Arizonas Renewable Energy Standard Rebates Arizona Solar Energy

Arizona's Renewable Energy Standard & Rebates Arizona Solar Energy Industries Association (Ari. SEIA) Kris Mayes, Chairman Arizona Corporation Commission January 29, 2009 1

Energy Challenges Facing Arizona l Growth – Arizona has surpassed Nevada as the fastest growing state in the nation. – In 2007, Domestic Net Migration totaled 90, 402 or 7, 500 monthly – Between 2000 and 2039, Arizona’s population will more than double. By 2030 Arizona’s population will exceed 10. 7 million people – becoming the 10 th largest in the country. – Arizona’s electricity demand is growing approximately 1, 000 MW a year • - Focus on Renewables, DSM, and Energy Efficiency to share the peak l Rising Energy Costs – Rate filings premised on volatile natural gas prices and growth. – Nationally, energy expenditures account for $1 Trillion, or 8. 4% of GDP. l Infrastructure Needs – Arizona electric demand is increasing by 1, 000 MW (tantamount to two new power plants) a year. – Natural Gas Infrastructure. 2

Meeting Arizona’s Challenges with Renewables l As Arizona’s population grows each year, so does peak electrical usage. l This peak can be met by building new transmission lines and power plants as well as by the use of renewable energy, energy efficiency and demand response. l In order to meet the ambitious RES goals, as well as increasing energy efficiency programs (such as DSM, and Demand Response), it will be necessary for Arizona to create a clean energy economy. – The RES alone has created a $115 million/year market in Arizona. 3

Energy Diversification l Facing the future in a carbon-constrained world, what will Arizona’s electric generating portfolio look like? – Since 1998, all of the power plants sited in AZ have been natural gas. – Coal represents approximately 28% of APS’ generating resources. – Coal represents approximately 69% of TEP’s generating resources. l Options for Arizona? – New natural gas – “Clean” Coal – Nuclear 4

Renewable Energy in Arizona l Arizona was one of the first states in the nation to implement a renewable requirement for its electric utilities. l Arizona’s Environmental Portfolio Standard was initiated in 2001 to promote the use and development of renewable energy. l In October, 2006, the Commission approved the Renewable Energy Standard, which builds upon the EPS and will once again make Arizona a leader in renewable energy, particularly solar. l The Commission established a mechanism in the rules that requires each utility to file a tariff to recover the costs of implementing the RES program. 5

Renewable Energy l Renewable Energy is the most effective way to utilize Arizona’s resources and benefit Arizona’s environment: • • Solar Potential throughout Arizona Wind Potential in NE, NW Arizona Geothermal Conservation of water from not having to construct as many new power plants l Renewable Energy not only benefits Arizona’s environment but will have a positive impact on the state’s economy. 6

2009 Renewable and Energy Efficiency Funds Available RES Funds APS - $78. 4 Million TEP - $29. 7 Million SRP - $8 Million SSVEC - $3. 4 Million DSM and Energy Efficiency APS - $25. 5 Million TEP - $6. 4 Million SRP - $200 Million over the next six years Annual Total - $119. 5 Million Annual Total - $65. 2 Million (approx) 7

Environmental Benefits l By 2025, the RES rules could prevent emissions of: – 93 billion pounds of carbon dioxide – 186 million pounds of nitrogen oxide – 129 million pounds of sulfur dioxide – 1, 277 pounds of mercury l RES – Will power 500, 000 homes in Arizona by 2025 – 2, 500 MW of renewable energy will be generated pursuant to the RES 8

Solar Energy in Arizona 9

Wind Energy in Arizona 10

The RES: The Power of Distributed Generation l The RES rules require regulated utilities to generate 15% of their energy from renewable resources by 2025. l The RES allows utilities to use solar, wind, biomass, biogas, geothermal and other similar technologies to generate “clean” energy to power Arizona’s future. The rules package outlines what technologies qualify and allow for new and emerging technologies to be added as they become feasible. l In addition to utility-owned projects such as Tucson Electric Power’s large solar installation in Springerville, Arizona, the Commission also required a growing percentage of the total resource portfolio to come from distributed generation – residential or non-utility owned installations. l The distributed energy requirement starts at 5 percent of the total portfolio in 2007 and grows to 30 percent of the total renewable mix after 2011. 11

