Renewable Energy Renewable Energy Incentive Program Tony Tewelis (602)

Renewable Energy 2 Agenda –Why Renewable Energy? –Incentives –Residential Technologies –Non-Residential Technologies –Project Funding –2009 Initiatives –Summary –Questions & Answers

Renewable Energy 3 Why Renewable Energy? –Environmental Steward –Energy Independence –Positive Image –Marketing – Product Differentiation –Utility Price Hedge –Economic –Regulatory Compliance

Renewable Energy 4 Background Renewable Energy Standard – Arizona Corporation Commission (ACC) –RES Rules Approved August 2007 By 2025 – 15% of APS Retail Sales (6,525,000 MWHs) –70% - Renewable Generation (Utility Scale) –30% - Distributed (Customer Side of the Meter) »50% Residential – 50% Non-Residential In 2008 – 1.75% of APS Retail Sales (516,000 MWHs) –90% - Renewable Generation (Utility Scale) –10% - Distributed Energy (Customer Side of the Meter) »50% Residential – 50% Non-Residential In 2009 – 2.0% of APS Retail Sales (586,666 MWHs) –85% - Renewable Generation (Utility Scale) –15% - Distributed Energy (Customer Side of the Meter) »50% Residential – 50% Non-Residential –APS 2009 Implementation Plan approved December 2008 Distributed Energy Administration Plan (5-YR Plan) Defined 2009 DE budget (Customer Incentives $55 Million) Renewable Fuel Sources (Solar, Wind, Biogas/Biomass, Geothermal, Hydro)

Renewable Energy 5 Projects Online Capacity Type 1. Aragonne Mesa 90 MW Wind 2. Salton Sea 10 MW Geothermal 3. Prescott Airport 3.5 MW Solar PV 4. STAR Center 2.0 MW Solar PV (and other AZ sites) 5. Saguaro 1 MW Solar Thermal 6. Snowflake White Mt. 14 MW Biomass Other Multiple Contracts25 MW Various Projects Under Development 7. High Lonesome (2009) 100 MWWind 8. Solana (2012)280 MWSolar Thermal Background 5 4 Current Capacity: 145 MW Enough for more than 36,000 homes More than a 2,000% increase since

Renewable Energy 6 Background Solana Project Facts –Announced on February 21, 2008 –Largest solar plant in the world if operating today –Located 70 miles southwest of Phoenix –2,700 parabolic trough collectors covering 3 square miles –280 megawatts - enough for 70,000 homes –Tentative completion date of 2012 –Abengoa Solar will own and operate –APS will purchase 100% of the output

Renewable Energy 7 Targets Overall RES Target rises from 1.75% of APSs retail sales in 2008 to 15% by 2025 DE Target rises from 10% of RES in 2008 to 30% in 2012 DE Target rises from 50,000 MWhs in 2008 to nearly 2,000,000 MWhs by 2025 Background

Renewable Energy Year-to-Date DE Results Residential 44,000,000 kWhs Non-Residential 44,000,000 kWhs Results to date: Over 2,400 participants in the program. Capacity to generate over 8.8 megawatts of green electricity. Over 2,750,000 kWhs of energy displaced by solar water heaters alone. Over $21,000,000 in renewable energy incentives paid so far. Market improvements in 2009 Federal Investment Tax Credit extended for eight years Lifting of $2,000 limit of federal tax credit for residential customers Background

Renewable Energy 9 Incentives –Up-Front Incentive (UFI): A one-time incentive paid to a customer upon successful completion of all program requirements. In exchange for this incentive, APS will receive title and ownership to all the Renewable Energy Credits (RECs) attributed to the operation of the customers system. All up-front incentives are limited to 50% of the project costs and can not exceed a total of $75,000. Incentive amounts are determined by customer rate class, technology, and application. Not all technologies are eligible for up-front incentives.

Renewable Energy 10 Incentives –Production Based Incentive (PBI): PBIs are designed to pay the customer for the environmental attributes associated with the actual production of its renewable system over time instead of an initial, up-front incentive payment. The structure for incentive payments to the customer is up to 20 years or a cap of 60% of the Real Project Cost (including acceptable financing charges), whichever comes first. The Customer is then obligated to provide APS with all Renewable Energy Credits (REC) produced for 10, 15, or 20 years, depending on the term of the agreement. Payments are paid quarterly, based on the actual production based meter reads. Incentive amounts are determined by customer rate class, technology, and application. Not all technologies are eligible for production based incentives.

