Residents rally behind the Hunters Point Community Microgrid Project

In early October, the Clean Coalition participated in BaySplash, an inaugural event hosted by the EcoCenter in Bayview-Hunters Point–a community partner on our Hunters Point Community Microgrid Project. Recently, the Clean Coalition has supported EcoCenter staff in developing curriculum for their climate change programs. BaySplash was filled with technology demonstrations, science activities, and artistic performance. The event also included participation from fellow Hunters Point Community Microgrid Project partner, the A. Philip Randolph Institute San Francisco, an organization that offers clean energy job training.

The Clean Coalition staff was on hand at BaySplash to share information about our Hunters Point Community Microgrid Project with more than 100 community members. Once deployed, the Hunters Point Community Microgrid Project is expected to bring $100 million in local wages to the Bayview-Hunters Point community, while reducing greenhouse gas emissions by 1.5 billion pounds over the next 20 years.

Also in October, the Clean Coalition met with numerous Bayview-Hunters Point residents, small business owners, and faith leaders, in a joint exercise to plan for community resilience. Churches, community centers, and small businesses were identified as key sites for power backup during times of outages because of the vitality they bring to the community and the key resources they provide.

Once the community has finalized its list of critical sites in Bayview-Hunters Point, the Clean Coalition is committed to ensuring these facilities have an indefinite supply of renewable power in order to operate even when the grid is down. We have recently demonstrated how this is possible through our Long Island Community Microgrid Project and will continue to seek out grid resilience opportunities across the country.

Campaign to fix Transmission Access Charges (TAC) gains support

The Clean Coalition’s campaign to remedy an unfair charge on local renewable energy in California is garnering support from a broad range of organizations, as well as media attention.

Transmission Access Charges (TAC) are fees designed to pay for the state’s transmission grid and are applied to every kilowatt-hour of metered customer electric usage. While TAC make sense for energy delivered through the transmission system, they are currently being misapplied to distributed generation facilities that serve local load and never actually utilize transmission. This misapplication creates a major market distortion and disincentivizes growth of local clean energy.

On September 24, the Clean Coalition filed initial comments on the TAC issue with the California Energy Commission. Then, in November, we hosted an educational webinar to raise interest in the issue and filed comments directly with the California Independent System Operator (CAISO). Our comments were submitted with signatures of support from a few dozen individuals, advocacy groups, and other organizations who agree that action must be taken to spur further growth in local renewables.

Our growing list of supporters have all signed on to help fix the CAISO’s tariff language to assess TAC on a utility’s transmission load. These organizations will help raise awareness of the benefits local renewable energy will receive from fixing the language.

Use of local energy should not continue to subsidize transmission infrastructure when these resources are actually reducing the need for future investments into the transmission system.

Individuals and organizations interested in supporting the TAC campaign should contact Josh Valentine at josh@clean-coalition.org.

Understanding the tax implications of NEM successor policies

Depreciation benefits under a feed-in tariff can offset potential income tax liability

The Hawaii Public Utilities Commission grabbed headlines with their decision to end the state’s net energy metering (NEM) program this October. While the Aloha State is the first to make this move, California is following suit with its NEM 2.0 proceeding underway.

As more states evolve beyond net metering, it is essential to consider the potential tax implications of successor policies.

For this reason, the Clean Coalition conducted an analysis to compare the tax impacts on a typical California residential customer-generator under a feed-in tariff (FIT) program as opposed to net metering. The Internal Revenue Service (IRS) has not ruled that energy sold to a utility under a FIT is taxable gross income. However, in this analysis, the Clean Coalition analyzed the implications for the customer-generator if the IRS were to determine that the revenue from energy sales under a FIT constitute taxable gross income.

The result of our analysis is that if energy sales under a FIT are subject to income tax, any tax liability will be offset by the value of applicable tax deductions at a FIT rate up to approximately $0.15/kWh.

