February is the month when lawmakers in California introduce new bills to the new session. Each year, thousands of bills are introduced, but only a select few make it to law. Even as a state with front-running climate and energy policies, it is no exception. This post will discuss some of the notable bills introduced.
Solar (mostly rooftop solar PV)
The hottest topic on solar energy policy in California is hands down the implementation of NEM3.0 that went into effect in spring 2023. the revised rate structure lowers compensation for exported solar production by about 75%. As a result, California’s rooftop solar market slowed down significantly since NEM3.0’s implementation. Since NEM3.0 went into effect, rooftop solar sales decreased between 66 and 83% compared to the same time in 2022, according to a California Solar Storage Association survey.
AB2256: Public utilities: low-income customers (Friedman, D-44).
Summary: An act to amend Section 382.1 of the Public Utilities Code, relating to public utilities, AB2256 would make non-substantive changes to provisions relating to the Low-Income Oversight Board. The Low-Income Oversight Board advises the CPUC on low-income electricity, gas, and water customer issues and to serve as a liaison for the commission to low-income ratepayers and representatives. AB2256 would require the CPUC to fully consider the costs and benefits (such as better local air and water quality, avoided land use impacts, and associated system cost benefits) of rooftop solar when revisiting its net energy metering (NEM) tariff.
Importance: AB2256 would boost rooftop solar by including environmental and societal benefits in the way the CPUC calculates its value. In California, NEM3.0 went into effect in spring 2023, where the revised rate structure lowers compensation for exported solar production by about 75% and makes batteries an essential component of a residential solar project. As a result, California’s rooftop solar market slowed down significantly since NEM3.0’s implementation.
AB2619: Net energy metering (Connolly, D-12).
Summary: An act to amend Sections 2827 and 2827.1 of, and to add Section 2827.2 to, the Public Utilities Code, relating to energy, AB2619 would direct the California Public Utilities Commission to reconsider the rooftop solar reimbursements it slashed by about 75 percent in 2023. In other words, AB2619 would repeal NEM3.0 and supports California’s rooftop solar market.
Importance: AB2619 would direct CPUC to make sure reimbursements are big enough to drive a doubling of rooftop generation by 2045 in accord with state renewable energy goals. Naturally, the solar industry such as SEIA welcomes the bill. But the old problems would come back, namely, those who are not well-off enough to afford rooftop solar would be subsidizing affluent homeowners.
SB1118: Solar on Multifamily Affordable Housing Program (Eggman, D-5)
SB1190: Mobilehomes: solar energy systems (Laird, D-17)
SB1508: Solar energy: multifamily housing (Stern, D-27)
Note: These bills are incomplete as of writing. These bills are known as “spot” measures, which are missing policy details and could be fleshed out at any time.
Summary: SB1118 would attempt to enact future legislation relating to the Solar on Multifamily Affordable Housing Program. SB1190 would allow a homeowner or resident to install a solar energy system on their mobile home. SB1508 would facilitate the installation of solar energy systems and solar energy storage technologies in multifamily housing. Not much is known about this bill currently.
Importance: One glaring theme of residential energy policy in the U.S., whether it be the federal Weatherization Assistance Program or California’s NEM, is that multifamily housing units (e.g., apartments and condos) tend to be an afterthought. Existing programs and policies are designed with single-family households in mind, a reflection of American cultural preference, where owning a single-family detached residence is the pinnacle of the American Dream. In an apartment building where the occupants (instead of the landlords) are responsible for paying their own electric bills, the landlords have just about no incentive to install solar energy systems.
Offshore Wind
Compared to solar and hydrogen, fewer bills related to wind (especially offshore wind) have been introduced. California has the potential to be a leader in offshore wind deployment but faces several hurdles.
AB2208: Offshore wind energy projects: bond act (Zbur, D-51)
Summary: AB2208 would enact legislation to submit to the voters an act authorizing the issuance of general obligation bonds in the amount of $1 billion for seaport infrastructure improvements to facilitate offshore wind energy projects off the California coast.
Importance: A bond could help kickstart offshore wind development, but California has a recent history of mismanaging billions of dollars of housing bonds to tackle the housing shortage. In a state where rampant NIMBYism runs strong, the state simply lacks strong enough laws and oversight to ensure that cities and counties are doing their part to build affordable housing. There is little reason thus far to expect a different, more positive outcome for offshore wind bonds such as the one AB2208 is proposing.
