Xcel case exposes solar problems.

• Author: Best, Allen
• Position: ENERGY

Order and a measure of stability have been restored to the market for installation of photovoltaic solar systems in Colorado. The state's Public Utilities Commission approved a settlement between Xcel Energy, the solar industry and state officials that restores but restructures the rebate program that had fueled the explosion of the solar industry from 40 firms to more than 400 in just a few years.

But the case also exposes structural problems in an industry that has been a poster child for entrepreneurialism in Colorado, the nation's fifth largest market for solar. The chief question now apparent is whether small and medium-sized companies can become as adept at financing as they have in the past at securing customers. Or will the industry eventually become dominated by a few giants, much the way Lowe's and The Home Depot dominate hardware and building supplies?

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"There are organizations that unfortunately will not make the transition very easily," said Neal Lurie, executive director of the Colorado Solar Energy Industries Association. But he conceded that "ratcheting down of incentives" is a "necessary step."

The tempest was triggered by Xcel Energy's realization that it was rapidly depleting funds allocated for rebates to its customers who installed small solar systems. State voters in 2004 first mandated the investor-owned utility, by far the state's largest, to supply 10 percent of its electricity from renewable sources, a figure since then bumped to 30 percent by state legislators.

Xcel has been moving steadily toward that goal, and once before it reduced the rebate amount. But, in the eyes of solar installers, there was a defined process for those reductions, modeled somewhat on the approach adopted in California to stair-step the reduction in incentives available to utility customers.

Then, in February, Xcel announced plans to suspend rebates while submitting a proposal to the PUC for reduced rebates. Understandably, customers stopped calling, and while most companies had a backlog of work, many were forced to lay off employees.

Xcel had good reason to yank the candy. Global capacity for manufacturing PV panels soared, particularly in China. Germany, the world's largest market for panels, reduced incentives, causing less demand there. And federal policies adopted during the recession - including the 30 percent investment tax credit and accelerated depreciation - provided greater incentives. But Xcel's rebate...