The GTM Solar Summit kicked off yesterday with a pre-conference look at how states solar markets are faring. With more than 3.1 gigawatts of capacity installed last year, the U.S. market seems healthy and continues to grow. However, some states are in better shape than others.

On the state level, there are some major differences. GTM Research analysts led four panel discussions on the state of play in Arizona, Colorado, California and Texas. Here are some top-level takeaways from those discussions.

Arizona: a maturing market

Arizona installed 710.3 megawatts of solar capacity last year and has the second biggest cumulative capacity in the U.S., with 1,093.5 megawatts. Its reported installed costs rank among the lowest in the country.

However, the market is "definitely at a point where there is potential change,” said American Solar president Sean Seitz.

There were fewer than 1,500 systems installed in the Arizona Public Service (APS) territory in 2009. But solar incentives put in place by APS and other utilities to meet their 2025 state mandate of 15 percent renewables generated 2,000 applications for new systems in the first quarter of 2010. Now regulators and utilities are ending the incentive programs, explained APS Marketing and Account Executive Rex Stepp. “We don’t know what will happen in 2014," he said.

“We are victims of our own success,” said Mark Holohan, the solar division manager at Wilson Electric. “We’re fighting a battle to [increase] the commitments. That takes political courage.”

The panelists agreed that, while the market remained uncertain, the change in incentives was a sign of Arizona's maturing market. Here are a few other signs they pointed to:

  • The dominance of the third-party ownership financing model, which last year accounted for 90 percent of growth, is waning. The simple math is that the prepaid lease is about $0.25 per watt net cost difference relative to the direct purchase. Some people say that is worth paying to own the system. Ownership levels will increase as the housing market comes back and the population ages.
  • The payback period is now 6.5 years to ten years, Seitz said. “A seven-year to eight-year payback triggers direct-purchase, steady market growth.”

Colorado: on the edge of a solar cliff

Colorado installed 39.8 megawatts of solar capacity in 2012 -- a steep decline from the 90.8 megawatts installed in 2011. That lowered the state from the 5th largest solar market down to 11th place. What happened? As the GTM Research/SEIA Solar Market Insight report succinctly points out, the solar industry “continues to live and die by the Xcel Energy rebate program.”

Because Xcel, the state's largest utility, is eight years ahead of schedule in meeting its wholesale renewable energy targets and only has 90 megawatts of distributed generation left to procure, the industry is looking over a "solar cliff," said Meghan Nutting, director of government affairs for SolarCity. "That's not enough to sustain the industry if, as proposed, it is drawn out over seven years with yearly caps."

"We have to hope for the best and prepare for the worst," said Ben Higgins, director of government affairs for Mainstream Energy Corporation.

Now the industry is looking to figure out how it can squeeze out a few more megawatts from Xcel to keep the market from completely crashing in 2014.

Here are signs that Colorado's solar market is looking down:

  • Xcel has launched a program allowing customers to invest in community solar systems. But those systems are capped at 500 kilowatts and the program only supported 6 megawatts of systems per year from 2011 through 2013 for a total of just 18 megawatts. "Xcel likes the program, but we don't know how big it will be," said Annie Lappé, solar policy director of Vote Solar. As of now, there are no signs that Xcel will dramatically expand the program to create a meaningful new market.
  • Current incentives under Xcel's program are seven cents per kilowatt-hour. Because they are "a critical piece of the value proposition," the solar industry will take a significant hit when those incentives go away, said Mainstream Energy's Higgins. So at the moment, with very few regulatory or legislative fixes in the works, the Colorado solar market is faced with an "imminent shutdown," he said.

California: Post-CSI drivers and dynamics

California installed 1,032 megawatts of solar capacity in 2012.

Moderator MJ Shiao, Senior Solar Analyst at GTM Research, asked the California panel what to expect once the CSI, which propelled California to the position of market leader, is done.

Sara Birmingham, Director of Western States for SEIA, said, "The megawatts have been met and we should be incentive-free very shortly." One worry for her once the CSI database stops being updated is a potential lack of consumer protection and a loss of the "great record" the CSI provides.    

PG&E and SDG&E are the utility territories where the CSI will run its course first.  

Echoing perhaps the theme of this conference, David Field, President and Chief Executive Officer of OneRoof Energy, said that net metering was the cornerstone of solar and the utilities are "chipping away" at the program. He noted that when SDG&E recently tried to change a solar rate design, the sheer number of solar customers revolting reversed the utility's course.     

Panelists had this to say about net metering (NEM):

  • Matt Lugar, a solar industry consultant, said that the impact of losing net metering would be "greater than [the loss of] the CSI program, which did do its job."
  • Net metering  is "rough justice" -- there are benefits that accrue to the grid that offset the rate being charged, said Blair Swezey, Director of Market Development and Public Policy at SunPower. He added that NEM was a compensation mechanism, not a tariff or a tax.

Texas: a market in its adolescence

Texas installed 64.1 megawatts of solar capacity in 2012 for a total capacity of 138.7 megawatts. So what's hindering the market?

Utilities such as Oncor, Austin Energy and CPS Energy are driving Texas solar; however, there are incentive caps and dollar limits in all three, explained Meridian Solar Executive VP Mark Begert. That limits the growth of business. And the natural gas industry has kept rates low, making it harder for solar to compete.

But J.C. Shore, founder of Circular Energy, explained that he is “bullish on solar in Texas.” Here are some signs that Texas' solar market is poised for growth:

  • Because of recent power shortages, a booming population and a failure to grow new capacity, Texas needs solar. “ERCOT wants a reserve generating capacity margin of 13.75 percent and outside consultants say 15 percent, but this year we are forecast that the state will be at 10 percent. Next year, we are forecast to be at 7 percent.” 
  • Resource adequacy studies from ERCOT include 10 gigawatts to 20 gigawatts of new solar capacity by 2030 because it will be price-competitive, said Clean Energy Associates principal Steven M. Wiese. And even though the municipal utilities and cooperatives that offer incentives have met their targets and there is no net metering elsewhere, demand continues to grow.