By Jason Eckstein, Lux Research

The California Public Utilities Commission announced it would suspend incentive payments for solar installations owned by governments and non-profit organizations through the California Solar Initiative (CSI) program while it decides how much to cut them for future installations. Since its inception, the program has been overwhelmed with applications, and to date more than 400 MW total have been installed. Since non-profits and government organizations cannot take advantage of the 30% investment tax credit, they had received more generous incentives under the CSI program (either ~$0.75/W more for up-front capacity-based subsidies or ~$0.10/kWh more for production-based subsidies, which are paid out over a five-year period). These payments are scheduled to step down incrementally as the number of installed systems grows, but, at the current step, governments/non-profits still receive on average $1.40/W or $0.19/kWh.

With only $1.7 billion left in the budget for incentive payments, the CSI administrators need to slash incentive payments or risk running out of money for those who opted for production-based incentives in future years. Of these projects, 200 MW are already on the grid and another 350 MW are pending, compared to just 58 MW pending for capacity incentives. Moreover, almost 200 MW of those pending applications are for government and non-profit customers, outpacing the commercial market. Historically, these projects average a full $1.00/W more installed than commercial projects, adding insult to injury in a state where governments are already running on fumes.

The CSI administrators have proposed cuts of ~$0.30/W for capacity based incentives for government/non-profits as well as across-the-board production-based incentive cuts of between 20% and 40%. With the reductions, solar installations in California remain a very attractive investment, but the risk of the program running out of money before it can complete production-based incentive payments could serve to spook investors with the risk of cash flows disappearing. While the solar market is continually driven into boom and bust cycles because of the capriciousness of government subsidies, the problem in California is compounded by the fact that the state and local governments are planning to build their own systems at a rate faster than the commercial market will tolerate. The proposed cuts are necessary to ensure the government does not eat away at funding that should be available for healthy commercial development. Unfortunately, the damage has already been done and commercial customers will suffer as all production-based incentives are slashed to keep the budget in check.

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