Arizona – Utility Solar Incentives

Note: Refer to our Arizona SREC page for specifics about any SREC potential.

There is currently no viable SREC market in Arizona as the state Renewable Energy Standard does not have a solar carve-out. The Renewable Energy Standard in Arizona requires the utilities to acquire renewable energy bundled with RECs.

While trading AZ SRECs in an an online auction is currently not a viable option, some Arizona utilities offer upfront and performance based incentive programs to encourage the installation of solar. Below is an overview of the incentives currently in place.

Tucson Electric Power Company (TEP):

• Owners accepting the upfront incentive sign a 20 year REC agreement with the utility.
• The residential (systems up to 20 kW) incentive through TEP for 2010 is $3.00/watt for grid tied systems and $2.00/watt for off-grid systems.
• The small commercial (systems up to 100 kW) incentive through TEP  for 2010 is $2.50/watt for grid tied systems
• The large commercial (systems greater than 100 kW) incentive through TEP for 2010 differs from the upfront incentive payments for the residential and small commercial programs. Large commercial solar installations are provided with a performance based incentive (PBI), which means that customers will receive a fixed price for their SRECs over a set period of time. This PBI is offered to commercial grid tied systems as follows:
  • 10-Year REC and Payment Agreement for 18.2 cents / kWh (1 SREC for $182)
  • 15-Year REC and Payment Agreement for 16.7 cents / kWh (1 SREC for $167)
  • 20-Year REC and Payment Agreement for 16.2 cents / kWh (1 SREC for $162)
• The total upfront incentive can’t be greater than 60% of the total system cost. The incentive amounts for 2011-2014 are scheduled at the 2010 rates, but are still to be approved. Also, TEP incentives in combination with all federal and state tax credits can be no more than 85% of total the project cost. A customer must cover at least 15% of the total project cost.

Salt River Project Water and Power (SRP) – Earthwise Solar Energy Program:

• Home owners accepting the upfront incentive sign a 25 year REC agreement with the utility. Small commercial systems sign a 20 year REC agreement.
• The residential incentive through SRP is $2.15/watt up to $10,750. This incentive level is set through April 30, 2011. Once a total capacity of 4.5 MW (4,500 kW) has been reserved, any additional applications received will be reserved at future incentive levels.
• The small commercial incentive through SRP is $2.00/watt up to $60,000. This incentive level is set through April 30, 2011. The small commercial incentive currently has funds reserved for 0.5 MW (500 kW). As of 6/10/10,  46 kW has been reserved with another 120 kW pending approval.
• The large commercial (systems greater than 30 kW) incentive through SRP for 2010 differs from the upfront incentive payments as outlined for the residential and small commercial programs. Large commercial solar installations are provided with a performance based incentive (PBI), which means that customers will receive a fixed price for their SRECs over a set period of time. The large commercial incentive currently has funds reserved for 5.0 MW (5,000 kW). As of 6/10/10,  864 kW has been reserved. This PBI is offered to commercial grid tied systems as follows:
  • 10-Year REC and Payment Agreement for 18.8 cents / kWh (1 SREC for $188)
  • 20-Year REC and Payment Agreement for 14.7 cents / kWh (1 SREC for $147)
  • SRP will receive the solar renewable energy credits for 20 years for both the 10 year and 20 year PBI plans.

APS:

• System owners entering into an upfront incentive program sign a 20 year REC agreement with the utility.
• The residential incentive through APS is $1.95/watt; as of June 17, 2010.
• Non-residential systems can choose between upfront incentives and performance based incentives. Below is an overview of APS’ current offering:
  • Grid Tied:
    • Upfront incentive – up to $2.50/watt, capped at $75,000
    • Production based incentives –
      • 10 Year REC agreement / 10 Year Payment: 18.2 cents / kWh (1 SREC for $182)
      • 15 Year REC agreement / 15 Year Payment: 16.8 cents / kWh (1 SREC for $168)
      • 20 Year REC agreement / 10 Year Payment: 22.5 cents / kWh (1 SREC for $225)
      • 20 Year REC agreement / 20 Year Payment: 16.2 cents / kWh (1 SREC for $162)
  • Off Grid:
    • Upfront incentive – up to $1.50/watt, capped at $75,000
    • Production based incentives –
      • 10 Year REC agreement / 10 Year Payment: 12.1 cents / kWh (1 SREC for $121)
      • 15 Year REC agreement / 15 Year Payment: 11.2 cents / kWh (1 SREC for $112)
      • 20 Year REC agreement / 10 Year Payment: 15.0 cents / kWh (1 SREC for $150)
      • 20 Year REC agreement / 20 Year Payment: 10.8 cents / kWh (1 SREC for $108)
• For systems under 100 kW, funding is divided into 6 bi-monthly allocation periods. Funding for systems over 100 kW is awarded on a competitive basis two times a year.

SRECTrade Analysis – Upfront Incentive Payment vs. Selling SRECs On the Spot Market:

• Currently, although there is no market Arizona SRECs can be sold into, SRECTrade has conducted an analysis to determine an approximate SREC value at which solar system owners in Arizona may consider forgoing their utilities’ upfront incentive payment to realize greater value selling in an auction platform.
• The analysis is made up of the following assumptions:
  1. A market with a great enough demand exists in which AZ solar system owners can sell their SRECs into
  2. The system size is assumed to have a capacity of 5 kW
  3. The low end upfront incentive payment is $1.95/watt (APS) and the high end is $3.00/watt (TEP)
  4. Arizona systems receive approximately 5.5 sun hours per day (assumption from wholesalesolar.com)
  5. The system generates approximately 10 SRECs per year
  6. Both the upfront incentive and the SRECs are considered taxable income; assumed tax rate 35%
  7. 20 year fixed SREC agreement with utility
  8. 10% discount rate to determine net present value of future cash flow from SREC sales
• After taking these assumptions into consideration, the following valuations would have to be achievable for system owners to consider foregoing the upfront incentive option. Systems that receive an upfront incentive of $1.95/watt would have to sell SRECs into a market that could support a valuation of approximately $115/SREC . Systems that receive an upfront incentive of $3.00/watt would have to sell SRECs into a market that could support a valuation of approximately $175/SREC. Both scenarios result in a simple payback on the upfront incentive of approximately 8.5 years.

Tags: Arizona SREC, Arizona SRECs, AZ SREC, AZ SRECs