RES Percentage Requirement Year Requirement 2008 1. 75 % 2017 7. 00 % 2009 2. 00 % 2018 8. 00 % 2010 2. 50 % 2019 9. 00 % 2011 3. 00 % 2020 10. 00 % 2012 3. 50 % 2021 11. 00 % 2013 4. 00 % 2022 12. 00 % 2014 4. 50 % 2023 13. 00 % 2015 5. 00 % 2024 14. 00 % 2016 6. 00 % After 2024 15. 00 % 12

DSIRE: www. dsireusa. org October 2008 Renewables Portfolio Standards MN: 25% by 2025 (Xcel: 30% by 2020) *WA: 15% by 2020 ND: 10% by 2015 MT: 15% by 2015 OR: 25% by 2025 (large utilities) 5% - 10% by 2025 (smaller utilities) ☼ *NV: 20% by 2015 ☼ MA: 15% by 2020 + 1% annual increase (Class I Renewables) MI: 10% by 2015 IA: 105 MW *10% by 2020 (co-ops & large munis ) ☼ NH: 23. 8% in 2025 utility; 10% by 2015 goal ☼ OH: 25%** by 2025 IL: 25% by 2025 ☼ CO: 20% by 2020 (IOUs) CA: 20% by 2010 ME: 30% by 2000 10% by 2017 - new RE WI: requirement varies by SD: 10% by 2015 *UT: 20% by 2025 VT: (1) RE meets any increase in retail sales by 2012; (2) 20% by 2017 MO: 11% by 2020 ☼ NC: 12. 5% by 2021 (IOUs) ☼ AZ: 15% by 2025 10% by 2018 (co-ops & munis) RI: 16% by 2020 CT: 23% by 2020 ☼ NY: 24% by 2013 ☼ NJ: 22. 5% by 2021 ☼ PA: 18%** by 2020 ☼ MD: 20% by 2022 ☼ *DE: 20% by 2019 ☼ DC: 20% by 2020 ☼ NM: 20% by 2020 (IOUs) *VA: 12% by 2022 10% by 2020 (co-ops) TX: 5, 880 MW by 2015 State RPS HI: 20% by 2020 State Goal ☼ Minimum solar or customer-sited RE requirement * Increased credit for solar or customer-sited RE **Includes separate tier of non-renewable “alternative” energy resources Solar water heating eligible 13

DSIRE: www. dsireusa. org October 2008 Solar/DG Provisions in RPS Policies WA: double credit for DG MI: triple credit for DG NV: 1% solar by 2015; 2. 4 to 2. 45 multiplier for PV OH*: 0. 5% solar by 2025 CO: 0. 8% solar electric by 2020 NH: 0. 3% solar electric by 2014 MA: TBD by MA DOER NY: 0. 1542% customer-sited by 2013 NJ: 2. 12% solar electric by 2021 PA: 0. 5% solar PV by 2020 DE: 2. 005% solar PV by 2019; triple credit for PV MD: 2% solar electric in 2022 AZ: 4. 5% DG by 2025 DC: 0. 4% solar by 2020; NM: 4% solar electric by 2020 0. 6% DG by 2015 DG: Distributed Generation * It is unclear at this point if solar water heating is eligible for OH’s solar carve-out. 1. 1 multiplier for solar NC: 0. 2% solar by 2018 Solar water heating counts towards solar set-aside 14

Largest RPS Markets for Solar in Near. Term Include NJ, AZ, NM, NV, NC, CO Slide Courtesy of Lawrence Berkeley National Laboratory 15

