COM/MP1/jyc Date of Issuance 9/24/2010

Decision 10-09-046 September 23, 2010

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Order Instituting Rulemaking Regarding Policies, Procedures and Rules for the California Solar Initiative, the Self-Generation Incentive Program and Other Distributed Generation Issues.

Rulemaking 10-05-004 (Filed May 6, 2010)

DECISION MODIFYING DECISION 06-12-033
REGARDING CALIFORNIA SOLAR INITIATIVE BUDGET

Summary

This decision modifies the California Solar Initiative (CSI) general market budget, as adopted in Decision 06-12-033, and shifts $40 million from the program administration budget into the incentive budget. Specifically,
$20 million will be shifted from the Measurement and Evaluation portion of the program administration budget and $20 million will be shifted from unallocated program administration funds to the CSI incentive budget.

Background

The Commission established the California Solar Initiative (CSI) in early 2006 in Decision (D.) 06-01-024 and implemented it later in 2006 with the issuance of D.06-08-028 and D.06-12-033. The CSI was conceived as a 10-year market transformation program that provides solar incentives to eligible systems, from 2007 through 2016. Later in 2006, the Legislature passed Senate Bill (SB) 1 (Stats. 2006, ch. 132), which directed the Commission and the California Energy Commission (CEC) to implement the CSI given specific requirements and budget limits. Specifically, SB 1 mandates that the total cost of the CSI program overseen by the Commission shall not exceed $2,166,800,000. The Commission established a goal for the general market CSI program to install 1,750 megawatts (MW) of solar energy systems. (D.06-12-033, Appendix B,
Table 10.)

In D.06-12-033, the Commission adopted a CSI program budget that included $1.707 billion allocated for incentives and $189.71 million allocated for program administration. This $189.71 million program administration budget is based on 10% of the general market program portion of the CSI budget. The general market program does not include funds for low-income programs, research, development and demonstration (RD&D) programs, and a solar water heating pilot program. The $189.71 million program administration budget includes costs for incentive administration, marketing and outreach, and program evaluation. It does not include costs to administer the Commission's low-income solar incentive programs, RD&D programs, or solar water heating incentives.

The CSI involves 10 levels of incentives which "step-down" over the course of the program based on the volume of MWs that apply for incentives. (D.06-08-028 at 86 and D.06-12-033, Appendix B, Tables 2 and 3.) Depending on the characteristics of the solar energy system, incentives may be paid up-front in a one time payment for smaller systems (currently systems under 30 kilowatts (kW) are eligible for these incentives) based on an "Expected Performance Based Buydown" (EPBB) calculation, or over a five year period based on actual metered production data, known as "Performance Based Incentives" (PBI).
(See D.06-08-028.)

In D.06-08-028, the Commission established the parameters for the five year stream of PBI payments to larger solar projects, initially those 100 kW and larger. In D.06-12-033, the Commission directed that effective January 1, 2010, all systems 30 kW and larger must receive incentives via the PBI mechanism.
(D.06-12-033 at 12-13.) One significant characteristic of PBI payments that differentiates them from up-front EPBB incentives is the inclusion of an annual 8% discount rate in the levelized monthly PBI payment. When the Commission established the CSI incentive levels in 2006, it reasoned that the 8% discount rate was needed to ensure that customers receiving PBI incentives would be indifferent to receiving an upfront incentive versus an incentive paid out over five years. The adopted PBI payments, therefore, are expressed in a levelized cents per kilowatt hour (kWh) payment that incorporates the annual 8% discount rate in the monthly payment. For any given project, the PBI incentive rate does not change during the five years it is receiving payments. (D.06-08-028 at 35.) To encourage high performance systems, the Commission also stated that any system, regardless of size, can opt to receive its incentive via PBI, such that a high-performance small system might potentially receive a higher total incentive than taking the up-front EPBB incentive.

Additionally, in D.06-08-028 the Commission adopted higher incentive rates at every incentive step level for tax-exempt entities such as government and non-profit institutions. This incentive differential applies to both EPBB and PBI payments to qualifying government and nonprofit applicants. The Commission reasoned that since government and nonprofit applicants are not eligible for federal tax credits to help offset installation costs, a higher incentive was needed to offset the higher net costs per kWh for tax-exempt entities. (D.06-08-028
at 20-21.) Government and non-profit applicants receive a higher CSI incentive as long as they certify they are not receiving federal tax benefit through third-party financing arrangements.

The CSI incentives and step down mechanism, as adopted in D.06-08-028 and later modified by D.06-12-033, are as follows:

Table 1: Current CSI Incentive Levels as adopted in D.06-08-028 and modified by D. 06-12-033¹

		EPBB Payments (per Watt)			PBI Payments (per kWh)
Step	Statewide MW in Step	Residential	Non-Residential		Residential	Non-Residential
			Commercial	Government/ Non-Profit		Commercial	Government/ Non-Profit
1	50	$2.80	$2.80	$2.80	n/a	n/a	n/a
2	70	$2.50	$2.50	$3.25	$0.39	$0.39	$0.50
3	100	$2.20	$2.20	$2.95	$0.34	$0.34	$0.46
4	130	$1.90	$1.90	$2.65	$0.26	$0.26	$0.37
5	160	$1.55	$1.55	$2.30	$0.22	$0.22	$0.32
6	190	$1.10	$1.10	$1.85	$0.15	$0.15	$0.26
7	215	$0.65	$0.65	$1.40	$0.09	$0.09	$0.19
8	250	$0.35	$0.35	$1.10	$0.05	$0.05	$0.15
9	285	$0.25	$0.25	$0.90	$0.03	$0.03	$0.12
10	350	$0.20	$0.20	$0.70	$0.03	$0.03	$0.10

¹ The data in this table is compiled from D.06-12-033, Appendix B, Tables 3, 5, and 6.