Effective direct incentives can take a variety of forms depending on the particular situation and administrative abilities of a given state. Some states have chosen to offer tax credits, others to offer up-front rebates administered by state agencies or utilities, and still others offer performance-based incentives that are paid by an agency or utility over time based on kWh production.
Key Principles for Direct Solar Incentive Programs
- Set incentives for payback targets - The incentive levels should be set so that solar system owners recoup their system costs over five-years for commercial customers and ten-years for residential customers. With lower installed costs, cheaper financing, and greater tax benefits, commercial systems can be offered lower incentives than residential systems. Incentives can also be tiered by system size. In order to build a significant market, states with very low energy rates or little sunshine sometimes must sometimes offer larger incentives than states with high electricity costs and/or plentiful sunshine.
- Encourage efficient systems design - Where possible, incentives should reward high-performing systems. Direct incentives can be adjusted to encourage systems that maximize peak energy production. A performance-based incentive (PBI) is based on the actual energy production of a system. PBIs inherently incentivize optimal system design and encourage active, ongoing maintenance.
- Phase out incentives over times - One of the main reasons for enacting solar programs is to jump-start a local solar industry. As they market grows, costs will decline through increased sales volumes and competition. Developing local markets is critical to building a large-scale national solar industry in the U.S. Solar panels are largely commditized and while declining panel prices reduce the installed costs of solar around the world, developing local installers is still a critical part of building a working solar market. As the installed cost of solar declines, incentives can decline as well. New solar customers will still maintain the payback targets described above, and eventually the industry can thrive on its own and incentives are no longer necessary.
- Keep it simple - A certain amount of paperwork and verification is necessary and prudent, but burdening solar customers with a difficult incentive application process or overly prescribing the qualifying conditions can hamper or halt an otherwise effective program.