California Adopts GHG Factor in Assessing DER Cost-Effectiveness

In an effort to improve the planning and evaluation process for integrating distributed energy resources (DERs) into the state's power grid, the California Public Utilities Commission has concluded that an adder specific to greenhouse gas (GHG) emissions should be included in all DER cost analyses. However, the commission said that it was approving the new adder on an interim basis only and that the adder is subject to change depending on the outcome of a separate and still-pending integrated resource planning proceeding. 

The commission stated that it had been prompted to reexamine its approach to determining the cost-effectiveness of DERs after the state legislature passed Senate Bill 32 (SB 32) in 2016. As described by the commission, SB 32 in essence is a replacement for Assembly Bill 32 (AB 32), which had been enacted a decade earlier and governs California's landmark climate change policies. 

Under AB 32, the state began to base its energy planning protocols on meeting explicit GHG emission reduction goals. One of the means for doing so was through creation of a cap-and-trade program overseen by the California Air Resources Board. But some industry observers of the cap-and-trade regimen have criticized it as less than effective. 

Consequently, the commission said, state lawmakers initiated a review of AB 32 and found that certain modifications were in order. Thus, whereas AB 32 had tasked the state with lowering GHG levels to 1990 emission levels by 2030, SB 32 goes much further, mandating that GHG emissions be reduced to 40% of 1990 levels by 2030. 

Although not dismissing the ambitious reach of the SB 32 target, the commission noted its agreement with state legislators that achievement of such a goal is possible given the proliferation of DER projects, especially solar, within California over the last ten years. But, the commission said, in light of the emphasis on GHG emissions, it was unsure that its current cost-effectiveness analyses relative to DERs adequately captured the GHG factor. 

To better assess the issue, the commission constituted a special working group that was charged with ascertaining whether the commission's present tests of cost-effectiveness were properly reflecting California's environmental goals. Taking the working group's findings and recommendations under advisement, the commission ruled that a GHG adder would be appropriate. It elaborated that absent the specific GHG element, any calculations of the cost-effectiveness of DERs and energy efficiency would be incomplete. 

Based on the record, the commission held that the interim GHG adder should be premised on the cap-andtrade allowance price used by the California Air Resources Board. The commission provided a matrix of such values, which showed the GHG adder for 2015 being $56.51. That price will rise by $3.29 or $3.28 in each of the following seven years, through 2022. For the next eight years (through 2030), the amount of the annual increase in the adder would slow considerably, to between 89 cents and $1.15, reflective of an expectation that the state would be drawing ever closer to its GHG emission reduction goals. 

Despite offering the table of GHG values, the commission stressed their tentative nature. It also made them subject to a sunset date of May 1, 2018. That is, the commission ruled that the adopted adder would be in effect only until that date or such time as a permanent adder is devised. Re Consistent Regulatory Framework for the Guidance, Planning, and Evaluation of Integrated Distributed Energy Resources, Decision 17-08-022, Rulemaking 14-10-003, Aug. 24, 2017 (Cal.P.U.C.).