Although the rapid growth of Colorado’s PV industry has been among the country’s best PV success stories, the state’s industry now faces extreme uncertainty in 2009 and there is the potential for significant market retraction and resulting loss of jobs.
First, a little history.
In November 2004, Colorado’s grid-connected PV market was created almost overnight when voters passed a Renewable Energy Standard (RES), known as Amendment 37 (A37). This unprecedented ballot initiative succeeded where the state legislature had not, as similar proposals had already been rejected by legislators three times.
A37 established goals that were considered aggressive at the time by mandating that the state’s two Investor Owned Utilities (IOUs) obtain 10% of their retail electricity sales from renewable sources by 2015. It also included a 4% “solar carve-out” of which 50% had to be from “on-site” solar systems installed on customers’ premises. Thus, the on-site solar goals were 0.2% of all retail electricity sales by 2015. The non-on-site solar goals could be met via utility-scale solar power plants and the 8.2 MW PV plant that was commissioned in December of 2007 in Alamosa, Colorado, was built to satisfy this portion of Xcel Energy’s RES requirements. Readers should note that Xcel Energy is Colorado’s largest IOU and is currently responsible for more than 85% of the state’s PV market.
After Governor Bill Ritter was elected in November of 2006, he quickly helped pass House Bill 1281 (HB 1281) in early 2007 that effectively doubled the RES goals to 20% by 2020. It also increased the participation of non-IOUs, albeit with lower goals and no explicit solar carve-out. HB 1281 retained the 4% solar carve-out and 50% on-site requirements for IOUs, thereby doubling their total on-site solar goals from 0.2% to 0.4% by 2020. In order to fund their compliance with the RES, HB 1281 allows utilities to collect additional funds from ratepayers with a maximum retail rate impact of 2%.
Xcel Energy launched its “Solar*Rewards Program” in March of 2006. At first, the program only addressed “small category” (< 10 kW) projects with a standard offer to Xcel Energy customers of US $4.50/watt, which consisted of a $2.00/watt rebate and a $2.50/watt upfront payment to purchase the next 20 years’ worth of Solar On-site Renewable Energy Credit (SO-REC) production (as utility compliance with the RES is measured in RECs). Although the $4.50/watt incentive level is one of the highest in the country, this was required because Colorado’s electricity prices were so low at around $0.08/kWh for residential customers. (NOTE: the day this article was published (Oct 23), Xcel announced an incentive reduction from $4.50/w to $3.50/w.)
For Xcel Energy’s medium (10-100 kW) and large categories (100 kW-2 MW), Requests for Proposals (RFPs) are periodically issued whereby participants submit competitive bids to sell a proposed quantity of SO-RECs over a 20-year period. The medium category incentive transitioned in 2007 to a standard offer of $2.00/watt and $0.115/kWh while the large category still stipulates participation by RFP only.
The initial success of Xcel Energy’s on-site PV program was better than expected; over 2 MW of small category systems were installed in 2006 and over 4 MW of small and medium category systems were installed in 2007 (the 8.2 MW Alamosa installation also occurred in 2007, but this was not an “on-site” system installation). This year has seen the first large category system installations in Colorado and an expected total of 16-18 MW of on-site PV installations, consisting of about 6 MW from the small category and 10-12 MW from the medium and large categories.
An increasing number of other utilities in the state have also initiated successful PV incentive programs, albeit with substantially smaller installation numbers. For example, Black Hills Corporation (formerly Aquila), Colorado Springs Utility and Holy Cross have programs with total estimated installation numbers as high as 1 MW since 2006. In addition, under the leadership of Governor Ritter and the Governor’s Energy Office (GEO), and under the administrative management of the Colorado Solar Energy Industries Association (CoSEIA), a pilot program was launched in 2008 that will collectively spur the installation of as much as 1 MW in non-IOU territory.
Together, the GEO’s programs are “priming the pump” and will help establish the foundation for future market, business, job and infrastructure growth throughout the state. The collective success of these programs has created a burgeoning local solar industry, and since 2006, CoSEIA estimates that well over 1,500 long-term jobs have been created in Colorado’s PV industry and that its membership has grown with the addition of over 100 new member companies.
Why Is the Market About To Bust?
While 2006 to 2008 has been successful beyond previous expectations, the future of Colorado’s PV market currently hangs in the balance. Xcel Energy is planning only 12 MW in 2009, a 33% market contraction over 2008, with further contractions again in 2010 (8.5 MW) and 2011 (3 MW). As a result of this drastic reduction in market size, one can expect that critically important jobs, businesses, investment and momentum will all be lost. Regressing in this manner and losing the valuable infrastructure that has been created over the past 3 years will seriously undermine Colorado’s participation in future PV industry success, especially considering that the rest of the world will see ongoing market growth of 40% per year or more.
Why is Colorado set to retreat in the opposite direction? One reason is that, because of the design of the RES, Xcel Energy is able to accumulate SO-RECs in advance of RES milestones, thereby allowing Xcel to leverage federal Investment Tax Credit (ITC) dollars and maximize PV installations before the ITCs expired. As soon as a utility meets its RES requirements, it no longer needs to offer the same incentive levels, and if incentive levels go down, so does consumer demand. While one could argue that there were merits to Xcel’s plan to leverage the then-expiring ITCs, the disadvantages far outweigh the benefits to the people of Colorado when considering the resulting loss of jobs, businesses, and industry infrastructure.
Even the recent 8-year extension of the ITCs will unfortunately have minimal impact on the growth of Colorado’s PV market unless adjustments are also made at the state level. If the RES targets remain unchanged, for example, the ITCs will simply allow utilities to offer lower incentive levels in order to accomplish the same solar goals. To illustrate this, as this article was published, Xcel announced a reduction in the small category incentive level from $4.50/w to $3.50/w to be effective as of October 24.
That being said, the ITCs are still a tremendously positive development that will facilitate efforts to make changes at the state level because, among other things, less funding would be required in order to spur additional market growth.
The Solution? Get Involved.
So, what must Colorado do to save its local PV industry and regain a leadership position among other states? CoSEIA is working with utilities, the Solar Alliance, the GEO, Interwest Energy Alliance and other local stakeholders such as Environment Colorado and Western Resource Advocates to develop a strategy to ensure long-term PV market growth. Strategic planning includes taking specific actions at both the state legislature as well as the Public Utilities Commission.
Colorado faces tremendous uncertainty with its state PV market and incentive programs. Significant time, resources and collaboration will be required from all stakeholders in order to save Colorado’s PV industry, build upon early successes, and ensure stable growth long into the future. The author suggests that interested readers, PV industry stakeholders, and companies contemplating an expansion to Colorado strongly consider joining and supporting CoSEIA as a way of contributing to its policy efforts and keeping up-to-date on current market risks, trends and outlook.
Blake Jones is the President of Colorado-based Namaste Solar Electric, a board member of CoSEIA, and a NABCEP certified PV installer.