TABLE OF CONTENTS

1. EXECUTIVE SUMMARY

2. BRINGING PERFORMANCE DIMENSION TO INCENTIVE PAYMENTS

2.1 Objectives for Incentive Design and Principles to be Applied

2.2 Factoring in Federal Tax Credits

2.3 Hybrid Performance-Based Incentive -- Large Solar PV Systems > 100 kW

2.4 Expected Performance Buy Down Incentive -- Small Solar PV Systems < 100 KW

2.5 System Size Adjustment

3. INCENTIVES FOR NON-PV SOLAR TECHNOLOGIES

4. INCENTIVE LEVEL TRIGGER ADJUSTMENT MECHANISM OVER 10-YEAR PERIOD

5. FUNDING LEVELS

6. INCENTIVE ADMINISTRATION

6.1 Large systems

6.2 Small systems

7. METERING REQUIREMENTS

7.1 Large systems

7.2 Small systems

7.3 Net Energy Metering Considerations

8. ENERGY EFFICIENCY REQUIREMENTS TIED TO SOLAR INCENTIVES

Appendix A Workshop Summary

Appendix B Summary of Workshop Proposals Submitted

1. EXECUTIVE SUMMARY

Introduction

On January 12, 2006, the California Public Utilities Commission (CPUC, or the Commission) approved the California Solar Initiative (CSI), an 11-year $3.2 billion incentive program which aims to install 3000 MW of new solar systems on-site at customers of the State's investor-owned utilities (IOUs). The CPUC portion of this program will cost $2.8 billion and target 2600 MW of solar technologies. The California Energy Commission (CEC) portion of the program will focus on the CEC's responsibility for statewide energy building codes. The CEC will seek to include solar systems in new home construction, calling upon a budget of $350 million with a target of 400 MW of new solar installations.

The CPUC Energy Division staff proposal below addresses the "Phase 1" program design and implementation for the CPUC's portion of the CSI program. A "Phase 2" proposal later this year will address additional issues such as design of the most effective incentives for affordable housing, a handbook outlining administrative details, and plans for program evaluation and cost-effectiveness analysis.

Principles

This Phase 1 staff proposal is based on the following set of principles:

· The CPUC makes a 10-year commitment (2007-2016) to continuing a sustained promise of incentives for solar energy installations.

· The design of the incentive structure is intended to signal that the Commission desires to reward system output performance, and that incentives will not be focused solely on the cost of solar systems. Metering and performance feedback approaches will be required to ensure that solar system owners are informed about the adequacy of their systems' performance.

· The program seeks to encourage solar component manufactures and system integrators to make a long-term commitment to high performance, and lower cost designs for solar energy. Incentives will be reduced over time to reflect these performance gains and expected cost reductions.

· There will be regular reviews and adjustments to the incentive structure over the program's duration, to ensure that ratepayers do not over-pay for the level of solar contribution the Commission seeks.

· The program will embrace all forms of on-site solar energy technology where market economics are not currently sufficient to make these technologies cost-effective on their own.

· Information will be put in place to provide consumers with useful information about solar technology ratings, performance, and costs.

· The program will encourage customers to consider not only solar applications, but also energy efficiency measures that offer attractive economic returns and other benefits such as comfort or convenience.

Multiple Solar Technologies are Eligible

This incentive program seeks to encourage participation of "non-PV" solar technologies alongside and in competition with the performance of solar PV technologies. The following non-PV concentrating solar technologies are eligible:

· Concentrating PV

· Parabolic dish/engine

· Parabolic trough

· Power tower

Annual Budgets

The CPUC plans to spend $2.5 billion for the period 2007-2016 for this program, with an additional $300 million in 2006 to support pent-up demand from 2005. Spending levels will reflect a planned downward adjustment of the incentives needed, as technology performance improves and costs are expected to decline. The CSI program budget will commence at $350 million per year in 2007-2009, then step down in stages to $275 million per year for 2010 - 2012, followed by $175 million each year for 2013 - 2015, and finally to $100 million for 2016. There will be mechanisms for retaining some flexibility if program activity varies from year to year.

Differentiated Incentives to Reflect Whether a System Owner Qualifies for Federal Tax Benefits for Solar Investments

The federal tax credit has a dramatic effect on those taxable non-residential entities that are eligible for the 30% (uncapped) federal solar tax credit. Residential solar systems are eligible for a much smaller incentive capped at $2,000. Non-taxable entities (governments, non-profit organizations) are not eligible for any federal solar tax credit.

