Solar-energy incentives are slowly fading away in Colorado, and solar-industry executives say that's OK.
"It's an approach we are seeing in a number of states," said Cary Hayes, director of business development at REC Solar, a solar installer. "It's a glide path to zero."
What is offsetting the decline in incentives is a sharp drop in the cost of solar-panel systems, installers say.
"We've seen cost come down for panels, for equipment, installations, even permits," said Blake Jones, chief executive of Boulder-based Namaste Solar.
The installed price for a solar system has dropped since 2004 from $9 a watt to less than $4, Jones said.
The question is whether costs can come down even more so that an incentive of 3 cents a kilowatt-hour still draws buyers.
"We're not there yet," Jones said. "That's what we're working on."
Since, 2006 Xcel Energy, the state's largest electric utility, has offered incentives for residential and small commercial solar installations under its Solar Rewards program.
The program has provided more than $276 million in incentives to Colorado customers and installed nearly 15,000 photovoltaic systems, the company said.
But the fund for the program — which comes from a 2 percent charge on Xcel customer bills — is running a $43.9 million deficit.
The Colorado Public Utilities Commission in 2012 agreed to reduced incentives and to cap the program — to help address the deficit, which Xcel said would be erased by 2017.
Still, Solar Rewards remains popular with homeowners, and the 9.8-megawatt allotment for 2013 projects was filled by May.
In an effort to keep the program going, Xcel and the solar industry negotiated an extension in April — with even sharper cuts in incentives.
"We are used to a reduction in incentives. What is really hard is a program starting and stopping," said Namaste's Jones. "We call it the solar coaster."
The agreement — which basically moves capacity slated for future years forward — must be approved by the PUC.
At the time the agreement was reached, David Eves, chief executive of Xcel subsidiary Public Service Co. of Colorado, said: "We believe it is important to keep this program available to the market for the remainder of 2013."
Under the agreement, the first 4.8 megawatts of residential projects will get a 9-cents-a-kilowatt-hour incentive.
When that is filled, the next 4.8 megawatts will be eligible for an 8-cent incentive.
The incentives will continue to drop in 4.8-megawatt steps to a 3-cent incentive.
The incentives for leased systems — which make up an estimated 80 percent of the Colorado market — are even smaller, ranging from 6 cents to 1 cent.
"This kind of 1-cent steps is something we are used to," said Eric Wittenberg, regional vice president for SolarCity, a California-based leasing company that has installed hundreds of systems in Colorado.
"Local incentives will all be gone in two years," Wittenberg said.
Also, the federal solar-investment tax credit is slated to be cut from 30 percent to 10 percent in 2016, Wittenberg said.
"You are going to have to figure out how to run your business in that environment," Wittenberg said.
For the customer, the calculus remains simple — can a solar installation provide electricity more cheaply than Xcel? said REC Solar's Hayes.
"If the total installed cost plus the incentive — whatever it is — is equal to or lower than the existing utility rates, solar is still a no-brainer," Hayes said