Hydrogen
Hydrogen could play an important role in California’s climate transition. As one of the seven hubs funded by the Department of Energy $7 billion H2Hubs program, ARCHES is California’s initiative to accelerate renewable hydrogen projects and the necessary infrastructure. This year sees some bills that would pick up from where AB1550, which would have imposed strict rules on how and where hydrogen production facilities get their molecules, left off. As 2023’s most ambitious hydrogen bill, AB1550 died out last year’s after much fanfare.
SB993: Clean energy development incentive rate tariff (Becker, D-13)
Summary: SB993 would require the CPUC to establish a clean energy development incentive rate time-of-use tariff to encourage the development of new commercial or industrial electrical loads that contribute to the state’s efforts to reduce the emissions of greenhouse gases. In layman terms, this means SB993 aims to boost clean hydrogen production in California and protect the grid at the simultaneously by adjusting the price of electricity for hydrogen producers throughout the day.
Importance: Additionality is a concept that diverting existing clean electricity to make hydrogen will cause emissions to increase by forcing grid operators to draw more heavily upon fossil energy (natural gas usually) to make up the difference. Given that ARCHES plan to produce clean hydrogen using renewable energy and biomass, SB993 seems to make a lot of sense.
SB1018: Electrical corporation: definition: exclusion of certain solar or wind generating technologies (Becker, D-13)
Summary: SB1018 would revise the definition of “electrical corporation” to exclude a corporation or person employing certain solar or wind generating technology that uses the energy only for an electrolyzer technology facility that produces hydrogen from water or a facility using the electricity to provide industrial process heat, but not for departing electric load. In other words, SB1018 would enable firms and people to start generating and using their own energy to produce hydrogen or industrial process heat rather than purchasing it through the electrical grid.
SB1420: Hydrogen (Caballero, D-14, Archuleta, D-30, Dodd, D-3, and Newman, D-29)
Summary: SB1420 proposes many changes, but the most notable one is that the bill would treat hydrogen more like wind and solar on the state grid by qualifying it to count toward utilities’ renewable energy buying requirements, for purposes of the California Renewables Portfolio Standard Program. In addition, SB1420 would also qualify hydrogen for the permit streamlining that Gov. Gavin Newsom created for wind, solar and other resources in 2023. SB1420 would also require California Air Resources Board to adopt regulations requiring:
1.) No less than 33.3% of retail hydrogen produced for or dispensed by fueling stations that receive state funds to be made from renewable hydrogen;
2.) No less than 60% of retail hydrogen produced or dispensed in California for use in transportation is made from renewable hydrogen by December 31, 2030; and
3.) By December 31, 2045, the remainder of retail hydrogen produced or dispensed in California for use in transportation is made from a mix of renewable hydrogen and clean hydrogen.
Happy New Year! As we march toward 2024, the need for a cleaner economy remains as important as ever. A quarter into the 21st century, and a quarter away from the proverbial 2050 net-zero deadline, in the quest of energy transition, humans have achieved quite a lot, but they have also fumbled a lot.
Looking Back on Energy Transition: The Good and the Bad
In industrialized countries, greenhouse gas emissions have peaked and are slowly coming down thanks to renewable energy becoming more mainstream in the electric power sector. New scientific and technological breakthroughs have contributed to the increasing popularity of vehicles that run on alternative fuels and powertrains (e.g., hybrid, battery electric, natural gas). Both private and public sectors have continued to invest in nascent but promising clean energy innovations such as clean hydrogen, carbon capture and utilization, sustainable aviation and marine fuels, modular nuclear with advanced reactors, and energy storage solutions.
But at the same time, GHG emissions continue to rise globally. As underdeveloped countries’ standard of living rise, their energy consumptions will also rise. None of these countries will voluntarily reduce energy consumption (thus sacrificing economic development) to make a dent in GHG emissions, especially when large and developed nations like the United States are the biggest polluters. Some of the highlights of the last few climate change conferences include confusing signals, weak and non-binding agreements, and finger-pointing among representatives on who bears the responsibility of climate loss and damage, as well as who should fund climate resilience, mitigation, and adaptation.
Top Clean Energy and Climate Issues to Tackle in 2024
Given the track record, needless to say, a lot remains to be done. But given current progress, it isn’t possible, feasible, nor realistic to act on all fronts. However, some issues are often considered critical for laying the foundation of a clean and sustainable economy. Here, I propose a few top priorities to tackle, as their importance can vary based on regional contexts, immediate challenges, and the urgency of certain environmental threats:
Transition to Renewable Energy: Shifting away from fossil fuels is a key step to mitigate climate change and reduce dependence on non-renewable resources. Carbon dioxide removal and carbon capture technologies are still not ready for deployment, for now, the best way to reduce emissions is to shift toward carbon free and low carbon fuel sources.
