Every character has an XP reserve equal to his level x 100. These XPs are only used to fuel spells or powers that require XPs or item creation. You permanently lose 1 hit point every time you exceed this amount. For example, a 5th level character has 500xp reserved just for item creation or for spells that require XPs. If he spends 1,000 XPs, he permanently loses 2 hit points.
Spells that Cost Experience:
Nearly every magical spell has a "power component" (see Unearthed Arcana pg.141-149) that can be used to aid in casting the spell. If you have the power component, the XP cost of casting is reduced by 1/5th the cost of the component. Any additional XP required must come from the caster's reserve, possibly causing a loss of hit points. Additional power components may further reduce the cost.
A caster knows the power component for a specific spell if he succeeds on a Spellcraft check, DC:20 + the spell's level.
In addition, if you have the spell’s power component, and the spell doesn’t normally require an xp expenditure, the component may allow you to add a metamagic effect upon casting. If the spell does require an xp expenditure, you may elect to pay it anyway and gain the effects of the metamagic feat. The metamagic effect gained depends on the spell and power component. (See Unearthed Arcana pg.141-149)
Psionic Powers that cost Experience:
Psionic powers that require XPs are handled a bit differently. The psion may purchase a crystal equal in value to the level of the power + manifester level x 100. Over the course of an hour per level of the power, the psion attunes the crystal to the power he plans to use. Once created, the crystal houses a number of XP equal to the power's level x 100 that can only be used to fuel that particular power. Once drained of its stored XP, the crystal shatters and becomes useless. Any additional XP required must come from additional focus crystals or the manifester's reserve, possibly causing a loss of hit points.
Focus crystals created for powers that do not require an XP expenditure have no effect unless the power it is attuned to is required to create a psionic item. See below.
Magical Item Creation:
Creating magical items require specific spells to be cast. For every required spell for which the item requires, the caster may elect to use a single power component. For each component used, the xp cost of creating the item is reduced by 1/5 the total cost of all components.
For example, if a caster wanted to create a Cloak of Arachnida, he has to cast the spells Web and Spider Climb and it would cost 7,000gp and 560xp. However, if the caster gathers the power components for both spells, which cost 1,550gp total, the cost then becomes 8,550gp and 336xp.
If a magic item doesn’t require a specific spell to be cast, the caster can create a general power component. The cost of the component equals 1/10th the base price of the item and stores a number of XPs equal to 1/50th the base price of the item. The components may take any form, from elaborate alchemical setups to a glass rod carved with runes. XPs stored in additional power components stack. Items that require spells to be cast cannot be created with the aid of a general power component. Only power components associated with the necessary spells can be used.
The Artificer class' craft reserve functions normally. It provides bonus XPs that can only be used during item creation.
Psionic Item Creation:
In the same way magic items require the casting of specific spells, psionic items require the manifestion of specific powers. For each power required to create the item, the manifester may utilize a single focus crystal attuned to that power. Focus crystals created for powers that do not require an XP expenditure have no effect unless the power it is attuned to is required to create a psionic item.
Determine the total number of XPs stored in the focus crystals. These XPs can be deducted from the total XP cost of creating the item.
For example, if a psion wanted to create a Comprehension Crystal Anchor it would cost him 12,000gp and 960xp. However, if he gathered a focus crystal for the two required powers, brain lock and psionic contingency, the cost would become 13,300gp and 160xp.
If a psionic item doesn’t require a specific power to be manifested, the manifester can create a general focus crystal. The cost of the crystal equals 1/10th the base price of the item and stores a number of XPs equal to 1/50th the base price of the item. XPs stored in additional focus crystals stack. Items that require powers to be manifested cannot be created with the aid of a general focus crystal. Only crystals attuned to the necessary powers can be used.