Regulatory options for solar incentives offered by public utilities

Abstract

Utilities are being called upon to accelerate the adoption of residential solar energy systems by providing financial incentives. The form such incentives may take and their cost vary widely. The principal alternative mechanisms are reviewed: 1. (1) bill credits or cash payments, 2. (2) interest subsidies and favorable loan terms, and 3. (3) direct utility investment programs. The relative costs of these mechanisms to the rate payer and the consumer are compared. There are tests of appropriate cost to be applied by the regulators evaluating utility solar incentives. These tests will be reviewed and their application discussed. All solar incentive cost tests require estimates of the marginal cost of energy that utilities can avoid if customers adopt solar energy or reduce consumption. Noneconomic factors influencing the choice of utility solar incentive program are discussed. The principal issues are consumer protection/quality assurance, competitive impact on the solar vendors, and income distribution effects.