October 21, 2015
President, Arizona Solar Energy Association
Solar Division Manager, Wilson Electric
Solar installed capacity continues to grow rapidly in the U.S. and Arizona as well. Despite the end of utility incentive programs for customer solar generation, activity continues due to lower system prices. This dramatic progress resulted from technology innovation, industry scaling, financing innovation and efforts to reduce soft costs and more is expected, though at a more gradual rate. Nevertheless, Arizona’s quarterly installation rate dropped to number 6 in the U.S. after peaking at number 2 a few years ago. We are now behind states like New Jersey and Massachusetts in solar activity.
For 2016, the Arizona solar market should improve over 2015 for customer owned generation and the utility scale market will stall. A federal investment tax credit of 30% is scheduled to be eliminated for residential systems in 2017, and it is set to decrease to 10% for non-residential systems. This event will stimulate demand from customers concerned about missing out on this benefit. Utility scale projects take substantially longer to develop and are already affected by the benefit reduction and utility progress on compliance with renewable energy standards.
Residential installations have been the most active and are now several times the size of the non-residential installations (measured by capacity as well as systems). The exception is Salt River Project’s territory, where rate designs adopted in February of 2015 dramatically affected demand. In June of this year, for example, there were over 70 times the residential installations in APS service territory as in SRP’s.
Non-residential installations continue. Rooftop systems for taxpaying organizations are the most active. Financing costs for non-profits and governments make these transactions less attractive, due to the need for investors who benefit from the tax incentives. In good situations, building owners are seeing double digit after tax returns on capital invested in non-residential rooftop solar projects.
On the policy front, utility rate cases should be contentious in 2016, as several have filed or will file cases with rate design proposals with a stated intention to allegedly make solar customers pay a “fair” share of utility fixed costs. Many jurisdictions across the U.S. have rejected these proposals, and in most of the business world customers pay based on the volume of products or services they consume. In the past, regulators have been reluctant to force existing solar customers (now over 40,000 in number) from having to pay more under new plans. It will be interesting to see how Arizona regulators rule on these proposals that will affect how much of our future energy needs will come from customer funded sources rather than central utility power plants that everyone already is funding.