The changes would significantly reduce the value of current and future solar PV installations.
by Tom Williard, Principal - Sage Renewable Energy Consulting
Updated August 11, 2015: A-6 tariff closure delayed until December 31, 2016.
Updated July 22, 2015: The closure of the A-6 tariff to new accounts has been postponed beyond the July 23, 2015 Commissioner’s meeting. Read our update here.
On June 23, Administrative Law Judge Douglas Long of the California Public Utilities Commission (CPUC) issued a Proposed Decision (PD) concerning PG&E’s proposed changes to the A-6 tariff. A-6 is PG&E's "solar friendly" tariff for commercial and small industrial customers that allows solar PV systems connected to PG&E's electrical grid to derive significant value from the energy they generate.
The A-6 tariff is currently available to PG&E customer accounts that do not exceed 499kW of peak demand during three consecutive months in the most recent 12-month period. This encompasses most small to medium sized commercial and industrial PG&E accounts. For instance, the vast majority of public school accounts fall into this usage range.
The PD concerning the A-6 tariff - Sections 8.1 and 8.2 - can be summarized as follows:
- Customer accounts on the A-6 tariff as of the date of the Final Decision (FD) will be allowed to remain on the A-6 tariff for some time until the issue is resolved in a future PG&E Rate Case or filing. Existing A-6 accounts with PV systems have NOT been specifically grandfathered.
- The Final Decision can be heard and voted on at the CPUC's July 23, 2015 meeting.
- After the FD is issued, the A-6 tariff will be closed to new customers and accounts.
- On the date of the FD, a new PG&E tariff, A-6-N, identical to the existing A-6 tariff but with a 75kW maximum demand cap, will be made available to PG&E customers.
There are significant short and long term impacts from this PD. Short term impacts are:
- Customers planning or actively developing solar PV projects on accounts that have more than 75kW and less than 500kW annual demand peak that intend to use the A-6 tariff should transition to A-6 before the date of the Final Decision.
- Transitioning to the A-6 tariff before the PV system is operational will increase the cost of energy on that account until the PV system comes online. The increase in PG&E energy cost moving from A-10 to A-6 before the PV system is operational is typically 30% to 50% depending on the time of year and load profile.
- If the A-6 tariff is closed the next best PG&E tariff for commercial and small industrial customers with PV systems is usually A-10. Compared to the A-6 tariff, A-10 results in a loss of PV energy value of approximately 30%.
- Given the above, it will take one to two times as long for PV system operation to pay off the early change to A-6. For example, if a PG&E A-10 account is transitioned to A-6 three months before the PV system becomes operational, it will take three to six months of PV system operation to pay off the excess energy costs associated with the early change to A-6.
Longer term, the lack of grandfathering of existing PG&E PV customers who use A-6 poses a significant risk to the value of their investment. As noted above, the next best PG&E tariff for these customers is typically A-10, which results in a 30% decrease in value of energy generated by the PV system. This will cause many commercial and industrial PV investments made over the past decade to go underwater, with PV energy costing more than energy otherwise purchased from PG&E.
The solar industry, led by the SEIA and CalSEIA, is hoping to delay closure of A-6 to new PG&E accounts beyond July 23rd. However, the industry may not know until 2-3 days before the July 23rd meeting whether the A-6 closure will be delayed, which does not leave enough time to implement a tariff change with PG&E. This is a very difficult situation for clients currently developing PV projects who now face drastically reduced value of their investment.
There is talk of a new solar-friendly tariff option for PG&E customers with demands between 75kW and 500kW - perhaps an A-10 Option R - but there are potentially significant problems with this:
- A new A-10 Option R tariff would not be made available to PG&E customers until PG&E's next General Rate Case is implemented. The earliest date would be January, 2018, which leaves commercial and small industrial PG&E customers with NO tariff option that appropriately values onsite PV generation for the next two and a half years.
- Option R tariffs have demand charges and typically provide about 15% less value for PV generated energy compared to A-6.
- If existing A-6 customers are not grandfathered by the time an A-10 Option R tariff is implemented, it is highly likely that they would be transitioned off of A-6 onto this new tariff, resulting in a significant loss of value from their PV system investment.
The future for commercial PV development in PG&E territory does not look bright if the A-6 tariff is closed. In addition to the loss of PV energy value, California's current Net Energy Metering (NEM 1.0) law is estimated to change (NEM 2.0) in PG&E territory in late Q3, 2016, and the federal Investment Tax Credit (ITC) is scheduled to sunset from 30% to 10% on January 1,2017. The combined effect:
- A-6 tariff closes - 15%-30% loss of PV energy value
- ITC sunset - 20% increase in installed cost of PV
- NEM 2.0 - 5%-10% loss of PV energy value
Together, these effects result in a 30%-50% decrease in PV project returns for PG&E commercial customers with PV systems beginning in 2017. This is likely to mean that commercial PV development will cease as of 2017 in PG&E territory for some time.
If you're contemplating an A-6 eligible solar energy project in the near future or are already in development, we recommend you take action now:
- Contact your PG&E account manager and let them know that you may be changing tariffs on some accounts to the A-6 tariff in the next 2-3 weeks. Ask your account manager how long a tariff change request will take to process.
- If you don't have a PG&E account manager, contact PG&E's Business Customer Service Center and discussing the requirements and timing of a tariff change: (800) 468-4743
- Write to the Governor's office and the CPUC letting them know how such changes could negatively impact your organization. Click here for a sample letter.
Office of Gov. Jerry Brown
Sacramento, CA 95814
California Public Utilities Commission
505 Van Ness Ave. San Francisco, CA 94102
The earliest the ruling can take effect is July 23, 2015. Given how unfavorable the Proposed Decision is for the solar industry and solar PV commercial and small industrial customers in PG&E territory - many of them public schools and public agencies - we believe it likely that the closure of the existing A-6 tariff will be delayed.
The June 23 Proposed Decision moves strongly against the State of California's proven leadership and legislative record supporting renewable energy development and protecting investment in renewable energy projects. Recent CPUC decisions have increased the value of solar PV projects (Option R tariffs in PG&E and SCE territory), not reduced them.
Sage will continue working closely with our clients to support them in evaluating this threat and optimizing the results of their projects.
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Don't go it alone. Contact Sage.