Renewable Energy 11 Residential Technologies –Residential Technologies: Photovoltaic Systems –Grid-Tied –Off-Grid Solar Water Heating Solar Space Heating Wind –Grid-Tied –Off-Grid Geothermal –Electric –Thermal

Renewable Energy 12 Residential Technologies –Photovoltaic Systems UFI: up to $3/watt Grid-Tied & $2/watt Off-Grid –Solar Water Heating UFI: up to $0.75/kWh Based on SRCC OG-300 first year energy savings –Solar Space Heating UFI: Up to $0.75/Kwh Based on SSH Calculator –Wind UFI: $2.50/watt Grid-Tied & $2.00/watt Off-Grid –Geothermal UFI: $0.50/watt Electric & $1.00/watt Thermal

Renewable Energy 13 Non-Residential Technologies –Non-Residential Technologies: Solar –PV (GT & OG) –Solar Water Heating –Solar Process/Space Cooling –Solar Process/Space Heating –Solar Daylighting Wind –Electric Generation (GT&OG) Biogas/Biomass –Electric Generation –Thermal Cooling –Thermal Heating –CHP – Electric –CHP – Thermal Geothermal –Electric Generation –Space/Process Heating Hydro Other

14 Non-Residential Technologies

Renewable Energy 15 –PV Example 20 kWdc System Project Cost $140,000 Installation Facts: –20° Degrees off of True South –25 ° Tilt Angle –No Shading –Annual Production 32,000 kWhs APS Rebate: De-rate Chart: 100% of Rebate - $2.50/kWdc 20 kWdc x $2.50/kWdc = $50,000 UFI Project Cap: $140,000 x 50% = $70,000 UFI Incentive Cap: = $75,000 APS UFI Rebate = $50,000 Non-Residential Technologies

Renewable Energy 16 Non-Residential Technologies Renewable Energy

17 –PV Example 100 kWdc System Project Cost $700,000 Installation Facts: –20° Degrees off of True South –25 ° Tilt Angle –No Shading –Annual Production 160,000 kWhs APS Rebate: 10-Year $0.202 $/kWh Qtrly Prod 40,000 kWhs x $0.202 $/kWh = $8,080 Qtrly PBI Payment x 4 times/year x 10 years = $323,200 PBI Project Cap: $700,00 x 60% = $420,000 Total APS PBI Rebate = $323,200 Non-Residential Technologies

Renewable Energy 18 –Incentive Process Submit Reservation Application and/or Agreement Receive Reservation Confirmation and/or Agreement Submit Interconnection Application* Receive Preliminary Approval* Obtain Local Permits Proceed with Installation Receive AHJ Clearance Request APS Inspection* Submit Proof of Clearance, Acceptance and Installation Certification Form, & Paid Invoice *Grid-Tied Applications Only Non-Residential Technologies

Renewable Energy 19 –Utility Incentives –Tax Incentives Federal - 30% State –10% - $25,000 / $50,000 –20% - $1,000 –Leases Operating Capital –Power Purchase / Solar Service Agreements –Loans – Secured vs. Unsecured Project Funding

Renewable Energy Initiatives –Distributed Energy RFP Minimum 1,500 MWHs – Target 200,000 MWHs 5 – 30 Year Agreement 1/1/2009 – 12/31/2013 –Homebuilders Solar Community Program Energy Conservation & Renewable Technologies Incentive, Models, and Co-op Advertising –Distributed Public Assistance Program Low Income, Non-Profit, Government, Schools Weatherization – Installation 100 ~ 200 SHWs –Qualified Contractors Program –Solar Production Calculator & Rate Optimization Tool –GEOSmart Financing – Residential Loan

Renewable Energy 21 –UFI – 50% of Project Cost - $75,000 –PBIs – 60% of Total Project Cost – Paid Quarterly –Solar, Wind, Biogas/mass, Geothermal, Hydro, & ??? –New Initiatives in 2009 –Website – (Solar & Renewable Rebates) –Program Coordinators (602) or Summary

Renewable Energy 22 Thank you for your attendance Questions & Answers

Renewable Energy 23 Questions & Answers