The recent passage of federalsolarinvestment tax credits has prompted one Colorado utility to reduce the rate it will pay to solar installers by 40 percent and give the installers one day to submit paperwork to qualify for the old rate.

Xcel Energy, the state's largest utility, plans to reduce the rate it pays for renewable energy credits from $2.50 per watt to $1.50 per watt for solar energy systems with a capacity of less than 10 kilowatts, said Joe Fuentes, an Xcel spokesman. The change will largely affect residential solar installations, which average 4 kilowatts to 5 kilowatts in capacity in Colorado, the utility said.

While the decision to lower the rate wasn't a complete surprise, the way the utility delivered the news to solar installers had some fuming.

Xcel notified the rate change in an email to solar installers and in a letter to the state's Public Utilities Commission on Thursday afternoon. Xcel gave installers until 11:50 p.m. Mountain Time Friday to apply for the credits worth $2.50 per watt, Fuentes said.

The short notice has prompted solar installers to scramble to file paperwork, while also raising raised concerns about the outlook for the state's solar industry, an industry group said.

"We at Colorado Solar Energy Industries Association are concerned about how this will slow the growth of the industry moving forward," said Jim Welch, the association's president, in an email to Greentech Media. "We also are concerned [with] how the process went with Xcel where we had wanted to be involved on the discussion of rebate change and Xcel rebuked our requests for meetings."

The purchase of RECs is part of the Solar Rewards program set by Xcel in 2006 to encourage solar energy use and help the company meet a state mandate that requires investor-owned utilities, such as Xcel, to have 20 percent of its electrical power coming from renewable sources by 2020.

The utility has to tell the commission how it runs the program, but it doesn't require the commission's approval to set the rate.

In addition to buying RECs, Xcel also provides a $2 per watt rebate for all solar energy systems with up to 100 kilowatts in capacity, whether they are located on residential or commercial properties. The rebate remains unchanged, Fuentes said.

The utility decided to lower the REC rate that affects residential solar installations because it believes the new federal incentives for residential solar energy systems will bridge the difference, Fuentes said.

The U.S. government passed the solar incentives in early October as part of a large tax break package for many types of renewable energy (see Lawmakers Approve Energy Tax Credits, Bailout).

The legislation, to take effect in January, will remove the $2,000 cap for investing in residential solar energy systems. In effect, a system could cost 30 per cent less for its owner as a result of the new law. Because of the high cost of solar energy systems, solar installers often own and maintain the residential systems and sell the power to the homeowners.

By Xcel's calculations, these new federal incentives will not increase the cost of owning a solar energy system by much. It would cost a solar energy system owner one percentage point more under the new REC rate, Fuentes said.

A 4.5-kilowatt system would cost about $14,175 after factoring in the new $1.50 per-watt REC rate, the $2 per-watt rebate and the new federal incentives, according to the letter Xcel sent to the utilities commission.

A 4.5-kilowatt system would cost $13,750 if the old, $2.50 per-watt REC rate and the $2 per-watt rebate stays in place and the federal incentives are factored in.