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Californian and National Policies Could Shape Future Value Stacking for Distributed Natural Gas

Adam Forni — December 5, 2017

Distributed natural gas generation (DNGG) has significant potential for disruption in the electric sector thanks to improving generator technologies, cheap fuel, and the global trend toward decentralized systems in need of dispatchable power. Navigant Research has identified DNGG as a significant trend of the future, and various legislative and regulatory actions continue to affect this often overlooked but critical solution ecosystem. On the surface, some of these regulatory decisions appear as setbacks, and issues at the federal level remain unresolved. Yet, this key enabling technology for the Energy Cloud will continue to show growth due to underlying benefits dependent upon government subsidies. Some of the recent actions are discussed below.

California AB 36: This bill, which proposed to expand California’s fuel cell net energy metering (FC-NEM) program to include other efficient DNGG technologies, was vetoed by Governor Brown. The governor cited recent changes to the program and wanting to assess their effectiveness first. The goal of the bill was to make the FC-NEM program (with its 500 MW cap) technology agnostic and available to other technologies that meet certain emissions criteria. The decision keeps the larger cap exclusive to fuel cells. In a separate fuel cell development, new California projects have slowed in 2017 after new minimum biogas requirements were instituted in the Self-Generation Incentive Program.

California AB 1400: This bill, which prohibits recipients of microgrid funding from using those funds for diesel generators, was signed into law by Governor Brown in October. Though not exactly related to natural gas, this law continues a California lawmaking trend in aiming to limit carbon emissions—in this case as it relates to microgrids funded by the state’s Electric Program Investment Charge (EPIC) program. DNGG is not currently affected by this new law. These developments take place during a time of surging microgrid activity in California, with highlights including an active $44.7 million grant funding opportunity from the California Energy Commission and an active microgrid research roadmap.

Federal Investment Tax Credit: This credit for fuel cells, microturbines, and combined heat and power was a long-standing tax credit that expired at the end of 2016. House Bill HR 1, a tax bill, includes an extension for this credit, which if passed would provide a boost to these predominantly natural gas-fueled technologies. Note that the bill does not include this provision as of this writing. According to Navigant Research estimates for fuel cells, the credit is worth about $0.02/kWh throughout the system lifetime, which can significantly affect the economics of such systems.

Such policy developments have the potential to for significant effects on this dynamic industry. As renewables and storage receive significant governmental support, the relative merits of distributed natural gas will continue to be debated and judged. Regardless of the level of direct support of technologies like fuel cells, generator sets, and microturbines, the fundamental drivers of DNGG point toward a bright future.

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