Ready or Not: Arizona Takes Steps Toward Incentive Free Solar

By Mark Bissegger, Analyst, ClearSky Advisors
March 20, 2013

Over the past several years Arizona has become one of the fastest growing solar markets in the US due in large part to a strong policy framework coupled with excellent market fundamentals. However, as of February 2013, Arizona’s solar incentive program was severely curtailed by the Arizona Corporation Commission, an executive branch of the state government, and uncertainty now surrounds the future prospects of the state’s solar industry.

Commercial production-based incentives have been eliminated entirely and residential incentives have been reduced to a fraction of their former levels. These incentives. both production-based and up-front, were part of the state’s Renewable Energy Standard and Tariff (RES) which sets out to have the state procure 15% of its electricity from renewable sources by 2025. Utilities in Arizona, which are legally mandated to comply with the RES, succeeded in using these incentives to reach and even exceed their intermediate RES targets.

ClearSky’s analysis has shown that as equipment prices continue to fall and as high-cost players leave the industry or become more competitive, the demand for solar, fuelled by the annually-increasing RES targets, is likely to remain strong in Arizona over the next five years with a gradual levelling off of solar installations between 2013 and 2015 as the market adjusts to the new regulatory environment. Projects previously approved with higher incentive levels will still be built along with large utility-scale projects, but the number of new projects will be reduced over the next several years.

To balance this reduced production the utilities will be able to use their banked renewable energy credits which wesolar hot water pool greenre carried over from surplus years against future years’ deficits. Given these conditions, ClearSky expects Arizona’s cumulative solar capacity to rise to 1,533 MW by 2015 and to 2,161 MW by 2017.

Arizona has effectively taken the training wheels off of the solar industry and is now expecting installations to continue with minimal state support. Over the next several years the changes which will occur in the Arizona solar market should be followed closely by the industry as more jurisdictions move towards reduced-incentive programs and as solar becomes an increasingly cost-effective energy option.

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