Colorado’s Solar Energy Market

Michael P Smith - Colorado's Solar Energy Market v02

Colorado’s Solar Energy Market

By Michael P. Smith, Editor-in-Chief

Colorado was the first U.S. state to enact a renewable energy requirement initiative, and it boasts one of the fastest growing renewable energy markets in the nation. This article explores the implications of Colorado’s renewable energy standards on the state’s market for solar energy.  Part I describes the relevant laws and policies, Part II assesses the strengths of Colorado’s solar energy market, and Part III discusses market weaknesses.  The article concludes that the market outlook is favorable.

I. Law and Policies

In 2004, Colorado became the first state in the country to enact a renewable portfolio standard by ballot initiative when voters approved Amendment 37.[1]  This amendment initially established a Renewable Energy Standard (“RES”), requiring that 3% of retail electricity sales be derived from renewable sources in 2007, increasing to 10% by 2015.[2]  In addition to instituting net metering and interconnection standards for the state’s Investor Owned Utilities (“IOUs”), Amendment 37 established a 4% solar generation “carve-out,” with half to be derived from utility-scale and the other half from distributed generation (“DG”) installations.[3]  Importantly, the amendment also created a Standard Rebate Offer (“SRO”) as a utility incentive.[4]

Thereafter, a series of over fifty legislative actions progressively enhanced the state’s renewable energy market for investors.  In 2007, HB 07-1281 doubled the RES to 20% for IOUs, and, for the first time, established a Rural Electric Cooperative and Municipal Electric Utility (“muni”) goal of 10% by 2020.[5]  Also in 2007, SB 07-100 required IOUs to identify resource-rich zones and offer them incentives to expand their transmission investments.[6]  In 2009, SB 09-051 expanded utility programs for on-site solar installations by enabling third parties to sell electricity from facilities located on customers’ property to that customer.[7]

In 2010, HB 1001 made significant strides by further increasing the RES to 30% by 2020.[8]  However, it also eliminated the solar “carve-out,” instead replacing it with a broader and much higher DG standard of 3% of retail sales.[9]  This standard became the most aggressive in the country.[10]  HB 1001 also allowed utilities to “borrow forward” future funds at their weighted average cost of capital,[11] providing earlier funding to build new markets for non‐solar generation.[12]  That same year, HB 10-1342 required the Public Service Company of Colorado (“PSCC”) to offer to acquire electricity and renewable energy credits (“RECs”)[13] from community “solar gardens.”[14]  This broadened the market considerably, as solar gardens enhanced the availability of solar generation to more users.  Finally, in 2013, SB 252 increased the RES for IOUs once again to 30% by 2020 and added new eligible resources.[15]  As codified, Colorado’s RES now provides for three compliance standards: (1) IOUs are 30% by 2020; (2) nineteen cooperative associations (“coops”) powered by Tri-State and the Intermountain Rural Electric Association (“IREA”) are 20% by 2020; and (3) large munis and the remaining three cooperatives are at 10% by 2020.[16]  All may purchase RECs from any generator for compliance.[17]

II. Market Strengths

 A.    Aggressive Renewable Portfolio Standard and Policy Drivers

Colorado has one of the most ambitious Renewable Portfolio Standards in the nation, and its numerous renewable energy-related policies have helped propel it to the seventh largest solar photovoltaic (“PV”) market in the nation.[18]  First, Colorado has a robust DG policy built around its DG carve-out: IOUs must have 1.25% of their retail sales come from DG in 2014, growing to 1.75% in 2015-2016, 2% in 2017-2019, and 3% in 2020 and beyond.[19]  State incentives help attain these marks.  IOUS are expected to achieve these goals through net metering. As required by Amendment 37, IOUs must purchase excess electricity from consumer.[20]  Net excess generation is credited to consumers’ next bill at the retail rate and, at end of twelve months, any remaining may be rolled over indefinitely or be purchased by the utility.[21] Because the policy requires IOUs to credit customers for the energy they produce at their retail rate, consumers benefit from greater reliability.

