Austin Energy rethinks its solar rebate program; PBI enters the arena

It started out in 2003 with an ambitious announcement from Austin Energy (AE) for a 20% renewable portfolio standard (RPS), with a 100MW solar goal for Austin by 2020.

To achieve this goal, according to AE’s Strategic Plan, AE would install solar on the rooftops of schools, libraries, and community centers.  There were elaborate plans for a solar subdivision.  It was the first, and for a few years, the only solar rebate program in Texas.  And a very generous one at that:  $5/watt.  Back then, the rebate covered about 70% of the system cost. Initial funding for the initiative in 2004 was just shy of $1M.

For the next four years, the budget for the rebate program steadily increased while the amount of the rebate declined.  At the end of FY 2008, the program’s budget was $4.5M.  In September 2009, AE suspended the rebate program.  According to AE Vice President Karl Rabago, the program’s popularity had eaten up nearly the entire budget, just one month into the new fiscal year’s budget.  But because of the program’s popularity, the AE’s solar rebate program was re-launched November 1, though at $2.50/watt.  Today, roughly 5 MW of solar has been installed through rebates.

That leaves 95MW to be installed within 10 years, if AE is to meet its 100MW goal by 2020.

Enter AE’s plan for Performance Based Initiatives.

“This (PBI) came about because we realized that our incentives were too generous,” said Leslie Libby, AE’s Solar Rebate Program Manager.  “We knew we needed to rethink the way we approached renewable energy.  For the next several months, we met with solar stakeholders, discussing the existing solar rebate program, and coming up with alternatives to providing rebates to commercial customers.  We came to a consensus for a PBI through a true stakeholder process.”

A PBI is a cash payment made to a project owner based on the electricity production on a cents/kWh basis over a specific period of time.  Under AE’s current proposed plan, PBI’s would only be available to its commercial customers.

AE will now offer two programs for different consumer classes:  the solar rebate program for its residential customers, and the PBI for its commercial customers.

“The PBI is designed for and will work beautifully for customers with an appetite for tax credits,” said Libby.

According to Libby, PBIs encourage customers to keep systems functioning.  “If you get all the money up front, there’s not as much incentive to keep the system operating at peak condition.  If the customer will receive payments for 10 years, there’s a hefty incentive to stay invested in the system.”

Some of the key points of the AE PB include:

  • 5MW of new solar PV capacity on commercial and multi-family facilities over the next five years, after which time the PBI would transition to another incentive program (i.e., feed-in tariff);
  • Customers will be able to net meter
  • Renewable Energy Credits (RECs) will accrue to AE;
  • PBI customers will receive monthly payments for 10 years.

Did AE move toward PBI’s because they felt the solar incentive model was unsustainable

“It’s not that it’s unsustainable,” said Libby. “It was a belief that at some point in the near future, solar will become closer to being cost effective, and we think a better way to incentivize it is through models like feed-in-tariffs (FITs) or PBIs. We have to get more sophisticated about how we look at the financials.  In fact, we’re working with a group of UT/McComb’s School of Business graduate students on exactly this problem:  what’s the glide path for residential incentives—when will incentives no longer be necessary?  We’ll have that report in May; check back with me.”

While there’s a program for residential and commercial customers, what about non-profits?  What’s available for them?

“We know it’s harder for non-profits to secure financing for solar systems, and they’re not able to take advantage of federal tax incentives.  We’re working on that.”

For now, AE plans to enroll PBI customers for five years.  Incentive levels will be reset at the beginning of each program year and re-evaluated every four months based on market conditions.

“We’ll be responsive to market conditions—we’ll either raise or lower the PBI based on what’s going on in the markets,” Libby said.   “And as the incentive levels rise or fall, we’ll adjust the applications. We’ll make sure we’re not exceeding our budget.”

Overall, Libby is excited about the new program.

“What I like about PBIs,” said Libby, “is that we’re (AE) committed to making payments over a 14-year period.  We’ve never had that before.  It’s really good for the solar industry.  PBIs are a good thing.”

 

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