Details of the analysis

Under net metering, excess energy is exported to the grid and the customer is credited at the retail rate for each kilowatt-hour (kWh) delivered. When a NEM system is not producing enough power to meet on-site load, the customer buys power from the electric utility at the retail rate. Under a FIT, a customer-generator sells all power produced to the local utility at a long-term, fixed-rate and continues to buy all their energy at the retail rate.

Through this analysis, we investigated the tax implications for a California customer-generator who switches to a residential FIT from a NEM program if the IRS were to determine that the FIT energy sales constitute taxable gross income. To do this, we modeled the following:

  • Electricity consumption and PV generation for a typical California customer;
  • Federal and state tax treatments;
  • Rate structures for the customer, including the complete compression of California rates from four tiers to two tiers in 2019; and
  • The scheduled expiration of the investment tax credit (ITC) at yearend 2016.

The analysis examined impacts on an average Pacific Gas & Electric (PG&E) residential customer located in San Jose, California. We used this location because Santa Clara County, home to the City of San Jose, boasts one of the highest numbers of solar PV and net-metered residential customers in the state—and the most in PG&E’s service territory. For this analysis, we assumed the customer-generator owned a 5 kilowatt (kW) solar PV system with an annual output of 7,500 kWh per year.

We factored in standard federal and California state tax liability, as well as the applicable ITC related to either the NEM or FIT program analyzed. Beginning in 2017, the ITC is scheduled to step down from its current 30% to 10% for commercial customers and expire entirely for residential customers. Under a FIT, the customer-generator may not be eligible for the residential investment tax credit (ITC); however, they would be eligible for the commercial ITC.

Results

If energy sales under a FIT are subject to income tax, any tax liability will be offset by the value of applicable tax deductions at a FIT rate up to approximately $0.15/kWh for the typical customer, as detailed below.

Table 1: Income & potential tax liability for 20 years relative to FIT rate

The extent to which depreciation of a DG system offsets taxes on energy sales depends on two key variables. First is the system costs eligible for deduction. If the costs of installing and maintaining the DG system are reduced, then the value of income deductions is lower and vice versa. The second key variable is the FIT rate. When a lower price is paid for energy, the amount of taxable income is reduced and vice versa.

In future years, declining costs of solar PV, changes in current incentives, and changes in applicable rate design will influence the results. We explored potential consequences of these changes by modeling two scenarios—2015 and 2019.

California is transitioning to a two-tier rate structure beginning in 2017, which will eventually result in a 25% differential between the tiers when fully implemented in 2019. In our 2019 scenario, we modeled this new rate structure using estimated values of $0.18/kWh and $0.23/kWh as the two tiers. For 2019, we assumed that installed PV system costs would decline to $2/W. We also factored in the scheduled expiration of the ITC.

When California’s two-tier rate structure is fully implemented in 2019, the resulting 8.2-year payback period under NEM is longer than the 7.9 years achieved under the $0.15/kWh FIT. Also, as reflected in the table below, a reduction in the ITC value may be offset by reductions in installed costs. In the 2019 scenarios, the FIT payback periods actually shorten due to modeling installed costs of $2/W. It is worth noting that NEM systems have a higher net present value (NPV) over the course of 20 years because the value of energy avoided increases under NEM as retail electricity rates rise over time, whereas FIT systems operate under a non-escalating rate.

Table 2: PV system payback periods under FIT and NEM (2015 and 2019 with rate change)

The National Renewable Energy Laboratory’s (NREL) System Advisory Model, which we utilized for this investigation, only allowed for analysis of NEM and buy-all/sell-all FIT systems. However, a middle ground exists and was recently implemented in Hawaii. Under this hybrid self-supply plus FIT approach, known in Hawaii as the “grid-supply” option, generation from a customer’s system is first used to satisfy simultaneous on-site load, enabling the customer to avoid purchasing energy at the retail rate from the utility. The customer captures the full value of avoided energy purchases, which may currently be higher than the FIT rate or may become higher over time. Any energy not consumed on-site at the time of generation is sold to the utility at an established FIT rate. The customer continues to buy energy from the utility at the retail rate to meet load not served by the DG system.

