Tucson Electric Power Co. is asking state regulators to lower subsidies for residential customers who install solar arrays, saying the utility is running out of funding for the rebates amid a surge in demand.

Nearly 1,100 local homeowners have reserved TEP's SunShare rebates for solar photovoltaic (PV) systems this year, surpassing the total number of residential solar power systems completed over the previous nine years combined, TEP said.

TEP said residential customers have reserved more than $12.2 million of the $17.6 million in upfront SunShare incentives available this year, and at the current rate that money will run out in August. The rebates are funded by monthly surcharges paid by all electric customers.

Rebate requests from local businesses, meanwhile, have exceeded the $5 million budget for those upfront incentives. TEP business ratepayers interested in installing solar systems are being placed on a waiting list.

In response to the surging demand, TEP said it has asked the Arizona Corporation Commission to reduce residential SunShare rebates from $3 to $2.25 per watt for grid-tied PV arrays, for rebate applications received after the close of business on July 7.

That would cut the rebate on a 3-kilowatt system from $9,000 to $6,750.

The ACC could take action on TEP's proposed changes as soon as an open meeting set for July 27-28.

"We looked at the trend and made the proposal that the incentive money would last longer if we lowered the rebate," TEP spokesman Joe Salkowski said.

Reducing the rebate will allow more customers to take advantage of the program, TEP said.

TEP proposed several alternatives for commercial customers, subject to state approval. The company said it could wait until new resources are available next year; restore upfront rebates by tapping funds in a separate, "performance-based incentive" program normally paid out over 20 years, or raise more money through customer surcharges.

The surge in demand for TEP's SunShare subsidies has been driven in part by reduced costs for solar power systems, said David Hutchens, a vice president of TEP and parent UniSource Energy Corp.

Prices for installed PV systems in the Tucson area have dropped to about $5 per watt from nearly $12 per watt in 2006, while TEP's incentives have remained unchanged, TEP said.

A local solar system provider and longtime industry advocate said lowering the rebate makes sense.

"With the price of the PV systems dropping ... it makes sense to drop the rebates. It allows more people to participate," said Katharine Kent, president of The Solar Store.

"Electric rates continue to increase, so consumers (who install solar) are going to get their money back," Kent added.

At the same time, she said, the solar industry should be looking beyond government incentives.

"It's appropriate for government to help get an industry up and running, but for this industry to survive in the long term, we need to survive without incentives," she said, adding that ratepayers also need to recognize the true costs of electricity.

TEP said the pace of rebate applications quickened after Phoenix-based Arizona Public Service Co. reduced its PV incentive levels to $1.95 per watt in April, with approval from the Corporation Commission. That encouraged PV installers to step up their marketing efforts in Tucson, TEP said.


In late January, Trico Electric Cooperative said it was at least $1 million behind on paying its solar rebates, leaving some Trico customers waiting months for thousands of dollars in promised rebates. Trico won approval to raise its monthly renewable-energy customer surcharge and cut back its rebates.

Contact Assistant Business Editor David Wichner at dwichner@azstarnet.com or 573-4181.