For this reason we propose two incentive levels -- $2.25 per watt for residential and non-taxable entities and $1.50 per watt for taxable commercial entities. In the case of performance-based incentives, these per watt incentives are then translated into effective cents per kWh payments.

We will revisit the level of incentive if federal tax incentives change.

Incentive Structure

We propose two different forms of incentive structure:

1) Expected Performance Based Buydown (EPBB) - this is an up-front capital incentive payment, paid in $ per watt, where the incentive amount is adjusted for how well designed/situated a system is relative to direction and angle of the sun. Thus this estimates in advance a site-specific expected solar output. This form of incentive is proposed primarily for smaller systems < 100 kW, supplemented by metering and output feedback requirements.

2) Performance Based Incentive (PBI) -- this form of incentives pays based on actual metered solar output, over a period of time. The effective incentive payment is made in cents per kWh, based on that year's base $/watt incentive for the EPBB incentive, and then transformed into a cent per kWh payment on the basis of a standard capacity factor. The performance payments will be paid per kWh for 5 years. There is a limited "up-side" opportunity to receive 10% higher incentive amounts for superior performing solar systems. This incentive structure is proposed for large systems > 100 kW, and certain newer solar technologies.

If it would be helpful to avoid disruption in the market for large solar installations, we are open to making a gradual transition from the 2006 capacity-based incentive to the PBI structure. We would do this in 2007 by paying 50% of the total incentive on an EPBB capacity basis at the time of verified installation, and 50% paid in a PBI mechanism over 5 years. The performance-based to EPBB capacity-based proportions would shift to 75% PBI in 2008 and 100% PBI in 2009.

Note: This dual incentive structure mirrors the way energy efficiency incentives are paid. For small-size efficiency measures and customers, standard rebates are paid for "deemed" (or typical) savings levels, Whereas for larger customers and more sophisticated technology, incentives are more often paid using measured performance or equivalent engineering calculation basis.

We also revise the system size limit to be 100 % of historical annual energy consumption.

The table below summarizes the incentive structure and levels that we propose. Section 2 of this report explains our rationale in detail, and provides examples of how these incentives will work.

.

Trigger Mechanism for Adjusting the Incentive Level Over 10 Years

· Staff considered a variety of possible systems for adjusting the incentive levels in future years to respond to market factors such as solar system price, market demand, customer economics with changes in energy prices, and technology performance. At this time we recommend a simple 10% Annual Ramp Down as the incentive adjustment.

· In parallel with the 10% per year planned downward adjustment, we reserve the flexibility with adequate advance notice to:

o apply special adjustments (downward) to reflect breakthroughs in technology performance and associated cost per unit of output, as well as to

o retain an incentive at the same level a second year in a row if market factors have not produced a lower cost per kWh.

· Comments are invited on specific alternate approaches.

Funding Levels

· Annual budgets for the program will follow the schedule published in the January 2006 decision.

· Budgets will be available based on each utility service area's prorated share of funding collection (e.g. PG&E 44%, SCE 34%, SDG&E 14%, and SoCalGas 9%.

· Budgets will be further divided based on customer class contributions to rates to determine the amounts available each year for award between/among the categories of solar installations and owners.

Program Administration

· The current SGIP administrators for the time being will continue to administer the CSI program for all systems > 100 kW

· For all smaller systems (both residential and commercial), there shall be a non-profit organization, under contract to one or more utilities.

· PG&E shall manage a competitive bidding process to select the non-profit administrator. A Commission advisory panel consisting of CPUC and CEC staff, and representatives from the Division of Ratepayer Advocates and TURN shall make the final selection.

Metering

· Small Systems: all CSI participants must have a dedicated system meter to measure output.

· Large Systems: all CSI participants must have a dedicated revenue-grade system meter to measure output. The meter must use a web-based reporting system or a utility reading and reporting system, including the option to attach a wireless modem. Systems 30 kW or larger must have the means to communicate remotely via the Internet.

CSI Impacts on Net Energy Metering

· Utilities are required to file estimated cost impacts of providing net energy metering to accommodate CSI participants, up to 3,000 MWs. We are aware that current net metering caps set by State legislation are far below this level.

Energy Efficiency Requirement:

· Energy efficiency audits are required for existing buildings that want to participate in the CSI

· Participants may select from an online, telephone, or onsite audit through an IOU program, or from a non-utility provider.