Residential consumers also benefit from a “standard rebate offer,” under which IOUs must provide rebate payments.  The default rebate IOUs must offer is $2 per watt of installed capacity on consumers’ property and $2.50 per watt for their Renewable Energy Credits (“RECs”).[22]  While the Public Utilities Commission (“PUC”) has the discretion to reduce rates, and while payouts may be lower than the default rates,[23] this policy is a powerful incentive for residential consumers to install solar.[24]  Equally important, it also enhances market stability because both parties agree to long-term, unfluctuating rates, and it reduces transaction costs both for residential sellers and IOU purchasers because it minimizes the negotiation of REC terms.

Moreover, consumers benefit from cost mitigation through capped residential rate increases; IOUs and electric coops may not increase incremental costs for the purchase of renewable generation by more than 2% of the current retail rate.[25]  Even though it may diminish IOUs’ high returns, the measure shields consumers from passed-on costs.

Second, Colorado’s policy regarding long-term REC contracts enhances market stability.  In exchange for IOUs offering consumers a two-part rebate incentive, consumers must also offer IOUs a twenty-year package of solar RECs.[26]  These long-term contracts benefit IOUs and enhance stability because they ensure a reliable revenue stream.  Not only does this reduce uncertainty for IOUs, but it also helps secure debt.

Third, Colorado’s unique policy regarding compliance multipliers promotes continued in-state growth.  Under this policy, generators are eligible to receive RES obligation reductions for early action.  For example, with a 1.25 compliance multiplier, 1 megawatt (“MW”) will count as 1.25 MW for the lifetime of a project if it is constructed before the statutory deadline, meaning that a 20% RES obligation could be functionally reduced to 16%.[27]  Accordingly, the policy encourages proactive investment in renewable resources.

Fourth, Colorado was first in the country to adopt a “solar gardens” policy, which opens up additional market space for investors.[28]  “Solar gardens” are electric arrays with multiple subscribers connected to the utility grid.[29]  Because subscribers may purchase a portion of the power produced by the array and receive a credit on their electric bill,[30] and because shares are portable and transferable, solar gardens help customers participate in solar generation even when solar may not be feasible at their location.[31]  There are currently twenty-two solar gardens in Colorado, totaling 13.5 MW.[32]

Finally, Colorado’s tax policy helps to promote solar.  Commercial PV of two MW or less, as well as community solar gardens that were placed into service prior to 2010, are assessed locally for property taxes,[33] so portfolio investors may effectively limit their tax exposure by investing in such preexisting facilities.[34]  Alternatively, investing in the solar supply chain also carries tax benefits, as the sale, storage, or use of renewable energy components is exempt from the state’s sales and use tax.[35]  However, a downside for investors seeking large projects is that renewable energy systems greater than two MW are assessed by the state for property taxes and valued as non-renewable energy facilities.[36]

B.     Growing Infrastructure

In addition to policy drivers, Colorado’s reliable infrastructure also makes it attractive for investment in solar.   First, Colorado has predictable transmission capability due to PUC’s ten-year plan rule, under which PUC requires the state’s major transmission operators to file ten-year transmission plans.  These plans inform the PUC of short- and long-term plans to build out the transmission system, which helps PUC assess the need for individual transmission projects.[37]  This mechanism increases the likelihood that new systems brought online will have transmission.  The ten-year plans also assist counties and municipalities in generating local development plans, which can identify opportunities for project developers.

Complementing the ten-year rule is a statutory requirement for continuous transmission improvements.  SB 07-100 requires utilities to continually evaluate and improve electric transmission facilities to meet the state’s existing and future energy needs.[38]  The law created Energy Resource Zones — geographic areas where transmission constraints hinder the delivery of electricity — and requires the development of new transmission or electric generation facilities.[39]   It also requires that regulated utilities plan transmission projects that accommodate the development of “beneficial resources,” including renewable generation.[40]  Since the law’s inception, there have been four completed projects, with five more large-scale projects in the planning, regulatory, or siting process.[41]  These projects will continue to alleviate reliability problems and facilitate the movement of large quantities of electricity around the system.

