In the sunny state of California, another industry giant will soon implant itself into the state’ssolarcompany crops. Chinese solar-cell manufacturer Suntech Power has told Greentech Media it will open sales offices in the San Francisco Bay area by the end of September.

The company says roughly 15 people, including some managers, will be based in the Bay area office.

Suntech has more than doubled revenues each year since starting production in 2002. According to second-quarter figures posted in August, net revenues grew 147.7 percent year-over-year to $317.4 million.

The company’s growth is expected to continue, bolstered by California sales. "California is going to be 70 percent of our market in the U.S.," said Steven Chan, chief strategy officer for the company.

The company has settled on the state for its new office for one main reason: "The California Solar Initiative," Chan said.

The initiative, which officially began in January, is the largest such effort in the United States. The California Public Utilities Commission-created $2.9-billion rebate program hopes to install an additional 3,000 megawatts of solar capacity in the state over the next 10 years. But as the program rolls out, solar business community reactions aren’t all smiles.

Unforeseen challenges have surfaced, such as higher-than-expected electric bills for newly anointed solar-system owners and reams of paperwork for solar installers. And the latest concern is the speed with which the values of market-driven rebates are dropping for the commercial sector. Members of the solar industry are concerned all these issues might keep the state from realizing its solar potential.

Among the first problems to surface was the requirement that utility customers receiving rebates switch their electricity pricing over to time-of-use rates. The system changes the electricity pricing depending on the time of day. The highest premium is put on daytime peak energy usage.

Most solar-system owners benefit from the flexible rate, because solar production usually replaces so-called "peak-load" electricity, or electricity available when energy demand is at its highest and most expensive. But that wasn’t the case for everybody. In fact, some customers discovered their electric bill was actually higher than before they installed solar.

In June, the state’s utilities commission announced it was shelving the time-of-use rate.

Residential Paper Load

Another unforeseen burden has been the amount of increased paperwork required by the California Solar Initiative. For example, unlike programs where rebate size is paired with the size of a solar system, the initiative’s rebates are determined by the installed system’s output. And proving it requires an energy audit.

Dealing with the forms has been more difficult for residential installers than for their commercial compadres, possibly because of their smaller size, said Polly Shaw, a senior regulatory analyst for the California Public Utilities Commission.

Shaw said the commission is working to address the issue. The commission launched a Web site in August that supports the rebate application and tracking process online, and last Thursday announced it was cutting duplicative insurance requirements.

Diminishing Returns

Finally, installers working in the nonresidential sector have had to contend with rapidly decreasing rebates.

When the California Solar Initiative first went into action in January, the incentives were meant to decrease at least 7 percent per year for 10 years.

But the rebates are tied to the number of applications the state accepts, meaning that the rebates’ values decrease as more of them are awarded.

High demand has resulted in 2,790 applications, worth 131 megawatts and $406 million in rebates, from January to July alone. And that has cut the rebate up to 33 percent in some areas, from 39 cents per kilowatt hour to 26 cents per kilowatt hour in Pacific Gas and Electric and Southern California Edison territories.

That faster-than-anticipated drop has some solar industry folks worried.

"The system costs have not been able to achieve that cost reduction," said Stephen Torres, chief operating officer for commercial and residential solar-installation company DRI Energy. "As a result, it’s much more challenging today to do a solar project than when the program started back in January."

Torres admits that the concept behind the rebate reduction – to use the incentive to make nonsubsidized prices competitive – is right. "But you have to pace it," he said.

Still, the California Public Utilities Commission says bumps in the road are natural in the first eight months and will be smoothed out. "We are going to be actively monitoring to see how the incentive structure fares against real market costs," Shaw said.

And Adam Browning, executive director of the Vote Solar Initiative, said all the bugs are only to be expected. "No one should expect perfection coming out of the gates," he said.

The hope, of course, is that the frustrations are just a small price compared to what the solar industry and the public will get in return.

But will all these bumps prove to be more of a roadblock? Companies like Suntech are among those that appear to be betting no.