· Audits can be waived for buildings with energy efficiency certification through LEED or Energy Star

Acknowledgements

California Public Utilities Commission

Primary Authors: Valerie Beck, Kurt Johnson, Lisa Paulo of the Energy Division and Jeanne Clinton of the Executive Office

Strategic Guidance: Julie Fitch, Division of Strategic Planning

Other CPUC contributors: Suzy Hong of the Legal Division

California Energy Commission Collaborative Staff:

Bill Blackburn, Smita Gupta, Golam Kibrya, Payam Narvand, Tim Tutt, and Jeff Wilson

External Contributors:

Tom Hoff, Clean Power Research, consultant to CEC PIER and NREL

Ryan Wiser and Mark Bolinger, Lawrence Berkeley Laboratory

2. APPLYING A PERFORMANCE DIMENSION TO INCENTIVE PAYMENTS

2.1 Objectives for Incentive Design and Principles To Be Applied

California has embarked on a major initiative to stimulate higher volumes of on-site solar energy production. This initiative seeks to encourage long-term investment by the solar industry to be offer lower-cost, higher-output technologies that can be adopted by energy users with ever decreasing levels of ratepayer subsidies.

The California Solar Initiative announced in December 2005 seeks to achieve 3000 MW of on-site solar energy capacity between 2006 and 2016, with an estimated ratepayer contribution of $3.2 billion toward this end. (This is comprised of $2.8 billion for the CPUC's target of 2600 MW of solar, and $350 million for the CEC's goal of 400 MW in new residential construction.) Ratepayer contributions are not the only economic factor in stimulating investment in solar energy. During this ten-year period electricity prices among the investor-owned utilities in California will certainly rise. This means that solar energy will have increasingly higher value to those who use it. At the same time there are additional tax advantages at state and federal levels to those who make investments in owning solar production systems. These tax advantages will vary depending upon the type of taxpayer, and from year to year as tax laws change.

The CSI program envisions setting aside 15% of its funds for a combination of non-incentive expenditures that include program incentive administration, information and outreach, program evaluation of the incentive design and solar system performance, as well as targeted Research Development, Demonstration, and Deployment (RD,D &D) activities intended to help accelerate the technology cost and performance goals.²

This means the CPUC program plans approximately $2.4 billion for direct incentives for solar system purchase or the systems' solar energy production. On average, this implies that over the ten-year period, the average incentive value would be 90 cents to a $1.00 per watt of solar capacity. Today the CPUC's current solar incentive pays $2.50 per watt.

For this program to be successful within its expected funding commitment, there must be gains on three dimensions - technology and system installation costs must continue to be driven lower, solar system production efficiency must increase per watt of installed capacity, and business overhead costs to market and install solar systems must fall per unit sold. Progress with these factors will produce electricity and energy output that more closely matches the rising retail prices of conventional electricity and other forms of energy. In turn, this dynamic will enable public subsidies for solar energy production to decline and then disappear.

The CPUC's Self-Generation Incentive Program (SGIP) and the CEC's Emerging Renewables Program (ERP) currently pay incentives using a cost buy-down (CBB) incentive structure. The incentive is paid up-front as a one-time payment upon system completion. It is based on the reported system rating using CEC-approved PV modules and inverters, and CEC-reported Ratings³. While the CBB structure is administratively simple, it does not confirm or require that a system installation actually performs well before paying the incentive.

Today's staff proposal supports the enhanced vision of the 2007 - 2016 CSI by recommending new incentive designs and program features that reflect the following principles:

· Incentive payments should be based on expected or measured solar system performance, and not based on installed capacity costs alone.

· Knowledge about how to optimize solar system design and installation should be shared with all interested solar system buyers, designers, and installers so as to produce the most effective results from these investments.

· Introduction of any incentive framework changes should be done in measured steps so as not to disrupt the complex global and local market environments in which solar component manufacturing, design, sales, and service operate.

· There need to be transparent and predictable trajectories for decreasing the level of ratepayer subsidy from year to year.

· In selecting specific mechanisms for estimating or measuring solar system performance, we must compare their associated costs against the expected value of information to be derived from the particular mechanisms chosen.

· Setting the level of California ratepayer subsidy must take into consideration the combined effects of all subsidies, incentives, or other financial benefits that might accrue to the solar system owner or to ratepayers in general. These would include consideration of federal and state tax credits, the retail price of energy purchases saved by using solar energy, and any future renewable or market values for solar production that might apply to these systems. The goal should be for the ratepayer contribution to be set in such a way that we achieve our overall objectives with the lowest possible ratepayer contribution.

