Arizona Utility Cuts Solar Rebates to Save Incentive Program

The biggest problem facing state and utility solar incentives is their inability to keep up with demand. We’ve seen it in Connecticut, Florida, New Jersey and elsewhere across the nation; available funds for a given year are sold out long before that year is up. The same issue has already forced one Arizona utility to cut its rebates and is now affecting another.

Last year, the Salt River Project (SRP) reduced rebate levels in response to rapidly increasing demand. Now Arizona Public Service (APS) has submitted a proposal to state regulators requesting the same action. In 2009, APS customers installed more photovoltaic systems on their rooftops than the eight previous years combined, spurred by rebates and some of the most competitive per-watt solar costs in the nation.

In Phoenix, for example, the average solar electric system, 6 kilowatts (kW) in size, costs between $30,000 and $50,000, according to GetSolar.com. That works out to a rate of $5 to $5.83 per watt installed — much lower than other regions where pre-incentive costs range up to $8 per watt even in an era when solar equipment costs are dropping rapidly. The existing APS utility rebate is $3 per watt installed, meaning that customers installing a 6-kW system would receive up to an $18,000 rebate, although rebates are capped at 50 percent of the total cost. Adding in a 30-percent federal tax credit and a $1,000 rebate from the state, residents could get their system installed for a net cost of less than $12,000.

The proposed reduction would drop that APS rebate down to $12,900 and raise the net cost to around $15,000 — still very competitive for a 6-kW system. The Arizona Corporation Commission, which regulates state utilities, had reportedly planned to reduce the incentives, but not this early. However, APS asserts that, without the reduction, its annual $44.1 million funding allotment for 2010 would be exhausted by June.

Furthermore, the utility expects solar costs to drop even further over time while the cost of conventional electricity continues to rise, thus offsetting much of the reduction. Solar installers in the state may feel a pinch as they are forced to cut labor and profit margins, already stressed by a weak economy, to accommodate the cut.

Still, the post-cut rebate would cover nearly half the average Arizona solar installation, not counting federal and state credits. So a home solar power installation in our sunniest states still stands as one of the best home energy investments anywhere in the country.

Photo Credit: Green-Solar-Wind

Posted on April 13th in Solar Funding by Dan.