Under this hybrid self-supply plus FIT approach, the NPV and the payback period would be about halfway between the corresponding FIT and NEM systems. For the 2015 model runs, a self-supply plus FIT approach, where the customer sells 50% of energy produced, would yield a NPV of approximately $7,829 and a payback period of roughly 7.1 years.

Table 3: Hybrid Self-Supply Plus FIT – Comparative Tax, NPV and Payback

In practice, the results would tend toward the NEM example if daytime load coincided with generation, or toward the FIT example if on-site load did not coincide with generation. Solar panels installed in a more westerly orientation typically support greater matching of generation and load.

See the full analysis for additional details.

Local renewables being hit with a hidden transmission fee

The Clean Coalition is officially launching a campaign to remedy an unfair charge on local renewable energy in California.

Transmission Access Charges (TAC) are fees designed to pay for the state’s transmission grid. TAC are applied to every kilowatt-hour (kWh) of metered customer electric usage. When levelized over 20 years, TAC are about $0.03/kWh.

While TAC make sense for energy delivered through the transmission system, they are currently being misapplied to distributed generation (DG) facilities that serve local load and never actually utilize transmission.

For any utility within California that owns transmission under agreement with the California Independent System Operator (CAISO), which includes all major investor-owned utilities as well as most public utilities, CAISO levies TAC based on total metered customer usage within a utility’s service area each month. Utilities pass these costs on through the transmission and distribution (T&D) components of customer bills. The result is that customers are unfairly being charged $0.03/kWh on power they are receiving from DG systems, which never touches the transmission grid and so should not have a TAC applied. This improperly discourages development of distributed generation while encouraging unnecessary growth in costly transmission infrastructure.

Through this campaign, the Clean Coalition seeks to ensure proper valuation of local renewable generation. DG that serves local load must be recognized for avoiding TAC, which at $0.03/kWh comprise around 30% of the wholesale value of energy in California. Use of local energy should not continue to subsidize transmission infrastructure when these resources are actually reducing the need for future investments into the transmission system.

Individuals and organizations interested in learning more about our TAC Nexus Campaign should contact Josh Valentine at josh@clean-coalition.org.

Viable solar sites assessed for the Long Island Community Microgrid Project

The Clean Coalition’s Long Island Community Microgrid Project, one of the first projects awarded funding by New York’s Governor Andrew Cuomo through the NY Prize Community Microgrid Competition, continues to progress on schedule.

As previously reported, the Long Island Community Microgrid Project, located in the Town of East Hampton, will achieve nearly 50% of its grid-area electric power requirements from local solar—avoiding hundreds of millions of dollars in transmission infrastructure investments that otherwise would be required to deliver power to the region. The result will be an optimized local energy system able to provide long-term, renewables-based, backup power for prioritized loads.

Clean Coalition staff recently completed a Solar Siting Survey to identify viable locations for PV on commercial and industrial properties within the Long Island Community Microgrid Project target grid area, namely the East Hampton GT substation that serves thousands of customers. Through this effort, we uncovered over 30 potential sites for solar PV installations, with a collective capacity of more than 32 megawatts (MW). This is more than enough solar PV potential to meet the 15 MW of capacity necessary for the Long Island Community Microgrid Project to meet its local renewable generation goals.

Likely structures for solar PV installations include open land and parking lots at the East Hampton Airport, rooftops at several middle and high schools, as well as multiple beach parking areas.

The Long Island Community Microgrid Project is consistent with the New York State Energy Plan and the Reforming the Energy Vision initiative, which lay out a comprehensive strategy to build a clean, resilient, and reliable energy system for the state. This leading project will establish a model for New York, and beyond, to utilize local renewables paired with other distributed energy resources to create cleaner, more reliable, and more affordable power.