Colorado is also improving interconnection.  On the policy side, HB 07-1169 promotes standardization because it requires rural electric coops to use the same interconnection standards for DG resources under ten MW as those required for IOUs.[42]  Two new projects will greatly expand interconnection.  The High Plains Express (“HPX”) and Eastern Plains Transmission Project (“EPTP”) are in the development stage and will enhance reliability, increase access to renewable sources, and allow the transfer of resources to customers in Wyoming, New Mexico, and Arizona.[43]

C.    Strong Political Support for Renewable Energy

Colorado is attractive because its broad political support for renewable resources reduces regulatory risk.  Colorado was the first state to establish a  Renewable Portfolio Standard by ballot initiative, and progressive legislation has acted as a one-way ratchet for renewable growth.  The cost mitigation measures outlined above insulate consumers from passed-on costs, and consumer-level initiatives indicate continued broad public appeal.  Colorado’s Multiple Listing Service, for example, has a “green” feature that displays renewable energy attributes for real estate, allowing appraisers to monetize residential renewables.[44]  Other initiatives like Fort Collins’ FortZed Net Zero Energy District and the Gunnison-Eagle-Pitkin County Energy Smart Program offer energy assessments, rebate information, qualified contractors, and financing opportunities.[45]  Colorado is in direct contrast to many states that have introduced bills to weaken or repeal their RES,[46] and the state is poised to remain one of the most solar-friendly states in the country.[47]

D.    Economic Factors

Even with such an active market, there is room for growth for three additional reasons.  First, while the latest piece of legislation created a 30% RES for IOUs, nineteen out of twenty-two coops, in contrast, remain at a 20% RES.[48]  The remaining three coops, in addition to large munis, remain at the 10% requirement, unchanged since they were first subject to a mandate in 2007.[49]  These segments represent substantial opportunity for continued expansion in the event that new legislation mandates higher RES requirements.

Second, the electricity market is expanding.  For example, due to growth in the number of customers, increases in residential cooling saturation, and the expansion of natural resource-based industries, PSSC has achieved record-breaking growth in retail electric sales for the past ten years.[50]  It forecasts that both its retail and wholesale electric sales will increase at an average annual rate of 0.2-0.3% through 2028.[51]

Third, Colorado possesses a large portfolio of coal-powered electricity generation — currently at 64%.[52]  Coal will continue to decline as (1) the EPA’s Clean Power Plan Proposed Rule is enacted and imposes a cap on the ratio of carbon pollution per MWh of electricity;[53] (2) states seek to comply with Section 111(d) of the Clean Air Act;[54] and (3) renewable energy prices converge with coal prices.[55]

III. Market Weaknesses

A.    Market Competition

Though Colorado’s market strengths outweigh its weaknesses, risks remain — such as increased market competition.  First, competition derives from a lack of a solar-specific carve-out.  While Colorado legislation has furthered renewable energy substantially, HB10-1001 changed Colorado’s solar‐only IOU carve-out of 0.08% of total retail electric sales (4% of 20%) to a 3% DG requirement under which all eligible energy resources apply.[56]   Based on the economics of solar versus other renewable energy sources, the lack of a specific carve-out may shrink the solar market relative to other sources.  This appears to be occurring starting this year; Xcel’s new energy proposal — approved by the PUC in December 2013 — calls for the new development of 450 MW from wind, compared with only 170 MW from large-scale solar.[57]  Lastly, an exacerbating factor for solar is that Colorado may purchase its electricity and/or RECs out-of-state, such as from Wyoming’s wind generators.  While transmission between Colorado and Wyoming currently lags, the 180-mile Intertie Project, expected to be in service in 2017, may change that, as it would transmit about 850 MW of wind energy.[58]  A Colorado company has already purchased all transmission capacity on the line.[59]

