Renewable Energy Incentive Program

1. Renewable Energy Incentive Program Tony Tewelis (602) 250-3829

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

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

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)

5. Background • Current Capacity: 145 MW • Enough for more • than 36,000 homes Projects OnlineCapacityType 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 Contracts 25 MW Various Projects Under Development 7. High Lonesome (2009) 100 MW Wind 8. Solana (2012) 280 MW Solar Thermal 7 7 3 1 6 2 4 8 More than a 2,000% increase since 2006 5

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

7. Background Targets • Overall RES Target rises from 1.75% of APS’s 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

8. Background 2009 Year-to-Date DE Results Non-Residential 44,000,000 kWhs 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

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 customer’s 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.

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.

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

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

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

15. Non-Residential Technologies • 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

16. Non-Residential Technologies Renewable Energy

17. Non-Residential Technologies • 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 Agreement @ $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

18. Non-Residential Technologies • 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

19. Project Funding • 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

20. 2009 Initiatives • Distributed Energy RFP • Minimum 1,500 MWHs – Target 200,000 MWHs • 5 – 30 Year Agreement 1/1/2009 – 12/31/2013 • Homebuilder’s 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

21. Summary • 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 – www.aps.com/renewables (Solar & Renewable Rebates) • Program Coordinators (602) 328-1924 or dg_interconnect@aps.com

22. Questions & Answers Thank you for your attendance

23. Questions & Answers