Performance-Based Incentives and Renewable Tariffs for Photovoltaics in the USA

By Paul Gipe


Currently Washington State, Wisconsin, New Mexico, and now California offer some form of Performance-Based Incentives (PBI) for solar PV-generated electricity.

In New Mexico and Wisconsin, payments are by utility service area.

In Washington and California payments cover the entire state with the possible exception of rural electric coops in California.

Most other states that provide support for solar PV do so by up-front subsidies variously called “buy-downs” (California) or capital grants. A few states (New Jersey) include a separate band for solar PV within their Renewable Portfolio Standard trading programs.

While it is likely that several states will continue with their existing up-front subsidies, and some states will continue adapting their trading programs to accommodate solar PV, there appears to be a trend toward payment for generation and away from up-front subsidies. This is particularly evident in California’s recent announcement. California’s program will move entirely to performance payments (real or estimated).

Most programs in the USA that use PBIs are not true Renewable Tariffs. The incentives, though paid for generation, are separate from the tariff for electricity. In these programs, the tariff is often determined by a net-metering policy. That is, there may be two meters, but the second meter on the PV system is on the customer’s side of the utility’s revenue meter. Thus, the customer receives a payment, the incentive, for PV generation, plus any benefit that accrues from the net metering program.

For details on incentives and tariffs in the states mentioned see Tables of Renewable Tariffs or Feed-In Tariffs Worldwide


Good Public Policy

Good public policy pays only for performance. It is in the best interests of ratepayers (electricity consumers) as well as renewable energy proponents that premiums paid for solar-electric generation result in generation. This can only be achieved when payments are coupled with generation.


Bonneville Environmental Foundation

Tom Starrs, an attorney with the Bonneville Environmental Foundation made several observations about “performance payments” in a recent conference call. He noted that during the 1980s most renewable incentives in the USA were based on capacity in $/kW. He says that “the consensus among analysts is that the use of capacity-based incentives in the US during the 1980s contributed significantly to performance-related problems and in some cases to outright fraud.” “These problems,” he adds, “contributed to the federal government’s abandonment of wind energy incentives and most solar energy incentives in 1986.” Starrs suggest that “making the transition to PBI is in the (solar) industry’s and the public’s best interests.”

Starrs warns further that hybrid approaches, like that in California, “dilute the benefits of PBI and require dual administrative mechanisms”. He suggests that for residential size systems, self-reporting is sufficient with random audits to prevent fraud.


Washington State

Washington State’s Renewable Tariffs pay up to $0.54 USD/kWh to solar PV generation for a period of approximately eight years. There is no minimum project size. It is not clear at this time if this is a PBI or a Renewable Tariff.


New Mexico

Public Service of New Mexico has a PBI that pays $0.13 USD/kWh from 2006-2018. The program relies on net-metering and the performance payment is a purchase by PSNM of the Tradable Green Certificates that the solar system generates. There is no minimum project size.



In Wisconsin, WE Energies has administered a program for almost one year that pays $0.225 USD/kWh for solar PV generation for a period of ten years. WE Energies may seek approval from Wisconsin’s Public Service Commission to greatly expand the program. WE Energies’ existing program limits participation to a minimum project size of 1.5 kW.

WE Energies program is a true renewable tariff. WE Energies only pays for export, that is, generation delivered to the grid. Metering on the solar system is in parallel with the utility’s revenue meter. There is no net metering while the tariff is in effect.

Madison Gas & Electric has a similar program, though for systems less than 20 kW they are flexible and will accept a customer’s solar meter in series with that of the utility’s revenue meter.



California’s recent announcement has moved the state clearly in the direction of paying for performance.

Commissioners at both the Public Utility Commission and the California Energy Commission had previously expressed a desire to move the state toward payment for generation and away from up-front capital subsidies or as they’re called in California “buy-down” payments.

The PUC decision on August 25, 2006 implements the first phase of the California Solar Initiative on January 1, 2007. All systems, regardless of size, after this date will require separate meters. The second phase begins in 2010 when the threshold for production payments will be lowered to 30 kW from 100 kW. Incentive payments for systems below 30 kW will also be based on production. However, production will be estimated. Payments from the Estimated Production-Based Incentive will be made in lump sums as in the current buy-down program. This was a result of political compromise between those who wanted California’s program to move toward payments for performance and those that wanted to maintain the buy-down program.