· We acknowledge that it will be impossible to design a "perfect" ten-year incentive system from the outset. There will be many changes over the years in relevant economic and market factors. Thus, the incentive design structure, or its administration, must retain flexibility to make sensible adjustments in response to market factors, technology breakthroughs, or perhaps new business models for delivering on-site solar and energy efficiency solutions. (For example, it may make sense in later years to incentivize combined efficiency and solar installation actions that could produce a lower overall ratepayer cost for the resource benefits achieved.)

To achieve these principles, staff applied the following considerations to the recommendations we describe in the report sections below.

Considerations Underpinning Staff Recommendations for

Incentive Structure and Administration

Solar System Performance

· Assure solar production for ratepayers' funding contribution

· Support purchaser/ consumer assurance of system performance (via review of system design, installation, and/or performance measurements)

· Encourage product innovation that produces systems with higher energy generation efficiency relative to rated capacity and installed cost

Economic Feasibility

· Give consideration to availability of financing for system costs in excess of up-front incentive payments

· Maximize opportunities to utilize state and federal tax benefits

· Recognize that incentive must address economic feasibility to solar system buyer

· Reduce potential perceived risks of receiving multi-year performance payments

Market Flexibility and Adaptation

· Build in flexibility to adjust incentives to reflect values being obtained over time by system owners and ratepayers, and changes in technologies

· Minimize potential market disruption from the way changes in levels or forms of incentives are introduced

Manage Administrative Requirements and Costs

· Select incentive payment and administrative procedures that keep administrative costs to the minimum necessary

· Support a sustained market with planned annual budget levels for incentive funds

Staff analysis in selecting the level of incentive to recommend for 2007 reflects calculations that considered the following factors:

· Installed cost of the system

· Expected solar production over the product life

· Retail price value for energy purchases displaced by solar production

· Value of federal tax credits the solar system owners may be eligible to receive

· Offering enough of a ratepayer incentive to make the effective net cost of solar power production cost-competitive with retail energy purchases, and/or yielding a ten year simple payback for a system with a 25 year life

· Stretching ratepayer funds to reach the 2600 MW CPUC solar target over the 11-year measurement period.

Beyond the economic analysis, we also reviewed the administrative implications for administering the incentive program. In some cases we chose to streamline or simplify certain recommendations, such as incentive structures, performance verifications steps, and incentive adjustment mechanisms, in order to reduce the complexity and associated costs of a program with greater nuances.

That said, some may say that our recommendations here are still too complicated for prompt and cost-effective administration. We are open to hearing specific suggestions for accomplishing the CSI's overall goals with more simplicity of administration.

Factoring in Federal Tax Credits

Recommendation:

· CSI incentives will take into consideration solar system owners' eligibility for any federal tax credits.

· Non-taxable entities (e.g. federal, state, and local governments, schools, social and religious organizations) will be paid a higher CSI incentive payment than taxable entities. To qualify for the higher incentive, organizations must certify that they will own the solar systems, and will not enter into any third-party or financing arrangements that qualify participants for the federal solar tax credits.

· The total customer incentive - combining the CSI incentive with the benefits of the federal tax credit -- may not exceed 50% of total installed system costs.

· Incentives for taxable entities will be revisited if federal tax incentives are modified after 2007.

Rationale:

The Energy Policy Act of 2005 (EPAct 2005) increased the federal investment tax credit for commercial photovoltaic (PV) systems from 10% to 30% of eligible system costs and also created a new 30% investment tax credit (capped at $2000) for residential solar systems. Both changes went into effect on January 1, 2006, and - absent an extension - will last for a period of two years: the new residential ITC will expire, and the 30% commercial ITC will revert back to 10%, on January 1, 2008. The solar industry has been actively pursuing an extension of these credits and the credits may be extended beyond 2007.

EPAct 2005's PV tax credits do not provide the same amount of value to all prospective PV system owners. For example, commercial PV systems receive far more value from the 30% EPAct credit than do all but the smallest residential PV systems, due to the $2000 cap on the residential credit. Because of the $2000 cap on the residential tax credit, all but the smallest residential systems receive substantially less value from EPAct's credits than do commercial systems that are able to take full advantage of the credit. Residential systems are also unable to take advantage of the tax benefits of depreciation, and because of their small size are typically somewhat more costly per installed watt than larger commercial systems.⁴

Meanwhile, governmental and non-profit entities that do not pay income tax, as well as commercial entities with limited or no tax liability, will receive no direct value from the EPAct credits.⁵ These entities are unable to directly utilize the EPAct tax credits. Thus it can be argued that they should receive a higher CSI incentive than commercial entities. We are also aware of various evolving third-party ownership arrangements (e.g., involving service contracts or power purchase agreements) which make it possible for governmental and non-profit entities, as well as other entities without tax liability, to indirectly utilize the EPAct credits.⁶ In California non-taxable entities (federal, state, and local governments, schools, social and religious organizations) make up more than 10% of non-residential energy use, and will require a higher incentive payment than taxable entities.