Arizona Utility Solar Rankings 16

Arizona Utility Solar Rankings 17

Representative Solar Costs 18

Funding for the RES l The RES features a sample tariff designed to pay for the expansion of the program. l For APS, the monthly charge would be the lesser of $0. 007937 per k. Wh or – Residential Customers: $3. 17/month – Small Business: $117. 93/month – Large Industrial: $353. 78/month l Utilities will be required to file these tariffs yearly with the Commission 19

Distributed Renewable Energy Requirement 2007 – 5% 2008 – 10% 2009 – 15% 2010 – 20% 2011 – 25% After 2011 – 30% l Requirement that a utility shall meet half of this requirement from commercial projects and half from residential projects. 20

Residential Solar Rebate and Tax Credits • APS and TEP customers can receive a rebate of $3 per watt in a grid-tied solar system and $2 for each watt installed in an off-grid solar system. • Residential customers are also eligible for a $1, 000 state tax credit and a 30 percent federal tax credit. • Example: • For a 3. 24 k. W system (approximate cost $25, 672), residential customers will receive $9, 720 from APS and $8, 702 in tax credits, taking the “out of pocket” cost to approximately $7, 250. • For a 2. 34 k. W system, the “out of pocket” cost will be approximately $6, 100 21

Estimated Residential Solar Savings Size Typical Cost Rebate Federal Tax Credit Net Cost ($3/watt) AZ Tax Credit Annual Savings 3. 24 k. W $25, 672 $9, 720 $1, 000 $7, 702 $7, 250 $766 22

Commercial Solar Rebate and Tax Credits l APS and TEP Commercial customers can receive a rebate of $2. 50 per watt. l Larger commercial systems are moving to a Production Based Incentive (“PBI”) whereby customers contract with APS for credit purchase based on production (i. e. cents per kilowatt hour of production) in place of an upfront lump sum payment. l Federal tax credit of 30% of the system price l State tax credit of 25% of the system cost, capped at $25, 000 23

Frito Lay Project, Phoenix 201 k. W Slide Courtesy of American Solar Electric 24

Sulphur Springs Valley Electric Cooperative Solar Schools Program 25

Looking Ahead l In 2006, 150 TEP customers installed solar PV, and 275 APS customers installed solar PV. l Statewide, Arizona will need to install over 4, 200 3 k. W systems next year to meet the RES goals in 2008. l This number increases to: • 5, 500 in 2010 • 9, 100 in 2011 • 12, 000 by 2012 26

Net Metering l What is Net Metering? – Net Metering allows customers to offset their consumption by allowing meters to turn backwards. 27

Net Metering l On October 16, 2008, the Commission approved Net Metering Rules which are currently before the Attorney General for final approval. l Under the rules, if a consumer produces more electricity each month than he uses, he receives a credit for the electricity the next month, and then at the end of the year, the utility must true up with the customer and pay him for the electricity that he produced but didn’t use. l The most unique feature of Arizona’s net metering plan is that it has no statewide MW cap, and limits an individual who wants to net meter a home or building to 125 percent of the connected load of that building. Solar energy advocates see this feature as groundbreaking. 28

Next Steps for Renewable Energy in AZ l 1. Increase the RES to 25 percent by 2025. l 2. Allow higher Returns on Equity (ROE) for large solar and wind projects. l 3. Add transmission to make AZ the export/import capitol for solar. l 4. Pass Solar Manufacturers’ Tax Credit to attract solar companies to AZ and realize economic development benefits of high wage high-tech solar jobs. l 5. Use proceeds from any WCI cap and trade auction to do low-income solar and bolster energy efficiency programs in AZ. 29

Conclusion Arizona Corporation Commission documents and orders can be found by visiting www. azcc. gov Information on Arizona’s Renewable Energy Standard can be found by visiting www. azcc. gov/divisions/util/electric/environmental. htm Chairman Kris Mayes: 602 -542 -4143, kmayes@azcc. gov 30