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Solar Viewpoint: My Take on the Xcel Energy Solar Rewards Program Changes in Colorado

Posted by: april
April 19, 2011
Solar Energy International Instructor Zeke YewdallBy Zeke Yewdall, Solar Energy International Workshop Instructor

The Public Utilities Commission in Colorado announced this week that Xcel Energy, CoSEIA (Colorado Solar Energy Industries Association, representing small residential/commercial solar installers) and Solar Alliance (representing large commercial/central solar installers) and other parties, have worked out a plan to restart the Xcel Energy Solar Rewards program. Solar Rewards has been successful in Colorado areas served by Xcel, and that caused an earthquake in the Colorado solar industry in mid-February when it was abruptly put on hold by Xcel, causing layoffs to begin, with the threat of up to 3,000 layoffs by year's end.

There are two items of interest to take away from news reports on this, both of which are largely being overlooked. The first is the role of industry groups in getting this program restarted. If it had been up to Xcel, it would have been delayed till early summer before restarting, at a much lower level. Not many companies can handle three-to-five months of overhead with zero sales. Smaller companies based only in Colorado were looking at closing completely. Larger companies with other markets were looking at closing their Colorado offices. It was due to the incredible amount of work (80-hour work weeks for many of their staff, and thousands of dollars in legal expenses at the PUC) over the last weeks by the industry groups CoSEIA and Solar Alliance that the program is now scheduled to restart after only a five- or six-week delay -- which has been traumatic enough. Hopefully many of those layed off in the last few weeks can regain their green jobs.

If you are just getting into the solar industry, you might not realize the level of importance that these industry groups play. Without them, there would be very little solar in Colorado. It is because of their efforts in lobbying the state legislature, running solar friendly bills, fighting with HOA's that want to prohibit solar, and permitting jurisdictions that would like to price solar permits out of the ballpark, or wrap them in so much red tape that no one can do solar, that we have the industry here that we do. A lot of people coming from other industries such as roofing, HVAC, or electrical don't immediately realize that solar is not a required product. It's optional (with some off-grid houses being the exception).

No one HAS to buy solar. There's perfectly good, if a bit dirty, power coming in from the grid. We need these industry groups working the political and regulatory scene to make sure that solar has a fair chance against other sources of power that are so entrenched (including having their incentives for so long that we've forgotten that they are incentives and now view it as normal that coal, natural gas, and nuclear get big tax breaks and regulatory shortcuts, but wonder if we can afford to give them to solar, the newcomer). For all of you who just want to build solar systems and "don't want to play politics," every other energy industry has people on the floor of the capitol, and lawyers at the PUC all the time, so solar has to as well if our interests are going to be represented.

The other really big thing that should be being reported up and down the media from this agreement that Xcel and CoSEIA/Solar Alliance hammered out is the big shift is that solar incentives (especially for the smaller residential systems) are transisitioning from being an up front rebate, like we've been used to, to a production based incentive, that is paid out based on how much energy the system produces, over a 10-year period. Instead of getting a big check up front, you get small checks (or credits on your power bill, depending on how they implement it and how much is left of your bill after installing solar) each month for 10 years. This is how a lot of the larger systems were already incentivized. For the most part -- some of them also had an up-front incentive portion.

This move shifts a lot of the cash flow problem off of Xcel energy, and onto the PV system owner, and cash flow was one of Xcel's largest issues that prompted them to shut down the program. The larger systems actually took a lot less cash from them, because they were only entering into contracts to spend money over typically 15 or 20 years, rather than writing a large check right now. The small residential systems were taking way more than their share of the money (in Xcel's eyes) because they had to write the large check up front to the customer. By shifting to a production-based incentive spread out over 10 years (Xcel would have preferred even longer, but CoSEIA pushed for a shorter period to aid in matching it to typical financing periods for these smaller systems), the cash flow from Xcel for incentives, right now, is much smaller.

The incentive right now, assuming the PUC approves the agreement, will be $1.75/watt up front incentive, then $0.04/kWh of production, for a 10 year period. By the end of this year, this will transition to zero up front incentive but a full $0.14/kWh of production based incentive (for small customer-owned systems. There are slightly different levels for small third party owned systems and larger systems). In addition to shifting the cash flow off of Xcel and allowing the program to restart, this can also, depending on exactly how it is implemented, result in better quality solar systems being installed. Because you only get paid if it really produces. Systems with too much shading (a bigger issue than the industry would like to admit, especially with a lot of inexperienced installers coming in), won't get paid as much. If equipment fails, you don't get paid as much.

Essentially, this is a means for Xcel to shift to paying you for the energy your solar system produces, rather than paying for your solar system. It's not the only way it could have been done. When Xcel buys a new power plant, they pay for it up front, but then charge you a surcharge on every kWh that you buy, for the next 10 or 20 or 30 years, to recoup that investment. They could have done a similar thing with solar ... Buying the "power plant" up front like they have been doing, then collecting the RESA (renewable energy surcharge) payment of 2% of your bill, to pay for it for the next 10 or 20 years (Interestingly, they have just filed for a 5% additional surcharge on your bill for fossil fuel plants and costs of generating fossil fuel power).

Instead, they have chosen to go the route of a pure production-based incentive for solar power. This is very similar to what many other states and countries have done. Many of them, Germany being an oft-cited example, started out with a much higher level, more than 50 cents/kWh instead of 14 cents.  14 cents/kWh, as Xcel is going to, is roughly the same net present value as a $1.50/watt up front rebate. However, how many of you non-accountants do a net present value calculation on all your purchases?  Not many, I suspect. And this is the downside to switching to a production-based incentive. Emotionally, it feels better for Xcel to cut you a check for $20k after you've installed your system than to get a monthly check for $170/month, even if the numbers do work out.

But, like it or not, that's the way the solar incentives are moving, and Colorado has now joined the bandwagon.


Zeke Yewdall sits on the board of directors for CoSEIA, as well as teaching for SEI and designing and installing PV systems for Mile Hi Solar in Loveland, Colorado. Learn more at solar@darkforestcreature.com.


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