Energy Efficiency: Improving energy efficiency is still a cost-effective way to reduce overall energy consumption and decrease environmental impact. Improving energy efficiency also has the added benefit of lowering energy costs and saving money.
Sustainable Transportation: Transforming transportation systems to be more sustainable is crucial for reducing emissions and promoting cleaner modes of travel. As developing countries continue to improve their economic well-beings, demand for private automobiles is expected to increase.
Circular Economy: Moving towards a circular economy helps minimize waste and encourages the responsible use and disposal of products. We simply send too much junk into the landfills and are failing spectacularly on the 3Rs.
Carbon Pricing: Implementing effective carbon pricing mechanisms provides economic incentives for businesses to reduce their carbon footprint. Despite the recent surge in carbon price ($190 per ton), we can expect it to go up.
Technological Innovation: Investing in clean technologies and innovations can drive systemic change across various industries. Technological innovation on cleantech and climate tech may also reduce the burden on climate mitigation and adaptation.
Environmental Regulation and Governance: Strong environmental governance ensures that industries operate responsibly and adhere to sustainability standards. We all know that the private marginal environmental cost and the social marginal environmental cost are completely misaligned. But no one is currently incentivized to align the two.
International Collaboration: Global cooperation is essential for addressing environmental challenges that transcend national borders, such as climate change. But will future climate change conferences be mired in further infighting, finger pointing, and political bickering?
**Note: This is part 2 of the DOE H2 Hubs series
The previous post looked at the feedstock of the 7 winning H2 Hubs. This time, we will look at the use cases proposed by these hubs. Collectively, these hubs are expected to produce a collective three million metric tons of hydrogen annually—30% of DOE’s 10 million metric tons/year goal by 2030.
Hydrogen: Jack of All Trades, Master of None?
Hydrogen is the Swiss-Army Knife of energy, able to do many things across various greenhouse gas emitting sectors. But, just as you won’t use a Swiss-Army Knife for all possible purposes, you also won’t use hydrogen for everything you could possibly do with it. (Michael Liebreich has a pretty good analogy in his old Hydrogen Ladder post.) As much hype as hydrogen is receiving in the cleantech space, the reality is that it will have to be competitive compared to incumbent energy sources. Clean hydrogen will need to be cheaper, better, more scalable, safer, more convenient than other solutions in order to win its way into the global economy.
In other words, if clean hydrogen is to be an integral part of the clean economy, the hubs will need to successfully demonstrated hydrogen’s role in various end-uses. And that’s why we are talking about the proposed use cases. But right now, clean hydrogen is a jack of all trade and a master of none.
DOE’s End-Use Diversity Focus
The Bipartisan Infrastructure Law (IIJA) required four end-use sectors to be included in the hubs: industry, transportation, power, and residential and commercial heating. Furthermore, the DOE funding opportunity announcement (FOA) was specifically looking for end-use diversity.
Frankly, the explicit inclusion of residential and commercial heating in the FOA is strange. For space heating in buildings, heat pumps are better and more efficient than hydrogen. Using renewable energy like wind to generate hydrogen and then using hydrogen for heat has a system efficiency of ~50%, compared to over 100% for heat pumps.
Another strange decision from the FOA is that DOE doesn’t seem to differentiate between use cases within a sector. For example, within the transportation sector, while hydrogen can be an excellent fuel candidate for aviation (IPCC category 1A3a) and shipping (IPCC category 1A3d), it is a poor choice for on-road light-duty vehicles (IPCC categories 1A3bi and 1A3bii).
Examining the Use Case Diversity of the 7 H2 Hubs
Here is a summary of the proposed end-uses of the 7 winning hubs:
At first glance, the selected hubs do appear to have a diverse proposed use cases collectively, spanning the transportation, industry, agriculture, and the buildings sectors as well as power generation. As expected, transportation and industry have the most sub-sectors and activities listed as proposed end-uses.
Heavy-duty transportation (trucking, buses) lead the way, with 5 hubs proposing it as an end-use, followed by power generation and aviation with 3 hubs.
But is the pursuit of diverse end uses at the expense of optimal allocation of use cases?
It is complicated to say. On one hand, hydrogen may be great for application such as hydrogenation and hydrocracking (a source of diesel and jet fuels), but these applications are rather niche and make up only a sliver of total GHG emissions. On the other hand, hydrogen’s competitiveness varies greatly even within a sub-sector. For example, international shipping, river cruises, and local ferries all fall under the shipping, a transportation sub-sector. Hydrogen ranges from having great potential for decarbonizing international shipping to being uncompetitive for local ferries (where battery-powered ferries may be more suited).
