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Home > By DEPARTMENTS > Green Operations > California Environmental Compliance > California AB 32

California Solar Initiative, the Self-Generation Incentive Program Works with AB 811

California's solar water heating incentives program launches in 2010 and runs through 2017 to reduce gas and electricity use for heating residential and commercial water.

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California Solar Initiative (CSI) Thermal Program provides incentives to promote the installation of solar water heating systems in the territories of
  • Pacific Gas and Electric Company (PG&E)
  • Southern California Edison Company (SCE)
  • San Diego Gas & Electric Company (SDG&E)
  • Southern California Gas Company (SoCalGas)

Monies collected under AB 1470 from gas ratepayers will fund incentives to solar water heating systems that displace natural gas usage, while funds collected through CSI from electric ratepayers will fund electric displacing solar water heating systems.

The CSI Thermal Program will be administered by PG&E, SCE, SoCalGas, and by the California Center for Sustainable Energy (CCSE) in the SDG&E territory.

Gas AND Electric Solar Water Heating System Incentives

PG&E and SDG&E, in coordination with its program administrator, CCSE, will disburse incentives to both electric and gas ratepayers who install eligible solar water heating systems in their territories.

Electric Solar Water Heating System Incentives

SCE will disburse incentives through the CSI Thermal Program to customers who install electric displacing solar water heating systems.

Gas Solar Water Heating System Incentives

SoCalGas will disburse incentives to customers in its territory who install gas displacing solar water heating systems.

The California Public Utilities Commission manages the CSI Thermal Program, including program goals, technology eligibility, incentive structure, energy efficiency requirements, performance monitoring, program administration, budget and implementation timing.

The Solar Water Heating Pilot Project

San Diego Gas & Electric Company (SDG&E) contracted with California Center for Sustainable Energy (CCSE) to administer a pilot program for Solar Water Heater incentives in the SDG&E territory.

In February 2007, the Commission approved the SWH pilot budget of $2.59 million and the pilot began operation in the SDG&E territory on July 2, 2007, with a scheduled end date of December 31, 2008.

In late 2007, the Governor signed Assembly Bill (AB) 1470, authorizing the creation of a $250 million incentive program to promote the installation of 200,000 SWH systems in homes and businesses that displace the use of natural gas by 2017. The statute requires the Commission to evaluate data from the SWH pilot and determine whether an SWH program is “cost effective for ratepayers and in the public interest” before designing and implementing an incentive program for gas customers.

Comments about the pilot project were filed by Association of California Community and Energy Services (ACCES), CCSE, the California Solar Energy Industries Association (CALSEIA), the Commission’s Division of Ratepayer Advocates (DRA), Ecoplexus, Inc., Environment California Research and Policy Center (Environment California), PG&E, SCE, S.O.L.I.D. USA, Inc. dba SOLID Energy (SOLID), Sopogy, Inc., The Utility Reform Network (TURN), and jointly by SDG&E and Southern California Gas Company (SoCalGas).


AB 1470 states the Legislature’s intent that the Solar Water Heating incentives created by the act “should be a cost-effective investment by gas customers” and states that “gas customers will recoup the cost of their investment through lower prices as a result of avoiding purchases of natural gas, and benefit from additional system stability and pollution reduction benefits.”

In order to provide a recommendation on cost-effectiveness of an SWH incentive program, staff separately considered the cost-effectiveness of gas-displacing and electric-displacing SWH. For gas-displacing SWH, staff relied on the SWH Pilot Program Interim Evaluation Report (January 2009) (Interim Evaluation) prepared by Itron, Inc. for CCSE, and the Addendum (April 2009) to the Interim Evaluation, also prepared by Itron.

Itron’s analysis examined cost-effectiveness from three perspectives – the participating ratepayer (Participant Test), the non-participating ratepayer (Non-Participant or Ratepayer Test), and society as a whole (Societal Test). The Itron analysis also examined four scenarios, each with varying assumptions regarding market characteristics. The scenarios were: Present Day/2008, Business as Usual/2017 (BAU), Moderate Changes/2017 (MOD) and Greenhouse Gas Driven/2017 (GHG). Itron then performed sensitivity analyses involving different allocations of incentive dollars across single-family residential, multifamily, and commercial customer classes.

The Staff Proposal notes the Commission’s use of the Total Resource Cost (TRC) Test (similar to the Societal Test) when evaluating the Commission’s energy efficiency programs, and that the Societal Test captures benefits that accrue to ratepayers and society more generally, such as avoided pollution, that are not included in either the Participant or Ratepayer Test.

According to the Staff Proposal, Itron’s analysis shows that an SWH incentive program would be cost-effective under the MOD and GHG scenarios, which predict higher gas prices than the BAU scenario. For that reason, staff focused on the BAU scenario as the “worst-case,” or most conservative scenario from the perspective of SWH cost-effectiveness. Itron performed a sensitivity analysis using the BAU scenario, which identified SWH system cost reductions as a potential driver of cost-effectiveness. Specifically, a 16% reduction in SWH system costs by 2017 increased the BAU benefit-cost ratio to 1.0 for the Societal Test. In addition, Itron found that, under the Societal Test, offering incentives to a mix of single-family, multifamily, and commercial SWH systems is slightly more cost-effective than offering incentives to only single-family residential customers in the GHG scenario, though slightly less cost effective in the BAU and MOD scenarios. The different customer types face different economics because of the structure of applicable gas and electric tariffs.

Cost Effectiveness of Electric-Displacing SWH

The Staff Proposal finds that without incentives, SWH is not cost-effective on single-family homes, although it is currently cost-effective in multifamily applications.5 Next, the Staff Proposal describes the results of the same Itron analysis applied to an electric-displacing SWH program. The Itron analysis shows an eight-year incentive program is cost-effective when analyzed using the Societal Test and the BAU, MOD, and GHG scenarios. Therefore, the Staff Proposal recommends the Commission adopt a program to offer SWH incentives to technologies that displace electric water heating, funded through the CSI $100.8 million set aside for solar thermal technologies. Staff recommends the program pay incentives to single-family residential, multifamily, and commercial customers because all of these customers pay into CSI through assessments on their electric distribution rates.

The utilities, namely SCE, PG&E, and SDG&E/SoCal, all comment that the Itron analysis in the Staff Proposal is inconsistent with the cost-effectiveness tests used to evaluate energy efficiency programs and with the methodology recently adopted in D.09-08-026 for analysis of distributed generation (DG) programs. Specifically, the utilities criticize the Itron analysis for including benefits not recognized in other tests such as avoided health costs and job creation, and assigning much higher values to carbon credits than used in other proceedings. PG&E claims the Commission should use the Ratepayer Impact Measure (RIM) Test rather than the Societal Test because the RIM test, by definition, is the appropriate way to measure whether a program meets the requirement in AB 1470 that a program is “cost-effective for ratepayers.”

Reduce Natural Gas Dependence

AB 1470 states the Legislature’s intent to reduce natural gas dependence because this dependence puts a strain on energy supplies and threatens California’s growing population and economy. The legislation notes the pollution and greenhouse gas reduction benefits of SWH, as well as the fact that growing demand for SWH systems can create job growth in California. The Itron report demonstrates the large amounts of gas utilized to heat water in California: 1,862 million therms per year for single-family residential water heating, 778 million therms per year for multi-family water heating, and 279 million therms per year for major sectors of the commercial market. Alternatives to gas and electric water heating can play an important role in achieving California’s aggressive goals to reduce natural gas usage and carbon emissions.

Edited by Carolyn Allen, owner/editor of California Green Solutions
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