Solar incentives offered by Tucson Electric Power Co. (TEP)—at least in terms of commercial installations—have really taken off. Meanwhile, residential installations under the incentive programs are still somewhat behind. As such, the utility is seeking to reduce the total amount of solar incentives it offers for commercial developments in 2012, while leaving the amount for residential installations the same. That’s despite proposing to spend $8 million more on solar in 2012 than in 2011.

The company is trying to comply with the distributed generation requirements of Arizona’s renewable portfolio standard, according to TEP spokesperson Joe Salkowski.

“Of that distributed generation, the standard is split evenly between commercial and residential systems. And we have a goal for each year for commercial and residential system,” he said.

Salkowski said that the demand for residential solar incentives had not been as strong as commercial demand. Now, the utility needs to source more solar power from the residential sector.

“Our need for commercial systems is not as great,” he said.

Solar installers are wary of the reduced incentive plan and caution that the steep reduction in commercial incentives could hurt the market.

"When they're trying to fulfill their mandate, it doesn't seem to me it's in the interest of the whole spirit of it to put the kibosh on commercial [development]," Charlie O'Dowd, president of Abco/Westcap Solar told the Arizona Daily Star.

To help rectify the issue, TEP filed with the Arizona Corporation Commission, which will hold a public hearing about the filing this week to reduce the amount it will spend on incentivizing commercial solar installations to a total of $1.1 million, down from $3.7 million this year, according to the newspaper.

The amount of funds for residential solar installations will remain the same at $14.4 million.

But demand for residential systems has picked up.

“Last year we really did see a greater interest in residential,” Salkowski said. “Interest was driven largely by reduced prices for photovoltaic systems in general. The cost of PV systems has fallen significantly and those decreases really seemed to accelerate in 2010. Residential customers were able to buy a system for literally half the cost of what they were a few years before.”

To keep from overspending on too few residential systems, TEP also is proposing to reduce incentives from $2 per installed watt to $1.75 per installed watt and potentially down to $1.50 per watt if demand exceeds 60 percent by mid-year.

In all, the utility plans to spend up to $44 million on solar and renewable energy in 2012, up from $36 million in 2011. A full $5 million of the additionally proposed spending will come from funds left over from 2010, according to the newspaper.

While funds were left over from 2010, TEP doesn’t expect any to be left over from 2011.

“Demand has been very strong,” Salkowski said. “We’re currently on track to use our incentive budget completely by the end of the year.”

Image courtesy of NREL.