Last year I wrote about California’s Self-Generation Incentive Program (SGIP), an $83 million a year ratepayer-funded program that was intended to support clean and innovative distributed energy technologies, but that was not living up to its potential. For years, SGIP functioned to heavily subsidize fossil-fuel dependent distributed technologies such as natural gas powered fuel cells with close to $400 million—nearly half of all SGIP funding distributed since 2007—going to a single fuel cell manufacturer. But last month the California Public Utilities Commission (CPUC) issued a Decision that substantially improves SGIP by directing a much larger share of funding toward energy storage and away from technologies running off natural gas. The increased focus on energy storage, coupled with a revised incentive structure designed to better transition technologies off the need for public subsidy, will help California meet its climate goals and foster a robust clean energy industry in the state.
Whereas natural gas fuel cells and energy storage once competed for the bulk of SGIP incentives, 75 percent of SGIP funding will now be reserved for energy storage. This significantly increased investment will help nascent storage companies mature and lower their costs, facilitating SGIP’s goal of market transformation and more widespread storage deployment. In addition, putting more energy storage on the grid will help integrate the 1 gigawatt of rooftop solar that Californians are installing every year. The more California is able to absorb unneeded solar energy in the afternoon and release it in the evening to continue to power the grid with clean energy after the sun has set, the lower the reliance on natural gas power plants.
Of the remaining SGIP funding, 10 percent is set aside for renewable generation including small-scale wind and biogas (gas generated from decomposition of waste in dairies, landfills, and wastewater treatment plants). The last 15 percent of funding can be allocated to technologies that utilize natural gas. While the Sierra Club would have preferred only the most efficient fossil-reliant technologies be eligible for this funding, such as fuel cells paired with combined heat and power systems, starting in 2017, natural gas-fueled technologies are required to blend increasing percentages of biogas (reaching 100 percent in 2020).
Finally, drawing from the success of the incentive structure of the California Solar Initiative, the incentive levels under SGIP will now decline through a series of steps as the SGIP budget is depleted. Like solar before it, this predictable and gradual decrease in incentives will help energy storage flourish without the need for incentive funding.
Achieving rapid decarbonization of the energy system requires focus and coordination on multiple fronts. It is heartening to see the Commission make important changes to SGIP that now align the program with California’s clean energy future.