VI. Incentive levels for 2006

In 2005, incentive payments for SGIP solar projects were $3.50 and are scheduled to fall to $3.00 in January 2006. ERP solar incentives are currently set at $2.80, and are scheduled to fall to $2.60 in January 2006 and to $2.40 in July 2006. The staff report also observes that both the ERP and SGIP have borrowed funds from future years or transferred funds from other program categories to meet demand for solar incentives. As discussed previously, each program has experienced periods when funding was not available because the demand for funding exceeded available resources.

We are presented with the difficult task of setting an incentive level that is high enough to motivate cost-effective solar investments and yet not so high that ratepayers are subsidizing projects that would be built without lower incentives. Fortunately, we have some experience with incentives offered by the ERP and SGIP that provides guidance in this regard. The fact that the SGIP has consistently experienced funding shortfalls suggests rebates have been higher than they need to be to motivate investment. Considering the large number of applications the SGIP administrators have received for incentives at the $3.50 a kW level - and our wish to use limited funds in the most cost-effective way possible -- we believe it prudent to set the initial incentive payment at $2.80 for all solar PV in the SGIP, moving in the direction of the level established by the CEC's incentive program. We defer a decision on how the incentive levels should change over time until we have additional analysis from the Commission and CEC staff. We also defer resolution of the staff report's proposal to use a future period's budget to support a current period's demand when bona fide applications seek incentives that exhaust the current period's funds.