B.     IOU Reaction to Cost Mitigation Measures

Cost mitigation measures, such as the rate cap, are beneficial to DG suppliers but reduce returns for IOUs, munis, and coops.  As such, Xcel continues to push for reform, most aggressively against the state’s net metering policy.  Each year, Xcel renews claims that the net metering policy costs the utility more because it has to build and maintain the transmission infrastructure, such that it is entitled to recoup about six cents per kWh for all solar produced by residential customers.[60]  The effect is that it would reduce the amount Xcel pays for net-metered PV systems to nearly nothing, significantly reducing consumers’ incentive to invest in solar.[61]  In turn, this would reduce the demand side for any new DG development.  While PUC denied its motion again,[62] Xcel’s continuous efforts pose an economic risk for investment.

C.    Environmental Risk

Finally, a potential risk for Colorado solar is habitat loss.  Colorado’s five renewable energy zones span nearly half of the state and encompass critical habitat designated under the Engendered Species Act (“ESA”) for the Preble’s Meadow Jumping Mouse.[63]  The area spans seven counties and includes riparian corridors along rivers and streams, adjacent uplands, and areas that provide connectivity between and within populations.[64]  The mouse’s designation as a threatened species may pose potential liabilities for imprudent siting, as the ESA prohibits any unauthorized activity that would harm a listed species, and expansive solar development may have an adverse effect on critical habitat.[65]

D.    Current Projects

Recent projects demonstrate Colorado’s relative strengths.  At utility-scale, SunEdison, Inc. announced the 156 MW Comanche solar project in December 2013, which may become the largest solar facility east of the Rockies.[66]  Secured by a twenty-five-year power purchase agreement (“PPA”) with Xcel,[67] construction should begin in 2015 and be completed by mid-2016.  Also at utility-scale, in 2010 Tri-State started purchasing power from the 30-MW Cimarron Solar Facility, the largest solar PV project owned by coop and one of the largest facilities of its kind.[68]  Even with the emergence of three other utility-scale projects — San Luis Solar Ranch (30 MW), Alamosa Solar Generating Plant (30 MW), and Greater Sandhill Solar (20 MW) — the market remains diverse with 346 solar companies throughout the value chain.[69]  Other projects include the Denver International Airport (8 MW), Air Force Academy (6 MW), Fort Collins (5 MW), Fort Carson (2 MW), and the Rifle Energy Innovation (2 MW).

Another smaller project demonstrates the vitality of the market.  The 1.2 MW Colorado State University-Pueblo Solar Project was an answer to an IOU request for proposal to supply RECs.[70]  With the financing and construction provided by BP Solar, CSU leased its land and purchased the electricity under a twenty-year PPA.[71]  As IOUs continue to diversify its sourcing, such projects represent opportunities for investors such as BP Solar.

Looking Forward: Colorado Remains Ripe for Investment in Solar

Even with moderate market weaknesses, the solar market in Colorado remains ripe for investment.  Specifically, investing in Colorado solar would likely be most profitable in one of two ways.  First, investors seeking mid-size projects may pursue CSU-type projects, as they provide benefits for the lessor, the IOU, and the investor.  The lessor receives on-site renewable energy at a set price and can use the installation in marketing efforts.  The latter consideration is beneficial in a state that is becoming more environmentally conscious.  It is particularly beneficial for companies or organizations that currently have an environmental nexus and hope to market their environmental stewardship, or conversely, companies/organizations that seek to offset a poor environmental reputation.  IOUs gain an additional source to satisfy its RPS requirements, and investors gain a reliable income stream from both the RECs and the electricity for at least twenty years.

