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A proposal in Arizona could change the way solar energy is marketed.

Typically, solar energy firms install solar panels, or arrays, on a given facility and the proprietor (business or homeowner) buys or leases the setup, uses the electricity, and sells any excess back to the local or regional utility which supplies power to the facility.

In Scottsdale, Foster City, a California-based SolarCity Corp. wants to install solar panels on two school roofs, essentially for free, and allow the school district would buy the electricity generated.

This has regional utility Salt River Project (SRP) up in arms. Arizona Public Service Company, the other regional utility (and the larger by 3,998 megawatts and 600,000 customers), has posed no objections, even though both will be required to testify before the Arizona Corporation Commission, Arizona's equivalent of a public utilities commission.

The schools in question are Coronado and Desert Mountain high schools. The issue in question is: can a solar manufacturer operate as a utility? Backers of the proposal see it as a huge incentive to solar power, because it frees proprietors from the sometimes huge upfront costs of installing solar arrays. Opponents argue that it would let solar panel manufacturers sell electricity without the oversight of state utility regulators, leading to electric-pricing disputes and abuse.

Returning to the issue of upfront costs in solar power, some have noted that, while individuals and even corporations can offset these with any number of federal, regional and local incentives, government buildings and schools aren't eligible for many of them, largely because such properties are financed with tax-exempt private activity bonds or other federal, state, or local subsidized financing (Section 48 of the Investment Tax Credit).

SolarCity argues that those limitations are slowing the growth of solar power, and many educators and public officials agree. Equally as important, SolarCity, as the installer and owner of record, can take advantage of those incentives, meaning they aren't lost and are reflected down the road in cheaper installation costs across the board as profits drive down the cost of solar panels.

That benefit alone, in a time of continuing recession, is tempting. According to SolarCity, schools could save $4.7 million on energy over the next 15 years by adopting the process.

SolarCity is not the first to make the suggestion, either. In October of 2008, Solar Alliance, a state-based advocacy group for solar designers, manufacturers, installers and financiers, asked the Corporation Commission to approve similar proposals. In fact, third party ownership using power purchase agreements (PPAs) was discussed as an option on Eshone Energy's blog.

The Arizona Corporation Commission has yet to get back to them, because the decision-making process challenges so many utility paradigms that there are no parallels, or precedents, to draw upon.

This is especially true as customers would still be connected to their local utility for electrical needs beyond the capacity of the individual solar systems. Also weighing heavily on the equation are Arizona's renewable energy mandates, which requires utilities to get 15 percent of their energy from renewable sources like solar and wind by 2025.

SolarCity has so far rebutted SRP's challenge by saying that, since it is not a monopoly, it doesn't need Corporation Commission regulation.

As Corporation Commission Chairwoman Kris Mayes points out, the entire solar community (and the nation) is waiting for a resolution of these difficult issues. Tom Alston, the head of Solar Alliance in Arizona, confirms that, and notes that more than half the recent applications for solar installations in the state have been coordinated through a solar-service agreement like the one SolarCity offers.

Clearly, if the proposal is rejected, solar will suffer a huge defeat in sunny Arizona. 

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