Solar energy projects continue to shine in Colorado, but there may be clouds on the horizon.

The state’s solar market has seen impressive growth in recent years. Large commercial and utility-scale projects drove the growth, but the residential and midsize retrofit markets also stayed strong.

On a national scale, the state remains a leader. It ranks fourth in solar installations behind California, New Jersey and Nevada, and second in solar jobs per capita, according to data compiled by the Solar Energy Industries Association and the Interstate Renewable Energy Council.

However, the pace appears to be slowing. Total capacity installed for solar electric installations grew by 23 megawatts in 2009, up from 21.6 mw in 2008 and 12.4 mw in 2007.

The numbers for 2010 will not surface until next spring, but overall growth in capacity is expected to be modest, according to industry projections.

And with key federal programs set to expire and incentives declining at the state level, the outlook for 2011 and thereafter hangs in the balance.

“The state’s continued growth will largely depend on whether policies and incentives at the state and federal levels continue to drive solar demand,” says Blake Jones, president and chief executive officer of Boulder-based Namaste Solar.

Since its start in 2005, Namaste has worked on a range of installation projects, including the 100-kW rooftop PV system at the Denver Museum of Nature and Science and the 200-kW rooftop system at the New Belgium Brewery in Fort Collins.

Even though the firm remains busy with several projects, including the second phase of the 1.6-mw PV system at the new Research Support Facility at the National Renewable Energy Laboratory’s campus in Golden, Jones says he’s concerned the boom might bust.

“We’re definitely worried that the market might be the same size or smaller as it was this year,” he says. “At a time when there is more competition than ever from a growing number of solar companies in the state, any loss of business could result in job losses to the local solar economy.”

In anticipation of a market retraction, Namaste is focusing on markets outside of Colorado more than ever, Jones adds.

Rebate Program Suspended

Several factors have contributed to growing pessimism—most notably, Black Hills Energy’s mid-October decision to suspend its $2-per-watt solar energy rebate program for up to five years.

The Rapid City, S.D.-based utility, which serves nearly 100,000 customers in southeastern Colorado, maintains that the statutory ratepayer fee to support the program—currently 2% of a customer’s monthly bill—is “not sufficient to fund additional program costs.”

“Other utilities have been able to manage their budget in the exact same market environment,” says Neal Lurie, director of the Colorado Solar Energy Industries Association. “The fact that Black Hills has not been able to do so raises questions as to whether they were effectively managing the program.”

As of early November, the state Public Utilities Commission is reviewing Black Hills’ decision and evaluating whether the company is in compliance with state rules.

Lurie, who is petitioning the PUC on behalf of local vendors, says he’s hopeful that the commission will find a workable solution and restore the program as quickly as possible.

Black Hills’ incentive program was created by the state legislature as a mechanism for promoting renewable resources and meeting the state’s renewable energy requirements, known as a renewable portfolio standard, or RPS.

Colorado became the first state in the nation to have a voter-approved RPS when voters passed Amendment 37 in November 2004. The initiative is widely credited with jumpstarting the state’s solar economy.

“Not all portfolio standards are created equal,” says Jeff Lyng, renewable energy policy manager with the Governor’s Energy Office. “Colorado’s aggressive targets and early adoption of a solar carve-out is the whole reason that we have such a vibrant solar industry today.”

Solar Energy Mandated

The original version of the state’s RPS required Black Hills and Xcel Energy to obtain 10% of their electricity from renewable energy sources by 2015. It was also among the first in the country to include a solar carve-out that required 4% of the RPS be met specifically with solar energy.

State legislation has increased the standard twice, pushing the utility companies to reach more aggressive goals each time. The latest measure upped the target to 30% by 2020, making Colorado’s RPS the second highest in the nation behind that of California’s mandate of 33% by 2020.

The new standard also replaces the original solar carve-out with a larger requirement mandating that 3% of all retail electricity sales by 2020 come from distributed power generation.