Second, Colorado’s solar gardens offer perhaps more benefits.  With a residential consumer market eager to source its electricity through renewable sources, and with a flexible siting arrangement, developing solar gardens should provide an attractive and reliable revenue stream from both the electricity and the RECs without the typical burdens of residential-scale development.  The relatively larger size of solar gardens projects compared to separate installations at individual residences helps reduce the per-kWh “soft costs,” such as customer acquisition, cost of interconnects, permitting, labor, and maintenance costs.[72]


[1] Database of State Incentives for Renewables and Efficiency, Colorado Renewable Energy Standard (Sep. 26, 2014) [hereinafter DSIRE-Colorado], available at

[2] Ballotpedia, Colorado Renewable Energy Requirement, Initiative 37 (2004), available at,_Initiative_37_(2004).

[3] Colo. Governor’s Energy Office, Colorado’s 30% Renewable Energy Standard: Policy Design and New Markets, 2 (Aug. 2010) [hereinafter CO Policy Design].

[4] Id. at 6.

[5] Id. at 2; Colo. Dep’t of Regulatory Agencies, Colorado Renewable Energy Legislation, 14 (May 17, 2010) [hereinafter CO Renewable Legislation], available at

[6] Colo. Senate Bill 07-091 Renewable Res. Generation Dev. Areas Task Force, Connecting Colorado’s Renewable Resources to the Markets, 36 (Dec. 21, 2007) [hereinafter Colo. Senate Bill 07-091 Task Force].

[7] CO Renewable Legislation, supra note 5, at 2; Pub. Serv. Co. of Colo., 2012 Renewable Energy Standard Compliance Plan, 1 (May 13, 2011) [hereinafter PSCC Compliance Plan], available at (also eliminating the two-megawatt net meter limitation).

[8] PSCC Compliance Plan, supra note 7, at 1.

[9] Id.

[10] CO Policy Design, supra note 3, at 2.

[11] Id. at 6; CO Renewable Legislation, supra note 5, at 10.

[12] CO Policy Design, supra note 3, at 6.

[13] One REC equates to one megawatt/hour (MWh) of electricity generated.

[14] PSCC Compliance Plan, supra note 7, at 11.

[15] Colo. Energy Office, About SB 13-252 , available at

[16] Colo. Rev. Stat. § 40-2-101 through 129 (2014); Advisory Comm. to the Dir. of the Colo. Energy Office on the Effectiveness of SB 13-252, Overview of Colorado’s Renewable Energy Standard (CRS 40-2-124), 3 (Aug. 7, 2013) [hereinafter Overview of SB 13-252 Effectiveness].

[17] Id. at 8.  See also Colo. Senate Bill 07-091 Task Force, supra note 6, at 59.

[18] Am. Council on Renewable Energy, Renewable Energy in Colorado, 1 (Sep. 2014) [hereinafter ACORE Report].

[19] Id.

[20] Colo. Rev. Stat. § 40-2-124 (2014).

[21] ACORE Report, supra note 18, at 2.

[22] CO Policy Design, supra note 3, at 6-7.  See § 40-2-124(1)(e).

[23] See Xcel Energy, Solar*Rewards – Current Incentives and Availability (2014), available at*Rewards_-_CO.

[24] Id. (“Since 2006, Solar*Rewards has paid over $297 million in incentives to Colorado customers.”).

[25] DSIRE-Colorado, supra note 1.

[26] CO Policy Design, supra note 3, at 6-7.

[27] Overview of SB 13-252 Effectiveness, supra note 16, at 6.

[28]  Jeff Bingaman et al., The State Clean Energy Cookbook 8 (2014).

[29] Solar Gardens Inst., Frequently Asked Questions, available at

[30] Id.

[31] CO Renewable Legislation, supra note 5, at 22.

[32] Jeff Bingaman et al., The State Clean Energy Cookbook 41 (2014).

[33] ACORE Report, supra note 18, at 2.

[34] Id.

[35] Id.

[36] Id.

