actual price such as the length of contract and year of initial commercial operation. This is an instantaneous price, not a weighted average.

11. Feed-in Tariffs (Scenario 2: AB 1613) • Fixed or variable price to be determined by the CPUC • Price schedule extends to a maximum of 10 years • CHP systems must be sized to the customer’s thermal load (Sec. 2842). • There is no requirement that CHP systems be sized to the customer’s electric load. Thus, oversized systems (from an electric perspective) are permitted. • A 20 MW maximum size limit applies (Sec. 2840). • Only new CHP systems (installed after January 1, 2008) are eligible. (Sec. 2841) • A NOX standard of 0.07 pounds per MWh applies, with a credit at the rate of 1 MWh per 3.4 MMBtu of waste heat recovery.

12. Public Utilities Regulatory Policy Act (PURPA) of 1978 established QFs and outlined their payment according to the avoided cost of power QF is defined as non-utility generator with less than 80 MW capacity that utilizes cogeneration and/or renewable fuels (for bioenergy, ≥ 50% biomass) There are currently 69 bioenergy QFs Many bioenergy facilities came online as QFs in the 1980s New standard offer contracts are currently being assembled. There has been little input from renewables Qualifying Facility Program for Bioenergy Current Enrollment for Bioenergy Qualifying Facilities* *As of January 2008

13. Pricing Characteristics of Qualifying Facility Contracts • Under D.07-09-040 new contracts will be available to new and existing QFs that include new avoided and capacity costs • Contract Types: Bilateral, Firm, and As-available • For small QFs, IOUs can’t refuse a contract due to oversubscription unless 110% of current QF capacity is reached • Differences between IOUs’ pricing are captured in the market heat rates and gas prices • As-available: • Capacity Price: $32.53/kW-year • All-In Power Price: $73/MWh • Firm: • Capacity Price: $91.97/kW-year • All-In Power Price: $80/MWh • Above prices are based on a gas price of $7.50/MMBtu and heat rate of 8,887 Btu/kWh

14. Characteristics of RPS Contracts • RPS statute mandates that IOUs, ESPs and CCAs procure an additional 1% of retail sales per year from eligible renewable sources until 20% is reached no later than 2010 (SB 1078 and 107) • Contract Price • Pricing of all RPS contracts is negotiated between buyer and seller • Contract Term • Contracts for 10,15, or 20 years are most common • Short term contracts are also allowed • Renewable Energy Resources • CEC determines what resources are RPS-eligible • Bioenergy resources include agricultural waste, solid waste, biogas, and others • Utility owns the RECs from RPS generation • Program only counts “bundled” contracts as RPS-eligible

15. RPS Bioenergy Contracts • Since 2002, the CPUC has approved: • 17 biomass projects (244 MW) • 15 biogas projects (56 MW) • 3 additional biogas contracts (7 MW) and 2 additional biomass contracts (90 MW) that were later canceled • 50% of the biogas capacity and 40% of the biomass capacity is from new or re-started facilities • 20 MW of new biogas facilities have come online • 9 new biomass projects (78 MW) are delayed. Common barriers are difficulties with fuel supply and/or site control • 11 MW of new biomass capacity currently pending approval at CPUC

16. CPUC Adopts Market Price Referent • Calculated annually for RPS Solicitations • Calculates levelized all-in market price deemed per se reasonable, i.e. recoverable through rates • Feed-In tariff programadopts MPR values for pricing

17. Bioenergy and Power Purchase Agreements • Renewable energy purchased at a negotiated price from facilities of all sizes • Opportunity for generators with excess capacity who might otherwise not participate in an RPS Solicitation • Generation can fulfill a Load-Serving Entity’s RPS requirement • In 2007, CPUC approved several bilateral negotiated PPAs for bioenergy projects

18. SCE’s Standard Offer Biomass Contracts • SCE currently offers standard offer contracts for bioenergy 0 -1 MW, 1-5 MW, and 5-20 MW facilities • SCE recognized that smaller biomass projects have had difficulties in participating in SCE’s annual solicitations. • By eliminating the complex negotiation process that is needed for larger projects, the program gives smaller projects the opportunity to execute contracts with SCE and contribute to the State’s RPS goals. • SCE has submitted 2 of these contracts (4 MW) to the CPUC. • 2 more contracts possibly within the next 2 months. • Program is planned to continue at least until the end of the year.

19. Biomass projects face local opposition • Imperial County passed Measure X in February 2008, banning the importation of biosolids and biowastes into the area. • Measure X was in response to a proposed biomass facility from Liberty Energy. • Possible solution (from staff draft document): Work with land agencies to provide information that would facilitate the siting process. For instance, utilize expertise in the Bioenergy Interagency Working Group to increase community awareness and outreach as well as identify bioenergy “friendly” communities that may benefit from new economic development.

20. Bioenergy Interconnection Rules • Biogas projects require utility interconnection • Electric interconnection is by CPUC or FERC Interconnection Rules • CPUC Interconnection Rule 21 • Net Energy Metered biogas • Any non-exporting biogas or other onsite generation • Distribution system over which the CPUC has jurisdiction • FERC Small Generator Interconnection AgreementBiogas < 20 MW exported to the grid, such as with a Power Purchase Agreement