PHOTO CREDIT: SOLAR HOME & BUSINESS JOURNAL
A solar photovoltaic installation at a
light-rail station, Pasadena, Calif.

Published July 17, 2010

Non-residential applications to a California Solar Initiative incentive program have spiked since the spring, prompting officials to place a temporary hold on new approvals while they consider changes to prevent the budget from being depleted too soon.

In April, non-residential applications totaling a record 113.7 megawatts of production capacity were received. Before this year, the highest monthly megawatt total for non-residential applications had been 20.6 mw in November 2009.

Non-residential applications, which include commercial, governmental and nonprofit installations, began to rise sharply in March this year, when applications amounting to 41.3 mw of capacity were received.

After the huge April jump, May remained strong at 46.1 mw, and June applications rose to 71.3 mw. These megawatt levels for non-residential solar applications are far beyond anything previously experienced.

The California Public Utilities Commission, which oversees the California Solar Initiative, is still accepting non-residential applications but has stopped providing reservation confirmations until the proposed changes are acted upon, which is expected to be by September. Because the projects most affected are larger ones, which ordinarily take a year or more to proceed from application to installation, the temporary hold is not expected to create a market bottleneck.

The affected applicants are commercial, governmental and nonprofit organizations.

To avoid depleting the budget before reaching the program's installation targets, several changes are proposed. The commission is considering reducing incentive rates for larger installations (over 30 kw) that are required to apply for what are called performance-based incentives. Under this approach, incentives are paid out per kilowatt-hour over five years for a system's actual production.

This differs from the other primary incentive program offered by the initiative, which provides an up-front rebate or "buydown" based on expected production rates. Almost all residential and small-business applicants use this incentive format, and they will be unaffected by the changes being considered.

In the past, the performance-based incentive has sometimes resulted in a higher total incentive payment to participants over the five-year period. Because these customers had to wait for payments, however, unlike those receiving up-front incentives, an 8 percent discount was built in as compensation. The commission is considering removing the discount.

The commission also is considering shifting $20 million from the program's administrative budget and adding it to the incentive budget.

Under the proposal, which is open for public comment, projects owned by governments or nonprofit groups would still receive incentives that are higher than any other customer class, but the rebates would be reduced slightly from currently scheduled levels. The program has always paid public entities a higher rebate because they cannot take advantage of the federal Investment Tax Credit of 30 percent for solar photovoltaic installations. The premium paid to public entities has been fixed at 75 cents per watt higher than for any other customer class. The ruling proposes to reduce, but not eliminate, the premium paid to public entities.

As an example, for systems applying under incentive Step 7, public entity rebates would be $1.03 per watt, compared with $1.40 per watt at present. Commercial and residential rebates under Step 7 are 65 cents per watt.

Some public organizations may find the incentive reduction large enough to affect their plans. However, an increasing number of public organizations have been using power-purchase agreements, which are similar to leases, to obtain solar electricity. Providers of PPAs are eligible for federal tax incentives, meaning public organizations can indirectly realize some of the benefits of the federal incentive through these contracts.

Rebates under the California Solar Initiative are designed to decline as more solar production capacity is installed, with the goal of causing prices to drop until a sustainable market without incentives is achieved.

The commission said in a fact sheet accompanying its proposed decision that this year has brought an application record, and "over 300 mw and 10,000 projects were received since January 2010. No project received prior to July 9, 2010, is affected by the ruling, so the installation pipeline will continue uninterrupted."

"The CPUC is interested in reviewing the budget now in order to make sure that all MWs originally planned to be installed under the program can be served with incentives," the fact sheet said. "The CPUC does not want to commit all incentive funding without also meeting the MWs targeted for the program. In order to prevent a huge number of applications from rushing forward while the CPUC contemplates new incentive levels for PBI and non-taxable applicants, which would worsen the budget concern, a temporary postponement in issuing of confirmed reservations for these types of customers is necessary."

The proposals do not apply to residential solar PV applicants.

Applications in megawatts for the incentive method ordinarily used by residential and many small-business solar consumers, although setting records in March and April, subsequently declined to more typical levels. The initiative's incentive payment for some residential applicants has dwindled to as low as 65 cents a watt. This may have caused some homeowners to scale down the size of planned systems recently so that the solar electricity offsets only part of their electricity use.

Most California households are billed for electricity under tiered rate plans in which the price rises significantly as usage increases beyond certain baseline levels. While the typical residential electricity customer pays an average of slightly over 15 cents per kwh, the highest tiered rates may rise to 30 cents per kwh or more. Offsetting this high-priced utility electricity can be the most economical approach with a solar installation. Based on the initiative's data for applications received, the approximate average capacity of a planned residential solar PV system declined from about 5.5 kilowatts in April to about 4.7 kw in June.