1. 0 Public Interest Energy Research Program (PIER) Presented to California Manufacturers and Technology Association July 27, 2006 Martha Krebs, Ph.D. Deputy Director Energy R & D Division California Energy Commission

2. 1 California Public Interest Energy Research Framework Efficiency Renewables Clean Fossil Demand Response Distributed Generation Infrastructure, T&D Environmental Assessment Transportation PIER was established in 1997 as part of Electricity Restructuring –$62.5 M annual funding for electricity research –Expanded in 2005 by CPUC rule to include natural gas research; will provide $24M by 2009 –Maintains capacity for applied energy research of benefit to electricity and natural gas ratepayers –Leverages public and private investments to advance energy- related S&T to inform California decision makers and provide Californians with clean, affordable energy services Californias PIER Program is directed by law and CEC policy guidance.

3. 2 2005 Integrated Energy Energy Action Plan II Policy Report Demand-Side Resources, Distributed Generation and Other Electricity Supplies Integrated Water and Energy Strategies Renewable Resources for Electricity Electricity Needs and Procurement Policies Transmission Natural Gas Transportation Fuels Global Climate Change Border Energy Energy Efficiency Demand Response Renewables Electricity Adequacy, Reliability and Infrastructure Electricity Market Structure Natural Gas Supply, Demand, and Infrastructure Transportation Fuels Supply, Demand, and Infrastructure Research, Development, and Demonstration Climate Change California Energy Policy Framework California energy policy supports CHP for California benefits.

4. 3 PIER R&D Successes- Integrated Combined Cooling, Heating and Power (CCHP) Module Reduces Emissions Integrated HVAC system for commercial and light industrial applications Generates electricity and manages engine heat to meet thermal loads and optimize absorption chiller performance 60% system efficiency Emissions below 2007 CARB limits Standardized factory assembly reduces cost Powered by 260 kW natural gas internal combustion engine (ICE) Field testing at Normandie Casino in Los Angeles

5. 4 PIER R&D Successes - Gas Driven Heat Pump Saves Electricity & Natural Gas Technology uses low-quality heat or waste heat to produce cooling without compression and provides heat for on- site processes. First 10 ton demonstration system installed in April 2004 at a chicken processing plant in Modesto. Recent Independent Test Results: From November 2005 through January 2006 the system averaged 28% savings per week in natural gas and 69% in electricity use. In December 2005 Foster Farms installed a 100 ton system. Other possible users: fruit, vegetable & meat processors, dairies and breweries. Utilities interested in technology to meet energy saving goals.

6. 5 New Rule Standardization is yielding real results Time to interconnect has decreased by over factor of 5 Fees have dropped significantly also from over $5,000 down to $800 - $1,400 per application –DG customers have saved over $26M and growing Collaborative, consensus driven process between government, utilities and DG industry is key to success PIER R&D Successes - Interconnection Rule Standardization Reduces Costs and Improves Timelines R&D has supported the CPUC and Energy Commission effort to develop standardized interconnection rules for distributed generation.

7. 6 Establishes laboratory testing facility: –Diverse DG technology types –Penetration level –Grid stability –Interoperability Can simulate various feeder designs Includes 3 test bays with complete data acquisition and control Results thus far have resulted in major revisions to UL 1741 standard to ensure DG does not affect safety or reliability of T&D system Results also benefiting manufacturers by gaining understanding of how their interconnected systems interact with T&D system Next steps – voltage stability Grid Effects Testing Success – DUIT Program The DUIT project is providing the factual technical basis for all stakeholders to further refine and reduce the cost and time for interconnection. PIER R&D Successes – Integration Testing Addresses Utility Concerns While Improving Safety Standards

8. 7 Market potential analysis for CHP identified cost/benefits, MW additions and policies necessary. Source: Assessment of California CHP Market and Policy Options For Increased Penetration, California Energy Commission, Publication #CEC- 500-2005-173, November 2005. PIER R&D Successes – Analysis of Policy Scenarios for Greater CHP Adoption Informs 2005 IEPR 2005 IEPR adopted policies consistent with this scenario.

9. 8 These policy options include: –Electricity export, particularly for large CHP installations, through approach similar to net metering for renewables but at wholesale electricity price –Transmission and distribution (T&D) payment through operating agreement for DG or CHP with physical assurance in capacity constrained areas –Payment for availability during system peak times based on generation capacity value to improve resource adequacy –Payment based on CO 2 mitigation for CHP through production tax credit in $/kwh PIER R&D Successes – Analysis of Policy Scenarios for Greater CHP Adoption Informs 2005 IEPR Commission adopted policy recommendations to encourage beneficial CHP applications for California.

10. 9 Shifting in recent tariffs from Energy to Demand Rates with Increasing Gas Prices discourages CHP investment. Demand Rates Increased Energy Rates Decreased Gas Prices Increased PIER R&D Successes – Analysis of Rates and Tariffs Assesses Impact on Customer Business Case for CHP Source: Evaluation of Policy Impacts On the Economic Viability of California-Based Combined Heat and Power From a Project Owners Perspective, California Energy Commission, Publication #CEC-500-2006-068, July 2006.

11. 10 Standardize the structures of tariffs from utility to utility –Or new standard statewide structure for CHP Ensure that energy/generation component of tariff includes all energy and other variable costs –Consider off-peak and NEM pricing based on marginal energy cost not average ¢/kwh –Establish energy cost recovery mechanisms that synchronize with gas prices Modify methods of assessment of demand charges –Longer intervals - Perhaps weekly or daily –Minimize emphasis on non-coincident demand charges Apply exemptions from departing load charges to the 1st 1000kw –Rather than exempting only projects under 1000 kiwi Modify SGIP program to include operating incentives Establish criteria for CHP Facilities that provide net societal benefit –Provide special considerations for those facilities –Consider waiver of standby charges –Consider programs that can add further incentives for externalities Maintain ongoing and proactive analysis of impact of tariff considerations on owners economics PIER R&D Successes – Analysis of Rates and Tariffs Assesses Impact on Customer Business Case for CHP Study recommendations are consistent with IEPR recommendations but provide new more refined actions for California to consider.

12. 11 PIER takes a balanced portfolio research approach across many topics CHP related research is both technology and analysis based Technology research is reducing capital costs while improving efficiency and emissions Analysis research is serving to inform policy makers in California to enact policies that promote beneficial CHP deployment Summary