Distributed Solar Incentive Programs: Recent Experience and Best Practices for Design and Implementation

Dozens of utilities1 throughout the United States offer incentive programs designed to encourage the adoption of solar energy, and the number has been growing as utilities respond to state solar mandates or internal goals. Rapidly changing market conditions in the past several years have made implementing solar power programs challenging. Various design and implementation methods have emerged as utilities or other program administrators have modified programs to respond to market changes, such as declining solar costs, increasing customer demand, and new business models.

Based on lessons from recent program experience, this report explores best practices for designing and implementing incentives for small and mid-sized residential and commercial distributed solar energy projects. The findings of this paper are relevant to both new incentive programs as well as those undergoing modifications. The report covers factors to consider in setting and modifying incentive levels over time, differentiating incentives to encourage various market segments, administrative issues such as providing equitable access to incentives and customer protection. It also explores how incentive programs can be designed to respond to changing market conditions while attempting to provide a longer-term and stable environment for the solar industry. The findings are based on interviews with program administrators, regulators, and industry representatives as well as data from numerous incentive programs nationally, particularly the largest and longest-running programs. These best practices consider the perspectives of various stakeholders and the broad objectives of reducing solar costs, encouraging long-term market viability, minimizing ratepayer costs, and protecting consumers.