Interestingly, Heartland is the only winning hub that has space heating as a proposed end use while also being the only one without any transportation end-uses. Meanwhile, ARCHES is the only one that has public transportation as a proposed use case. But the problem is, public transportation just doesn’t need hydrogen in most cases. Shuttles and buses don’t travel long distances in a given day, stops frequently to pick up and drop off passengers, have predictable routes, and have depots to return to at the end of every drive shift. Their drive cycles and duty cycles favor battery-powered versions over hydrogen fuel-cell ones. Trains? Probably easier and more economically feasible to electrify the tracks instead.
What about trucks? The majority of the trucks on the road are regional. They might not cover enough miles for hydrogen to make sense. Regional trucks also tend to have a base to return to at the end of shift like buses. That leaves long-distance trucks, which make up a fraction of the trucking fleet but travel a disproportionately large share of vehicle miles. Hydrogen fuel cell could make sense, but current FCEV trucks are multiple times more expensive than diesel-powered trucks or even BEV trucks.
Finally, use cases where hydrogen could really make sense (e.g., fertilizer, ammonia, methanol, and steel production) aren’t popular: each has only 1-2 hubs proposing as end uses. And of these use cases, only fertilizer has no alternative to hydrogen; the rest can be produced using either biofuels or electricity or powered by batteries.
Conclusion
Did DOE miss the mark in the selection process with respect to use cases? Maybe, maybe not. Sure, there are better or worse use cases for hydrogen. Some of these hubs might not even make it to later stages of funding or live up to their promises. But for now, we can expect clean hydrogen supply to remain limited for many years to come. DOE should focus its investments on use cases where hydrogen is irreplaceable instead of making many bets across several use cases.
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All Aboard the Hydrogen Hubs Hype Train
The U.S. Department of Energy (DOE) on Friday announced its selection of 7 much anticipated regional hydrogen hubs (H2Hubs), totalling $7 billion in awards. These hubs are located in various parts of the U.S.—the Appalachia, California, the Gulf Coast, the Northern Great Plains, the Mid-Atlantic, the Midwest, and the Pacific Northwest. Collectively, these hubs are expected to produce a collective three million metric tons of hydrogen annually—30% of DOE’s 10 million metric tons/year goal by 2030.
The following table summarizes these 7 H2Hubs:
Hydrogen can be produced from diverse domestic resources and used across sectors. Production can be centralized or decentralized, grid-connected or off-grid, offering scalability, versatility, and regionality. Hydrogen can be produced from several technology pathways, feedstocks, and have several potential end-uses. It is no wonder that the Biden administration is all-in on the hydrogen hype train.
Recall that the funding opportunity announcement (DE-FOA-0002779) has three selection criteria focused on diversity: feedstock diversity, end-use diversity, and geographic diversity (see excerpt above). At first glance, the selected H2Hubs have covered these three fronts very well. But is that the whole story?
Hydrogen Hubs: A Cash Grab for Big Oil and Gas?
4 out of 7 H2Hubs (ARCH2, HyVelocity H2Hub, Heartland, and MachH2) will produce hydrogen using natural gas, a fossil fuel. This means over half of the H2 hubs will produce so-called blue hydrogen (using fossil fuels with carbon capture and storage). Right now, blue hydrogen is cheaper but dirtier than hydrogen produced from electrolysis from renewable energy and nuclear energy. Of these hubs, ARCH2 will produce hydrogen exclusively from fossil fuel.
Indeed, industry partners backing these 4 hubs include major oil and gas companies. See the table below.
Unfortunately, even the hubs that plan to produce hydrogen using electricity generated from renewable energy and/or nuclear energy aren’t blameless either. In a previous post, I wrote that a lot of renewable energy are waiting to be interconnected due to grid backlog. the grid is woefully outdated and there are not enough transmission lines to support the transition from a fossil fuel-based electric system to a decarbonized energy grid. This means the H2Hubs that plan to produce hydrogen from electrolysis should not divert clean energy from the grid. Otherwise emissions from electricity generation would increase.
Except for ARCH2, these hubs plan to use several methods for hydrogen production, but the exact mix may change depending on which projects make it through the DOE negotiations process. Although the Biden administration has emphasized that roughly two-thirds of the $7 billion pot is associated with the production of hydrogen from renewable energy, it’s too early to tell what the final result would look like (these hub demonstrations will run until around 2032, providing that they meet the milestones set by DOE.)
