Ken Silverstein EnergyBiz Insider Editor-in-Chief

The latest initiative comes out of California, where the public utility commission approved $3.2 billion in rebates to be granted over 11 years. The state hopes to become a global leader in an area where Germany and Japan are well known. Specifically, the goal is to create 3,000 megawatts by 2017, providing about 4 percent of California's total energy generation.

Certainly, it's a small number. Solar provides less than 1 percent of all energy generated on a global level. But its stock is rising, literally. Solar manufacturers are reporting the best of times. And with initiative such as the one in California, they now have more market certainty that will permit them to prepare for faster production. All told, the market for solar-related products and services is now valued at $12 billion but could total $30 billion to $40 billion by 2016, says the Solar Energy Industries Association.

California's efforts come atop last year's federal energy bill. Households will now receive tax credits that reduce overall solar installation costs by 30 percent, through 2007. And the Bush administration is allocating more money into solar power, increasing proposed allotments from $60 million last year to $140 million this year -- still a pittance when compared to the subsidies given to the coal, natural gas and nuclear industries, although those power sources provide substantially more generation.

Solar panel manufacturers will presumably find profit opportunities and new entrants may subsequently bring additional products and services to market. The influx of new business would then enhance efficiencies and improve production, thereby bringing down the current high prices of equipment. General Electric, which makes solar panels now used in several states, is expecting breakthroughs in the global market as well.

Power from the sun is now out of reach for most. Solar costs about 25 cents a kilowatt hour. That's compared to about 9 cents a kilowatt hour for natural gas and 5 cents a kilowatt hour for modern coal-burning plants, as well as 5 cents a kilowatt hour for wind energy. The good news is that solar power used to cost $1 a kilowatt hour. The hope is that the new market dynamics will bring down the price of such power to around 6 cents a kilowatt hour in the next decade. If all goes according to plan, solar power could provide up to 2 percent of the nation's generation mix by 2025, the Bush administration says.

"Installing solar energy on your roof is one of the most meaningful steps an individual can take to reduce our reliance on foreign sources of energy and help declare energy independence," says Solar Energy Industries Association President Rhone Resch.

Still Expensive

It costs about $20,000 to equip a home with solar energy panels. New technologies hold promise, particularly ones that combine the use of sun power with other energy-efficient techniques. Federal and state initiatives want to take the sting out of that and give both consumers and manufacturers some certainty, allowing them to make some long term economic commitments.

About 30 states say that the price tag associated with subsidies is worth it. Nevada law, for example, requires electricity providers to increase their use of renewable energy sources by two percent annually until they make up 15 percent of their portfolios; solar has to comprise five percent of the total. And the Sacramento Municipal Utility District operates several photovoltaic solar systems providing power to customers for about half the typical price of an installed system.

States such as California have reasoned that the 3,000 megawatts ultimately provided by solar power would relieve peak energy usage that is now at roughly 45,000 megawatts on the hottest days. That does not just prevent the possibility of rolling blackouts such as the ones California experienced earlier in the decade. But, it also prevents the use of dirtier fossil fuels during the steamiest summer days.

Besides cost, the solar power industry is challenged by when, where and how often the sun shines. The American Southwest, for example, has doubled the production potential of the Northeast, but that's where more people are located. Moreover, the sun only shines about 30 percent of the time even in the brightest locations, after factoring in darkness, dawn, dusk and clouds. That makes it difficult currently to cover the cost of paying off a capital-intensive technology.

"We should be putting that money into research and development to improve the technology," says Severin Borenstein, director of the University of California Energy Institute, in one previously published press report.

Clearly, more research is necessary. And that's why solar lobbyists and lawmakers in states with solar potential want the current administration's tax credits to extend beyond 2007. And the public supports it, given the high price of natural gas and oil that are also dirty. Solar power plants have almost no carbon dioxide, sulfur dioxide or nitrogen oxide emissions tied to them and they usually produce power during peak demand when it is most needed, displacing coal-and-natural-gas fired units in the process.

Growth in the sector won't be quick. But government programs to expedite the process will give the industry the certainties needed to make expensive investments, and to ultimately prosper.

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