[37] Colo. Energy Office, Colorado State Energy Report, 13 (2014) [hereinafter CO State Energy Report], available at

[38] Xcel Energy, SB100 Frequently Asked Questions (2014), available at

[39] IdSee also CO Renewable Legislation, supra note 5, at 45.

[40] Id.

[41] Xcel Energy, Projects (2014), available at

[42] Colo. Senate Bill 07-091 Task Force, supra note 6, at 15 (these standards are adopted by the PUC).

[43] Id. at 58.  See also CO Renewable Legislation, supra note 5, at 46.

[44] CO State Energy Report, supra note 37, at 10.  This is similar to other benchmarking and disclosure mechanisms.  See, e.g., Jeff Bingaman et al., The State Clean Energy Cookbook 21-23 (2014).

[45] Id. at 8.

[46] Brad Plumer, The Biggest Fight Over Renewable Energy is Now in the States, Wash. Post (Mar. 25, 2013), available at

[47] James Montgomery, Rank ‘Em: The Most Solar-Friendly States in the US, Renewanle Energy World (July 20, 2013), available at

[48] Overview of SB 13-252 Effectiveness, supra note 16, at 2. These include the Intermountain Rural Electric Association (“IREA”) and the eighteen coops that receive electricity from Tri-State.

[49] Id.

[50] Xcel Energy, 2014 Renewable Energy Standard Plan, Vol. 1, 18 (July 2013) [hereinafter Xcel RES Plan 2014], available at (averaging 1.1% per year).

[51] Id. (average annual growth rate of 0.3% for retail and 0.2% for wholesale).

[52] ACORE Report, supra note 18, at 1.

[53] Karen Lugo, The EPA’s Costly ‘Clean Power Plan’ Power Grab, Forbes (Aug. 22, 2014), available at

[54] Solar Energy Industries Assoc., Cutting Carbon Emissions Under §111(d), 7 (2014), available at

[55] Lesley McClurg, Colorado Looks Away From Coal Toward Renewable Energy Sources, Colo. Pub. Radio (June 4, 2014), available at

[56] Colo. Rev. Stat. § 40‐2‐124 (a); CO Policy Design, supra note 3, at 4.

[57] Cathy Proctor, Xcel to Boost its Wind, Solar Power Supply in Colorado, Denver Bus. J. (Dec. 10, 2013).

[58] Adam Voge, Studies: Wyoming and Colorado Benefit by Combining Wind Power, Star Trib. (Aug. 2, 2013).

[59] Id.

[60] Xcel RES Plan 2014, supra note 50, at 10-11, 97-101; Annie Lappe, Xcel Energy Puts Rooftop Solar in Jeopardy in Colorado, Vote Solar (July 29, 2013); Blake Jones, Colorado’s PV Industry Threatened by Xcel Energy, Renewable Energy World (Feb. 21, 2011).

[61] Chris Meehan, Colorado Solar Advocates Fight Xcel’s Proposal to Gut Solar Net Metering, Renewable Energy World (Aug. 17, 2014).

[62] Laurel Passera Colorado PUC Keeps Net Metering In Place For Now, IREC (Feb. 12, 2014).

[63] CO Renewable Legislation, supra note 5, at 77; Fish & Wildlife Serv., Preble’s Meadow Jumping Mouse Critical Habitat Map (Oct. 7, 2009), available at

[64] Fish & Wildlife Serv., Questions and Answers: Revision of Critical Habitat Preble’s Meadow Jumping Mouse, 1, available at

[65] Id. at 3-4.

[66] SunEdison, Inc. SunEdison Partners with Community Energy on Colorado’s Largest Solar Power Plant (July 24, 2014).

[67] Id.

[68] Tri-State, Cimarron Solar Facility (Feb. 6, 2014),

[69] Solar Energy Industries Assoc., Colorado Solar (2014),

[70] Climate Neutral, Making Cents of Solar (2014),

[71] Id.

[72] Jeff Bingaman et al., The State Clean Energy Cookbook 42 (2014).

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