Performance-Based Incentives and New Incentive Levels Starting in 2007

On Aug. 24, 2006, the California Public Utilities Commission (PUC) issued a decision that calls for a transition of the California Solar Initiative to Performance Based Incentives that reward properly installed and maintained solar systems.

• Starting January 1, 2007, incentives for all solar energy systems greater than 100 kilowatts in size will be paid monthly based on the actual energy produced for a period of five years. This incentive is called Performance Based Incentives, or PBI.


• Incentives for all systems less than 100 kilowatts will initially be paid a one-time, up-front incentive based on expected system performance. Expected performance will be calculated based on equipment ratings and installation factors, such as geographic location, tilt, and shading. This incentive structure is called Expected Performance-Based Buydown, or EPBB.


• Starting in 2010, incentives for all systems greater than 30 kilowatts in size will be paid based on actual energy produced.

The August 24th decision also set incentive levels for 2007, factoring in the impact of federal tax incentives, and defined a schedule for incentive reductions over the 10 years of the CSI:

• Residential and commercial customers will receive incentives of $2.50 per watt and will be eligible for additional federal tax credits.


• Government and non-profit organizations will receive $3.25 per watt to compensate for their lack of access to the federal tax credit as non-taxable entities.


• Incentives will automatically decrease in 10 steps based on the quantity of solar energy systems installed.

California Solar Initiative incentives will be disbursed based on the rates displayed below until market demand pushes the program to the next step, in which case incentives are reduced, as illustrated in the charts below. For instance, once 70 megawatts of solar energy systems are installed in Step 2, incentives will drop to those applicable in Step 3. Once another 100 megawatts of solar energy systems are installed in Step 3, incentives will drop to Step 4. These allocations have been further allocated by utility service area and residential versus nonresidential installations.

As of January 1, 2007, the program is already in Step 2 per prior CPUC decisions. Please refer to your Program Administrator's website to determine the currently effective step and incentive rate.

Small System Incentive Schedule
(per CEC-AC watt; initially for systems less than 100kW)

Large System Performance-Based Incentive Schedule*
(per kilowatt-hour, initially for systems 100kW or larger in size)

* Smaller systems may also opt-in to this schedule to receive greater incentives for high performance.

PBI Levelized Payment Explanation
Levelized PBI Monthly Payment Amounts at 8% discount rate

* For PBI Calculations, the first three steps assume a capacity factor (CF) of 0.18; Steps 4-10 assume a CF of 0.20.
** The first 50 MW incentives are disbursed under the 2006 SGIP program; PBI payments do not apply.

We convert from a capacity based output (in watts) to a performance-based output (in kWh). We calculate a levelized monthly payment so that we can provide a uniform per kWh incentive that adjusts for discount rate and is equivalent to an up-front EPBB payment.

In order to convert from EPBB payments to a levelized monthly PBI payment, we calculate and assume the following:

• We assume an 8% discount rate (which we divide by 12 disbursement periods)

• 60 monthly periods during the time of the five-year payment period under PBI

• The Present Value of the payment to be levelized is the value of the EPBB

• We make each payment occur at the end of the payment period

• We levelize each payment into a uniform series

• We multiply the levelized payment by the Capacity Factor (either 0.18 or 0.20 depending on which Step)

• We divide the levelized payment by the kWh/month per Watt (0.1314 or 0.146 depending on the CF)

• This gives us the levelized monthly PBI Payments in $ per kWh