Community solar gardens are getting ready to sprout across the country thanks to newly enacted state legislation, like in Colorado.

Solar gardens allow subscribers to purchase just a portion of an array to allow them to offset their electricity use. But even before it can grow into a way to offer more community members a chance to own solar, the Colorado solar garden faces a potentially anemic incentive program that could stunt widespread adoption. The same legislation (HB 10-1342) that enabled solar gardens, will limit the amount of solar gardens supported by the state’s largest utility, investor-owned Xcel Energy.

Colorado’s Public Utility Commission (PUC) has yet to issue rules for Community Solar Gardens, but Xcel Energy’s actions to slash its rebates are already imperiling the potential to find financing for smaller solar gardens.

The Golden Community Solar Garden is one such project that was dealt a near fatal blow by Xcel’s abrupt decision to halt its Solar Rewards program—which includes funds for solar gardens—while it appealed to the state to lower its rebate from $2.00 per watt to as low as 25 cents per watt.

However, on March 15, Xcel reached a preliminary agreement with solar installers that would lower the rebate level to $1.79 per watt and would ratchet it down as more people go solar. Under the agreement, the Solar Rewards program would provide incentives for up to 20 more megawatts of solar power between now and 2012, said Xcel spokesperson Michelle Aguayo.

“We’re hoping to start [offering the new incentives] next week,” she said. But there are still some filings that need to be completed.

In 2009, when legislation enabling community-owned solar gardens in Colorado was likely to pass, Elliot Brown and Tom Atkins stepped up their efforts to develop a proposal for Golden, Colo.’s community solar garden. The two had been chatting about the possibility of creating a citizen-owned photovoltaic array since 2008, Brown said.

“We knew that when PUC finished the rule-making process, Xcel was going to make a standard offer, and we knew just from looking at the working groups that with only 6 megawatts of power [up for grabs], and with 3 MW available for gardens that were 500 kilowatts and less, it’s going to be a pretty competitive program.

“We worried that it was going to be oversubscribed. We thought we’re going to have to be ready the moment the offer was out there,” Brown said.

According to Aguayo, Xcel wasn’t allowed to offer any more than 6 MW. “The reason why it’s only 6 MW is that that’s what the law caps. That’s what we’re subject to by law,” Aguayo said.

But Atkins and Brown organized an advisory board, talked with an accountant and found a local developer, Integral Energy Systems, that could help design the community solar garden.

“They were local. We wanted to have a grass-roots, community-driven solar garden,” Brown said.

The group decided to develop plans for a 500 kilowatt garden.

“500 kilowatts probably represents a sweet spot,” Brown said. “It takes as much organization to build a small project as it does a great big one. So we settled on 500 kilowatts. The subscriber can take anywhere from 1 kilowatt, up to 120 percent of whatever their load is. We thought we were going to need anywhere between 100 to 200 subscribers.”

Brown and the group were preparing for the PUC’s rules, which will come out in 2011. They were working with Integral to develop the proposal, find land for the project and sign up key members, like the city of Golden itself, which could purchase up to 40 percent of the array under state law.

Then Xcel halted the rebate program.

“The announcement by Xcel—aside from pretty much gutting the community solar garden project—it gutted the Solar Rewards program,” said Brown. “That was a real curveball. Our developer, Integral Energy Systems, said: ‘We’re gone.’ They thought this was significant enough for them to close up shop.”

But there’s still some hope. Barry Ruby, owner of Boulder Colo.-based Solar Power Financial, said, “I think there probably is a deal that can happen financially. It’s not as good as before, but still doable.”

However, at this point, he doesn’t know enough about the Golden Community Solar Garden to develop models. Among other things, Ruby would need to know the size of the array, what technologies were being proposed, how much it would cost, what the equity amount would be and how to monetize it.

“I think what’s going on here is nuts,” Ruby said. “I wouldn’t build a business model on solar gardens because it’s too undefined and too subject to the fickleness of Xcel.”

The proposed rebate level of $1.79 per watt should appease solar installers. Even if Xcel’s rebates are cut back to $1.25 per watt, which the company had proposed, the project may still make economic sense for an investor.

At that rate, a 100-kilowatt project would produce a moderate return of 5.05 percent to a project investor, according to an example project designed by Ruby. But under Xcel’s proposed basement rebate level of 25 cents per watt, the investment would be a loss, producing a negative 2.08 percent rate of return.

Image courtesy of NREL.