A few other states have already reduced their PV grant levels in response to EPAct. New Jersey has cut the size of its PV grants by $0.80-1.10/W (depending on system size), though system owners that demonstrate an inability to utilize EPAct's credits will be subject to far more modest cuts of $0.15-0.20/W. Oregon has similarly cut its incentive by roughly $1.00/W across the board. Finally, Wisconsin has eliminated grants for systems smaller than 0.5 kW, and has reduced grants to other systems (except those owned by tax-exempt entities) by $0.50/kWh of estimated annual production (which equates to roughly $0.65/W at a 15% capacity factor).

Taken together, these facts suggest that CSI should offer different incentive levels to different customer types, depending on the degree to which each can use the EPAct credits. Without such differentiation, the CSI program may be heavily dominated by commercial over residential systems. Of lesser importance, lack of differentiation may also drive households towards smaller residential systems (to maximize the proportional value of the credit), and may also force non-taxable entities to pursue more complicated third-party ownership arrangements for systems hosted by tax-exempt (or tax-liability limited) entities. In conclusion:

· Staff acknowledges the additional administrative complexities of offering differentiated incentives. CSI application materials will need to make these choices very clear.

· We recognize that using higher ratepayer incentives for non-taxable entities will be more costly than if all solar owners were taxable entities. However on a net basis, staff's proposal to differentiate incentive by tax status of system owners means that ratepayers will pay less toward solar incentives than if federal tax incentives were ignored.

· To receive the higher incentives, non-taxable entities must certify that they are not utilizing any third-party arrangement that can use the federal tax benefits, will own the solar system, and not use taxable financing mechanisms to pay for them.

Questions and Unresolved Issues:

· How the Internal Revenue Service (IRS) treats the CSI could have implications for residential program administration.  Residential systems are substantially better off financially receiving non-taxable rebates, which may be the case if the CSI is considered by the IRS to be a "utility program." A program overseen by the Commission, but administered by the utilities - e.g., the current SGIP structure - is likely to qualify as a utility program. It is, however, somewhat less clear how a program overseen by the Commission, but administered by an independent administrator using utility funds, would be characterized. It remains an unresolved issue whether the IRS would determine that a program administered by a non-profit entity under contract to one or more utilities would be able to offer non-taxable incentives to the residential recipient as a "utility program."

2.2 Performance-Based Incentive -- Large Solar PV Systems >= 100 kW

Recommendation:

Hybrid PBI Phasing to Full PBI

For 2007 the incentive for taxable entities will be the equivalent of $1.50 per watt, translated to 17 cents per kWh for 5 years, assuming a system capacity factor of 0.2.

The 2007 incentive for non-taxable entities will be the equivalent of $2.25 per watt, translated to 26 cents per kWh with the same 0.2 capacity factor.

· If parties think it advisable to transition to the PBI payment system, staff proposes that for 2007 50% of the incentive would be paid on a capacity basis at the time of verified installation, and 50% paid out in a PBI mechanism over 5 years, with no discounting.

· In 2008 the hybrid PBI would be paid 25% up front as a capacity-based payment, and 75% over 5 years with no discounting.

· In 2009 incentives for all large commercial systems will be paid 100% on a 5-year PBI schedule (no up front payment).

All PBI payments will be fixed and flat for each applicant over the 5-year period. To simplify payment administration, there will be no discounting of the PBI payment.

PBI-based payments may be up to 10% more than estimated if metered output confirms higher system efficiencies.

Solar included in new commercial building construction will receive EPBB payments, except for BIPV installations where only 100% PBI payments will be made.

All incentives ratchet down 10% per year.

