II. Program Background and Summary of Staff Report

Currently, PG&E, SCE, San Diego Gas & Electric Company (SDG&E), and SDREO administer the SGIP, which provides monetary incentives for non-utility parties to install distributed generation, including solar PV technologies with capacity of more than 30 kilowatts (kW). This program, which we adopted in D.01-03-073 in response to AB 970 and subsequently modified to comport with AB 1685, has so far been very successful, encumbering $421 million in rebates to solar projects providing 113 MW of capacity installed or under construction since 2001.

In addition to this Commission's program, the CEC administers the Emerging Renewables Program (ERP), which provides incentives for solar PV projects of 30 kW or less, most of which are installed by or for residential customers. The program, authorized by AB 1890 in l996, has allocated $371 million and has provided incentives to over 50 MW of installed systems since 1998. Both the CEC's and the Commission's solar incentives programs have consistently exhausted their funding allocations, which together have topped almost $1 billion, all funded through utility rates in one form or another.

The objectives of these existing programs, and the one we adopt today, are to add clean energy to peak demand resources, to reduce risk by diversifying the state's energy portfolio, and to reduce the demand for transmission and distribution system additions. Significantly, the benefits of solar technologies also motivate us to transform the existing market in a way that makes solar products cost-effective without incentives. The Energy Action Plan, signed by members of the Commission and the CEC, recognizes the benefits of solar technologies for meeting California's energy needs in the future and anticipates additional incentives for solar development.

The parties who commented on the CSI proposal generally expressed strong support for solar project development, for an explicit preference for solar projects that complement other energy strategies, and for a commitment to program performance and cost-effectiveness.

Pursuant to our directive in D.05-12-____, Commission staff and CEC staff developed a project proposal, which we attach as Appendix A. The report reflects our policy concerns and describes the type of program which we believe will accomplish our program objectives. We therefore adopt it, with the understanding that our program may require modification as we gain more experience with it and as circumstances change.

Our decision today is informed by our view that a common sense program of monetary incentives, combined with technical assistance, could promote less expensive and more efficient technologies. We also approach our task here with the understanding that solar technologies may not be as cost-effective as other clean alternatives, in particular energy efficiency efforts and certain other renewable distributed generation technologies. We are convinced, however, that a cost-effective and sustainable solar market is unlikely to develop without a commitment for market support. For that reason, we state our intent to monitor the progress in the market place, and to modify the program on the basis of ongoing evaluation.

This order addresses the following issues:

1. Program elements and relationship to existing programs;

2. Funding levels and sources;

3. Structure of incentives and incentive levels, initially and over time;

4. Low-income programs;

5. Interface with energy efficiency programs and activities;

6. Metering;

7. Project evaluation and cost-benefit applications;

8. Program Administration; and

9. Funding for research and development efforts.

In general and consistent with the staff report attached as Appendix A, we adopt a program to provide up to $2.8 billion in incentives for solar project of all types and sizes over 11 years. Our objective is to bring on line or displace 3,000 MW of power. We state our intent to fund the program by directing the utilities to use revenues from gas and electric distribution rates. Incentives are currently set at $2.80 per kW. We state our intent to reduce this level annually or more frequently, according to market conditions. We require 10% of the funds to be used for projects for low-income residential customers and housing projects. We find that third party administration of the program by one or more nonprofit organizations, initially for the residential retrofit market, is most likely to accomplish our objectives and will not compromise utility operations. Finally, we state our intent to explore performance-based incentives, low or no-cost financing for certain projects, and the viability of requiring energy efficiency retrofits on existing buildings as a condition of receiving solar incentives.

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