Solar installations are only financially viable, at this stage, when the cost can be mitigated by financial incentives like tax credits and solar energy rebates. While the wisdom of including solar power in our nation’s energy portfolio is now generally accepted, this wasn’t always the case. It took a certain amount of vision–and gumption–for the first serious supporters of solar in this country to get solar legislation enacted. California was among the first movers and shakers of the American solar industry, and its momentum has only increased over the years. The state’s financial support for solar homes began more than ten years ago with 1998′s Emerging Renewables Program, while commercial solar installations started to receive funding in 2001. And then in 2006, the California Public Utilities Commission (CPUC) and the California Energy Commission (CEC), with the firm backing of Governor Arnold Schwarzenegger, developed the California Solar Initiative, or CSI.

So what’s the big deal? Isn’t it just a rebate program? Well, yes: but a rebate program of considerable scope, with a unique structure designed to encourage solar growth across the entire state and ensure quantifiable progress through 2016. The CSI’s framework has been an inspiration for other states, more in its scope than its actual moving parts (which are tailored to suit such a diverse use, high population state).

The CSI is aiming to encourage the adoption of 1,750 megawatts of California solar capacity by 2016. To achieve this, the program offers both commercial and residential customers of the state’s investor-owned utilities rebates designed to scale back over time. The program is divided up into ten steps. Each utility must meet two goals within each step: a number of MWs achieved from residential solar installations connected to the grid, and a number of MWs achieved from commercial solar installations connected to the grid. The two numbers do not affect each other. The CSI explains:

Once the total number of megawatts for each step is reached within a particular customer class, the [utility] moves to the next step and offers a lower incentive level for that class. Therefore, high commercial demand in SCE’s territory will not lower the incentive level offered to PG&E’s residential customers, and so on.

The idea behind this structure is incentivizing early adoption: the sooner you install a solar panel system and apply for a CSI rebate, the more money you’ll get from the program. Fiendishly clever. Too clever, perhaps, as here at the very beginning of 2010 most available rebates are already on Step 6 of 10.

While the CSI only covers the state’s public, or investor-owned, utilities, municipal utilities are now being encouraged to participate. Many local electric providers already offer their own solar rebates, so if you’re not a customer of one of the big three–PG&E, SDG&E, and SCE–don’t give up hope. Check DSIRE for full details on California solar incentive availability.

The other essential thing to know is that the CSI offers two different types of rebates. One, called an Expected Performance-Based Buy-Down or EPBB, is designed for systems under 30 kw. It offers one lump sum as a payment to reduce your out of pocket expenses for going solar–at current step levels, you can expect to receive a rebate equal to about 20 percent of the cost of your system. (It’s calculated on a per-watt basis; if you received a solar quote for a pretty average $8/watt, a rebate of $1.60/watt would be 20 percent off, and CSI EPBB rebates range from $1.10-1.90 at the moment.)

The second type of rebate is a Performance-Based Incentive or PBI. This rebate is based on your system’s actual output for the first five years, and is paid out in monthly installments over those five years. Systems larger than 30 kw can only choose this option, whereas smaller systems can apply for whichever they prefer. The PBI generally has more absolute value, but doesn’t help with up front costs, which can be a deal-breaker for home or small business owners.

Stay tuned for more in the California Solar Series. For a more in-depth look at the framework of the California Solar Initiative and of the rebates it offers, take a look at this guide on GetSolar.com.