Rationale for Hybrid PBI Transitioning to Full PBI:

The PBI structure accounts for five distinct factors that affect system performance. Three of these factors are due to one-time actions or decisions and two of these factors are due to recurring actions, decisions, or events. They include:

1. Actual system rating may differ from reported rating due to incorrect equipment ratings and/or poor workmanship during installation

2. System design may not be optimal due to orientation (azimuth and tilt) and shading issues

3. Geographical location may reduce output because some areas of California have a better solar resource than other areas

4. System availability may be less than ideal due to soiling (dirty modules), poor system maintenance, and equipment failures that are not repaired in a timely manner

5. Weather variability may be different than the estimated typical year thus resulting in a lower or higher amount of energy than was expected

The first three could be verified after system installation. The fourth is subject to ongoing attention, and occasional "lumpy" replacement of component parts. Due to the relative newness of wide-scale installation of solar technologies, and the constant improvements to component technology, the fourth factor is unpredictable in its frequency and impact. There is a lack of data and a lack of industry consensus as to the degree of problem with this factor. The fifth factor of weather variation is believed to even out over a minimum of a 5-year period.

Overall, the PBI structure works best for larger systems and their owners who routinely have access to capital finance mechanisms that can accommodate the need for paying higher up-front costs in return for the five-year PBI incentive payment stream. (For example, the cost of a 100 or 200 kW system will be about $800,000 and $1.6 million, compared to the cost of a $15,000 - $20,000 residential system. Commercial customers routinely arrange financing for that size of investment.) Moreover, with this size of investment, facility owners and their on-site maintenance staff can be attentive to any problems and are likely to utilize metering and control equipment that closely monitor system performance.

Principles accomplished by staff's recommendation to adopt PBI for larger systems, and transition to this via a hybrid structure for 2007 and 2008, with full PBI in place by 2009:

· Start with a hybrid CBB/PBI structure to allow for learning to occur in the market as we make a gradual transition to a full PBI-based incentive structure.

· Minimize market disruption in making this transition by using the hybrid incentive phased in over three years the proportion of incentive paid as PBI.

· Encourage high performance and technology innovation by paying up to 10% more per solar installation that out-performs the assumed production effectiveness of a 0.2 capacity factor.

· Choose a middle-ground payment period of 5 years. A 3 year period would keep the costs of performance metering and incentive payment record-keeping to a minimum. A 5-year period is the minimum time that some parties recommended to allow for the natural variations in annual weather conditions that affect solar performance. Other parties believe that a 10-year period would better match the financing periods that most owners will employ. A 12-15+ year period would be needed to capture the likely time when the system inverter must be replaced and thus verify long-term power production.

· For simplicity, we do not consider interest costs potentially incurred by host sites that finance their systems. Nor do we apply a discount rate to account for the fact that performance payments occur over five years, and not up-front.

We acknowledge that this table ignores the potential interest costs of loans that may be used to finance a solar system, nor does it apply the variety of depreciation and other tax effects that would vary by the circumstances of individual solar applicants.

¹ We will address the specific nature of incentives for affordable housing in Phase 2 of this proceeding. First, the form of incentives could be rebates, loans, and/or some combination of the two. Additionally, affordable housing comes in many sizes (single-family, mid-rise and high-rise multi-family, and mixed use residential units over commercial space. Affordable housing also can be found in new construction, substantial renovation and rehabilitation, or existing housing. The CPUC and CEC are collaborating with affordable housing stakeholders to design appropriate incentives for these situations.

² The plans for RD,D&D will be addressed in Phase 2 of this proceeding. The CPUC expects to focus more on demonstration and deployment support (e.g. system testing, system installer design guidance) when such activities are not otherwise addressed by federal research, CEC PIER R&D plans, or the solar industry itself.

³ This calculates an estimated performance based on the PTC module rating times the CEC-reported weighted inverter efficiency. PTC stands for "PVUSA Test Conditions." PTC watt rating is based on 1000 Watt/m2 solar irradiance, 20 degree Celsius ambient temperature, and 1 meter/second wind speed. The PTC watt rating is around 10% lower than the "Standard Test Conditions" (STC), a watt-rating used by manufacturers. The weighted inverter efficiency averages 90-95 percent.

⁴ On the other hand, residential PV systems offset average retail rates that are typically higher than average commercial or industrial rates.

⁵ This is true unless a third-party ownership structure (e.g. taxable leases, power purchase agreements) is used. In such cases a third party that is able to benefit from federal tax incentives may own the PV system, and use the tax benefits directly and pass on this benefit in the form of lower solar costs charged to the non-taxable host site.

⁶ Third party ownership arrangements make less sense for residential customers, due to the much smaller system sizes involved.