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Posted: March 18, 2011

Reality check for Colorado’s solar industry

Incentives and subsidies can't last forever

Mike Miller

On Feb. 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 more than $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 more than 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.

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 U.S., 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?

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 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. Some times 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.
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Mike Miller is founder and CEO of CEO Compass, LLC. He has 30 years of experience in leading multi-nationals such as BP, Castrol, PepsiCo and Ford. In 2007 he took up the challenge of growing an integrated alternative-energy company, Blue Sun Biodiesel, serving as its President and Chief Operating Officer. Miller is Vice Chairman and an Adjunct Professor with the University of Colorado's Global Energy Management program where he teaches renewable energy courses. He can be reached at mike.miller@CEO-Compass.com.

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Readers Respond

The subhead of Mr. Miller's editorial says, "Incentives and subsidies can't last forever." That's a very convenient statement from one whose clients/employers include BP, from an industry that has been reliant on government largess since the beginning of time. The fact of the matter is that renewable energy would LOVE to compete on a level playing field, but it is far from level today. Bloomberg, hardly a leftie organization, found last year that toxic energy sources received 12x the subsidies renewable energy received in 2009 (the last year for complete data). Furthermore, I am offended by Mr. Miller's implication that solar wants incentives forever. Our objection is that Xcel had a plan for declining incentives, and then unilaterally yanked the plan, creating huge instability in the marketplace. I'm disappointed Mr. Miller cannot see the difference between solar objecting to the intent of Xcel's actions (we weren't), but to the manner in which they conducted themselves (we very much were). So, I would encourage Mr. Miller to maintain a consistent stance and object even harder to systematically eliminate the massive subsidies and tax breaks received by toxic power sources like nuclear, oil, coal, and natural gas. Additionally, solar creates 15 times the number of jobs coal does for the same output. Your indignation towards subsidies would be appreciated, Mr. Miller, were it to be appropriately focused. By Jim Burness on 2011 03 20
I appreciate your position, Mike. It is true that mature industries should not need incentives for their growth. I would not call the solar industry "mature" by any standard. Its societal benefits are valuable, yet PV technologies haven't reached the economies of scale that let them stand on their own against established energy sources, like natural gas. Meanwhile, fossil fuels continue to receive tax incentives, and those incentives continue to get public support. Take Maryland's tax credit for coal: http://energypriorities.com/entries/2011/03/mercy_coal_breaks_md.php The Governor wants to free up $34 million of taxpayer money to balance his budget, but state legislators are fighting to save the coal subsidy. By Denis DuBois on 2011 03 18

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