The next post will look at the end-uses proposed by these hubs.
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California has one of the longest coastlines (3rd longest per CRS and 5th longest per NOAA), making it an ideal state for offshore wind deployment on paper. The Golden State also has clean energy goals (e.g., Senate Bill 100, Assembly Bill 2514) and is home to the largest cleantech investment ecosystems. Not to mention that offshore wind can help California diversify its clean energy portfolio (which is dominated by solar PV since its landmark climate bill AB 32 was signed into law in 2006.) By embracing offshore wind energy, California can make substantial progress toward its renewable energy goals, create jobs, enhance energy security, and contribute to global efforts to combat climate change. These conditions make it a no-brainer for California to aggressively pursue offshore wind.
Or is it?
There exist concerns and issues such as those on wildlife habitats, grid integration, and permitting and regulatory that California need to address.
Environmental and Ecological Concerns
California’s coastal waters are ecologically diverse and home to various marine species. Offshore wind projects can potentially impact marine ecosystems, migratory routes of marine animals, and even local bird populations.
The following maps show California’s national marine sanctuaries and the biological habitat areas off California’s coastline. As you can see, the only area(s) that might not encroach the natural habitats would be the coasts off of rural Northern California, a part of Central Coast, and Southern California.
But looking at the offshore wind speed, it is immediately apparent that Southern California has low wind speed, which means that region is not really suitable for deploying offshore wind.
That leaves parts of Central Coast (off of San Luis Obispo County) and rural Northern California (particularly Humboldt County).
Grid Integration Concerns
Integrating offshore wind energy into California’s existing power grid poses technical challenges. The transmission infrastructure needs to be upgraded to transport the electricity generated offshore to where it’s needed onshore. Nationally, the grid is woefully outdated and there are not enough transmission lines to support the transition from a fossil fuel-based electric system to a decarbonized energy grid. About 70% of the grid is more than 25 years old, which can be vulnerable to increasingly intense storms.
Per the LBNL study (2023), as of the end of 2022, the total capacity active in the queues is growing year-over-year, with >2,000 GW of generation and storage capacity. About half of that are from solar and solar (hybrid). About 150 GW of offshore wind is in active queue capacity.
Another hurdle is the need to balance the intermittent nature of wind energy with the grid’s stability. So far, besides some fundings from the recently climate landmark bills, not much has been done at both the federal and state levels to effectively solve these issues that are decades in the making.
Permitting and Regulatory Concerns
To connect a new source of power to the U.S. electric grid requires energy generators to go through an application process with a regional transmission authority or utility. The interconnection process starts with a request to connect to the grid, which officially enters the power generator in the interconnection queue. Next is a series of studies (e.g. feasibility, system impact and facilities studies) where the grid operator determines what equipment or upgrades will be necessary to get the new power generation on the grid and what it will cost.
Remember that there are not enough transmission lines and renewable energy power generators are waiting to be connected to the grid? To complicate the picture further, interconnection application process is often time consuming and requires upgrades to the grid, which are often so costly that power generators have to back out.
Indeed, of the almost 30,000 observations (year project entered queue range = 1995 to 2022) included in the LBNL study, nationwide, about half of the proposed projects are withdrawn, with another 35% currently in active queue or suspended. Just 13% of these projects are operational.
Of the 15 projects for offshore wind or offshore wind + battery (these entered queue between 2018 to 2021) in CAISO, 6 are in active queue and 9 have been withdrawn. This means none of these projects have yet become operational. (In the LBNL dataset, only one offshore wind project has come online nationwide. It entered queue in 2013 and became operational in 2020.)
Make no mistake, permitting bottleneck is a pervasive problem plaguing energy projects nationwide. But the problem seems more acute in California. Outside of CAISO, 3/4 of the projects in the dataset took fewer than 5 years from entering the queue to becoming operational. But just 38% of the projects in CAISO jurisdiction took fewer than 5 years to become operational. On the other hand, 1/5 of the projects in CAISO took at least 8 years to come online compared to just 4% of the projects in other regions.
Needless to say, California’s long process means projects that do come online come at later dates than anticipated. These delays often translate to additional project costs. In fact, almost 1/5 of these projects faced a delay of 5 or more years.
California’s burdensome permitting and regulatory environment don’t just apply to energy projects. The state is also famously known for its long and drawn-out processes and CEQA litigations on housing development and infill projects. These issues often make an already expensive project even most cost prohibitive.
Stay tuned for part 2.