While the proposal to convert California’s solar program to production payments had the support of staff and commissioners, the solar industry was split over the issue. Some manufacturers and dealers wanted to maintain the up-front capital payment. Other manufacturers and dealers wanted to move toward payment for performance.

The disagreement became so severe that some split off from the here-to-fore main trade group, CalSIA, and formed their own association Americans for Solar Power (ASPV). CalSIA, PV Now, and Vote Solar lobbied to expand the buy-down program. ASPV successfully lobbied for performance payments.

California’s buy-down program puts the solar premium of $2.50-$2.80 USD directly in the pockets of dealers and installers. Market prices for installed systems in California are approximately $2,500 USD/kW more costly than in Germany (a country not known for cheap products). This “California premium” is likely due to the buy-down program’s up-front subsidy.

Proponents argued that the buy-down encourages homeowners to buy solar to take advantage of the subsidy. The production incentive, however, requires homeowners to “invest” in solar. The difference in outlook threatened residential solar sales said buy-down proponents.

PBI’s advocates argued that without a production payment there is no incentive to actually install systems that work. Indeed, California does not know how well the solar systems operating in the state are performing. They have only estimates.

The conversion of California’s entire solar program to performance payments hinged on how the transition would be made from the existing buy-down subsidy. The mix of incentives in the current program is the result.

Participants in the California process warn that new programs should be designed to avoid buy-down payments from the start. Once capital subsidies have been put in place, it is very difficult to wean dealers from them and substitute performance payments.

As illustrated by the selected comments below to an online article at Renewable Energy on California’s new solar program, some observers emphasize the importance of ensuring that the solar systems that are installed in the state actually work.

The German’s learned that buy-down payments will only take the industry so far. After their 100,000 solar roof program was complete, they converted to Renewable Tariffs through the Renewable Energy Sources Act..

There very well may be another attempt to convert the entire California solar program to production payments based on actual generation, as opposed to estimated production.

On August 31, 2006 the California State Senate passed SB 107, section 14 of which called on the PUC to consider moving the entire solar program to performance payments.

(14) . . .The bill would require the PUC to report to the Legislature, on or before January 1, 2008, on the feasibility, desirability, and design of performance-based incentives for solar energy systems of less than 30 kilowatts.

SB 107 now goes to Governor Schwarzenegger. If the Governor signs the bill, the PUC may have to reconsider the program that they just launched and move toward including systems less than 30 kW in the PBI (payment for performance) program.

It is important to note that payments under California program are not true renewable tariffs. The California program is an incentive payment only. Metering of the solar system is in series with that of the utility’s revenue meter and on the customer’s side of the utility’s meter. These are net metering installations. The incentives are paid for generation but are not a tariff. The tariff that governs these installations is the net metering tariff.


Comments on California’s Solar Program on Renewable

Author: Niels Wolter Date Posted: August 30, 2006 Funny this is what the Wisconsin incentive program has been doing for the last five years for those systems under 100 kW. (WI has no systems of over 100 kW.)

google “Focus on Energy” “solar electric cash back reward” Wisconsin


Author: Matthew Brady Date Posted: August 30, 2006 Gentlefolk, This is all well and good but how many 100 kW systems have you installed? I haven’t done the calculations yet but it seems that performance based incentives would be good for small producers too… Don’t mean to be cynical but maybe that’s why it’s not offered in California. And what happens after five years of operation? Does the ‘incentive’ continue?


Author: Date Posted: August 30, 2006 The performance based incentive program is arguably the most important solar related legislation ever approved in California. There are too many sub standard photovoltaic installations in California, [and across the nation I presume] and we needed a method to rid the solar industry of solar companies with questionable qualifications and incompetent installs.

FYI. to Phillp Treanor, it takes approx. 130 sq.ft. per kilowatt of solar array.


Author: Jeremy Taylor Date Posted: August 30, 2006 A 100 kW system is a relatively small commercial system. It is less than 500 Sunpower panels. In other words we should and will see plenty of these going in. The peformance incentive will allow the market to mature and have an easier sale for systems of all sizes.

Author: Steve Plater Date Posted: August 31, 2006 3000 MW by 2017 seems a very modest target, considering that Germany is now at 1500 MW (with 600MW added just last year), thanks to its feed-in tariff support of €0.50 per kWh generated. I’m researching why people buy PV arrays to put on their roofs, so seek to understand the motivation. Is it just an investment thing? Or do incentives make PV affordable for people who want it for other reasons such as energy independence or CO2 reduction?