Report 2014-124 Summary - February 2015

California's Alternative Energy and Efficiency Initiatives: Two Programs Are Meeting Some Goals, but Several Improvements Are Needed

HIGHLIGHTS

Our review of two alternative energy and efficiency initiatives—the California Solar Initiative (solar initiative) and the Clean Air Vehicle Decal Program (decal program) revealed the following:

RESULTS IN BRIEF

In 2006 Senate Bill 1—enacted as Chapter 132, Statutes of 2006—established requirements for the California Solar Initiative (solar initiative) as part of a larger statewide effort to support the installation of solar energy systems that generate solar electricity. Some years earlier, the Legislature had also established the Clean Air Vehicle Decal Program (decal program) to encourage Californians to drive clean air vehicles by allowing certain low-emission vehicles to travel in carpool lanes with just one occupant. Our review of studies examining the successes and shortcomings of both programs and our own analyses of available data show that the programs have met some of their goals. Nevertheless, the California Public Utilities Commission (commission) needs to better monitor and quantify the progress toward some solar initiative goals, such as the program's efforts to create benefits related to reductions in smog-related emissions throughout the State. Likewise, the California Air Resources Board (Air Resources Board) needs to study the decal program's effect on air quality, and the California Department of Motor Vehicles (Motor Vehicles) needs to conduct cost analyses to make certain that decal fees cover all program costs.

The goals of the solar initiative, which encompasses five programs, are to encourage the installation of solar energy systems on residential and nonresidential buildings that will reach a capacity of 1,940 megawatts and to help create a self-sufficient solar industry by 2016. The commission oversees the solar initiative, but six program administrators administer it within the service areas of four investor-owned utilities. Customers of these utilities fund the $2.617 billion incentive program through a surcharge on ratepayers' bills. Because utility customers fund the solar initiative, costs to the State are minimal. The solar initiative's five programs are the General Market Program, which serves residential and nonresidential utility customers; the Single-Family Affordable Solar Homes Program; the Multifamily Affordable Solar Housing Program; the Research, Development, Deployment and Demonstration Program (research program); and the California Solar Initiative Thermal Program (thermal program), which provides incentives for installing solar water-heating systems.

As of September 2014 the solar initiative's three programs, which are aimed at increasing the installation of solar energy systems, had 1,844 megawatts of installed or pending solar capacity, leaving only 96 megawatts to be installed by December 2016 to meet the commission's goal. For the $50 million research program, which provides funding for projects to support the solar initiative in achieving its megawatt goal, the commission established a process for awarding and monitoring grants. However, with the research program nearly complete, the commission still has not selected a program evaluator to assess whether this program has contributed to the solar initiative's goals, as the program plan that the commission adopted specified. As for the solar initiative's thermal program, the commission found that it will not accomplish any of its goals due to low participation, which it attributes to falling natural gas prices and the high installation costs for solar water-heating systems.

Concurrent with the 1,940-megawatt installation goal, the solar initiative also aims to create a self-sufficient market for solar energy in which solar energy systems will be a viable source of electricity for residential and nonresidential utility customers by 2016. A 2014 consultant's study addressing the state of the solar industry determined that the solar initiative has helped overcome market barriers to the adoption of solar energy systems in California. Moreover, the study found evidence that the California solar industry would be sustainable in the absence of solar initiative incentives, although future legislative and regulatory rulings could put that sustainability at risk.

Finally, Californians' participation in the solar initiative should also lead to pollution reduction benefits. A 2010 consultant's study of the solar initiative's impact on pollution concluded that for that same year, the solar initiative reduced smog-related emissions. Although reductions in pollution emissions are a benefit in and of themselves, the consultant's study does not put those reductions in the context of the State's overall emissions, nor does it show how those reductions have resulted in measurable benefits to the State, such as cleaner air or fewer health problems.

To provide incentives to increase the number of low-emission vehicles, California's decal program provides stickers to certain low-emission vehicles so that they can travel in carpool lanes with only one occupant. State law divides the responsibility for administering the program among Motor Vehicles, the Air Resources Board, the California Department of Transportation, and the California Highway Patrol. State law does not require any of these agencies to monitor the goals and objectives of the decal program and none perform such an analysis. However, in May 2014, the State reached the limit on the decals it can issue for one of the eligible vehicle types—plug-in hybrids—indicating that, in addition to these vehicles' gas savings, owners of these vehicles may also value the access to carpool lanes that these decals provide. Consequently, in 2014 the State increased the decal limit for plug-in hybrids from 40,000 vehicles to 70,000 vehicles. Further, Motor Vehicles charges an $8 fee that is intended to fully fund its program costs. However, we determined that the current fee is insufficient and, based on current costs, should be increased to $15. We estimate that by raising the application fee to $15, Motor Vehicles would have collected an additional $336,000 in fiscal year 2013-14.

Further, a lack of comprehensive demographic data prevents us from concluding whether the solar initiative and the decal program have served a diverse population of Californians. However, the limited demographic data that does exist shows that participants in the solar initiative's General Market Program tend to be largely older, wealthier, and have received more education than most California homeowners. Given the high up-front costs of installing solar energy systems, it is not surprising that the demographic group participating in the solar initiative would fit this profile. Financing such an investment, even after taking advantage of the solar initiative incentive and federal tax credit, is probably difficult for those with lower-than-average incomes.

With respect to the decal program's capacity to appeal to a diverse population, a recent consumer survey for a related incentive program for low-emission vehicles found that, although the ages of respondents are somewhat evenly distributed, most respondents were male and earned $100,000 or more per year. Because vehicles that qualify for the decal program are generally more expensive than equivalent conventional models, we would expect decal program participants to earn a higher-than-average income.

Further, as expected, participants in the decal program largely reside in the counties that have freeways with carpool lanes, such as Los Angeles and Santa Clara. The Air Resources Board has not studied the effect, if any, of the decal program on air quality nor is it required to do so. However, our review of available data found that some of the counties with the highest concentration of decals tend to be in areas that have poor air quality and in areas that possess a significant number of carpool lanes.

RECOMMENDATIONS

The Solar Initiative

To make certain that the research program contributes to the goals of the solar initiative, the commission should conduct a program evaluation before the remaining grant projects are completed.

Because the thermal program has not been successful in meeting the goals outlined in state law, the Legislature should consider whether it wants to continue authorizing the collection of ratepayers' money to fund the program.

To show how air pollution emissions reductions related to the solar initiative benefit the State, the commission should include in future reports the measurable benefits of those reductions.

The Decal Program

To learn whether the decal program helps to reduce the State's air pollution, the Legislature should require the Air Resources Board to research whether there is a relationship between decal usage and a change in the State's air quality.

To ensure that the decal fee is sufficient to reimburse program costs, Motor Vehicles should periodically perform a full cost analysis of the decal program and update the fee accordingly.

AGENCY COMMENTS

The commission and Motor Vehicles generally agreed with our conclusions and recommendations; however, the commission asserted it may have difficulty implementing our recommendation that it should include the measurable benefits of pollution reduction in future reports. We had no recommendations for the Air Resources Board and it did not to respond to our report.