On February 17, Xcel Energy announced a reduction in the incentives, provided through the Solar*Rewards program, to subsidize the installation of solar panels on homes and businesses in Colorado. Since then, we have seen, read and heard many opinions and even some picketing claiming foul on Xcel Energy for its reduction of assistance.

It’s time for a bit of a reality check. The solar industry has been receiving strong subsidies from the utility since 2006, favorable federal tax breaks and state legislation that requires the use of its products and services.

As of last year, the solar industry serving Colorado has received over $175 million from Xcel Energy’s customers via Solar*Rewards. This subsidization of solar installation began at approximately 50 percent of the installed-system cost and escalated to over 70 percent. In 2008, the $2,000 limit on the federal tax deduction was removed to enable homeowners to benefit fully from a 30-percent deduction of the cost of a solar system. Businesses receive an additional tax incentive—a 100 percent bonus depreciation allowance in the first year of ownership of their systems.

Colorado’s solar industry growth is enviable

As a result of installation incentives, Colorado’s solar industry grew 91 percent from 2009 to 2010 despite a tough economy in our state and the entire country. This was significantly better than the 67-percent average growth seen across the US, and we have good state policy, excellent solar resources and Xcel’s leadership in helping shift its customers’ electricity buying patterns to thank. In 2011, growth is expected to continue at about this rate despite the change in incentive levels.

Last year, the state legislature increased the renewable energy standard—the percentage of renewables that large utilities must have in their electricity mix—to 30 percent by 2020. This means Colorado is aiming for the highest percentage in its renewable mix of all states in the lower 48. Financial support for achieving this business growth, and supporting legislative action, is great news for the industry and provides a boost for the state’s economy as well.

Most industries would be delighted about this situation—I would have been when running a local biodiesel company a few years back. One wonders if some in the industry, and less-informed members of the public, want even more? Do they expect Solar*Rewards to be a work guarantee program instead of a program designed to assist the industry as it develops the ability to stand on its own? The reality is that the cost of solar equipment is dropping and solar installers are getting, or should be getting, more efficient and innovative to compete. The annual cost of PV systems, nationally, fell 8 percent in the residential market and 11 percent in the commercial market last year according to a report by the Solar Energy Industries Association (SEIA) and GTM Research, so shouldn’t Xcel be allowed to follow such efficiencies?

Incentives and subsidies cannot last forever

The bottom line is this: lowering the level of incentives must happen over time, and starting to do so now sends an important signal to the marketplace. Those solar installation companies like Namaste Solar that have a solid business plan and financial backing will flourish. And as happens in many emerging cleantech sectors, those who do not may be forced to reinvent their business model or run the risk of closing their doors and laying off employees.

The Public Utility Commission should endorse the modified Solar*Rewards program

The Governor’s Energy Office is to be commended for its efforts working with the solar industry and Xcel to determine a long-term, sustainable solution for financing the acquisition of renewable energy while continuing to help create new solar jobs in the state. I urge the Public Utility Commission, at its Friday, March 18th meeting, to support the proposed but less costly Solar*Rewards program which appears to come with the support of all key stakeholders—government, solar installers, Xcel and much of the public. Xcel Energy would now pay $1.79 per watt for small customer-owned systems versus the $2.35 per watt rate prevailing prior to its announced trimming of the program a month ago. This 24 percent reduction can surely be absorbed given historical cost reduction trends in manufacturing photovoltaic cells, benefits from having these suppliers in-state and installer economies of scale in the sales, delivery and installation of systems.

It’s a tough reality, but it is also the nature of our competitive economy. We all want to see Colorado maximize use of its abundant renewable energy resources—wind, geothermal and solar. Sometimes, getting to this ultimate goal means smaller firms must adapt to prosper—or allow those who can to become stronger and better able to serve the market.

Mike D. Miller is an Adjunct Professor of Global Energy Management at the University of Colorado at Denver.

Editor's note: We here at CleanEnergyAuthority want to know what you think. Please feel free to submit letters to the editor on issues that are important to you.