Performance-Based Incentive Model

With an appropriately designed performance-based incentive paid on actual kWh produced, we anticipate commercial sector penetration will be higher than under a capacity-based model. This approach allows commercial projects to further leverage the federal tax credits (worth about 50 percent of the system cost) and reduces incentive program funding needed by over 25 percent to achieve the same economic benefit to the customer. The incentive payments would be implemented by January 2007 for a term of 20 years, based on the completion date of the system. For certain customers, a $0.10 per kWh performance payment would result in a higher economic benefit over 20 years than the current $2.80 ERP rebate on a net present value comparison if other economic benefits, such as net metering and tax credits, remain available.

A performance-based incentive will likely increase program participation for larger projects, because the transaction costs for measuring and reporting performance data for larger projects are lower than for small systems. Per kWh incentives will also encourage optimal system siting and configuration to maximize performance during peak demand periods.

As illustrated in Table 3, this scenario would result in about 750 MW installed on 300,000 new homes, 300 MW on 100,000 existing homes, and another 1950 MW would installed on 19,500 businesses. The total program funding commitment would be about $1.1 billion over the 10-year term of the program.

Table 3: Estimated Solar Installations Required To Achieve 3,000 MW Utilizing Performance-Based Incentives

	Number of Installations	Avg. System Size	Potential MW
New homes	300,000	2.5 KW	750
Existing homes	100,000	3 KW	300
All Commercial	19,500	100 KW	1,950
Total			3,000 MW