Texas has all the conditions for a strong solar market: a large population, strong power demand, and vast solar resources. But the state ranks only sixth in installed PV capacity.

Poor growth in Texas is the byproduct of inadequate policy. Despite repeated attempts by industry players and advocates, the legislature and regulators have failed to adopt policies that are common elsewhere. Texas is one of only seven states -- and by far the biggest -- that does not have statewide net metering, according to Freeing the Grid, a report from IREC and Vote Solar. Texas gets a grade of D on its interconnection policies.

“Solar incentives have been proposed in every session since 2005,” says David Power of Public Citizen. “They came close, but never passed.”

Other policies have passed the legislature only to be stymied by regulators. A “non-wind” carveout in the state RPS, approved in 2005, was blocked at the utilities commission after big industrial customers threatened to sue.

A 2007 law directing that “net metering…be deployed as rapidly as possible” was gutted by the PUC. Bills that would have overruled the PUC and required retail electric providers (REPs) to offer net metering failed to pass in 2009, 2011 and 2013, in the face of opposition from REPs. (The Texas legislature meets only in odd years.)

The only legislative bright spots have been a tradable commercial property tax exemption, a law prohibiting neighborhood associations from blocking rooftop solar, third-party financing and commercial PACE.

Even with all of these challenges, GTM Research solar analyst Cory Honeyman predicts steady growth, with installations rising from 200 megawatts in 2013 to more than 1,100 megawatts by the end of 2017. However, Texas may fall to 9th overall as other states heat up faster.

The lack of policy supporting distributed solar means that most solar in Texas is utility-scale, sold almost entirely to municipal utilities. Such projects account for more than 70 percent of installed systems, a trend Honeyman expects to continue into the near future.

Much of the growth in solar has been led by two municipally owned utilities, Austin Energy and CPS Energy of San Antonio.

San Antonio ranks sixth among U.S. cities in installed solar capacity, and Austin ranks 16th, according to a report from the advocacy group Environment Texas.

Austin recently signed a contract with SunEdison for 150 megawatts of solar at a reported price of only 5 cents per kilowatt-hour. The city council has required the utility to get 35 percent of its energy from renewable sources by 2020, including 200 megawatts from solar power. It already buys solar power from a 2011 SunEdison project, a 30-megawatt installation at Webberville.

“Solar is the new wind,” according to Michael Osborne, a long-time solar champion and former advisor to Austin Energy.

In 2012, with much fanfare, CPS Energy announced a contract with OCI Solar to build 400 megawatts of utility-scale solar by 2017, along with a new PV manufacturing plant in San Antonio. CPS has a goal of 20 percent renewable energy by 2020, with at least 100 megawatts of non-wind renewables.

The 25-year contract with OCI calls for 800 new permanent jobs. OCI President and CEO Tony Dorazio claims the company has created 170 jobs so far, and expects to exceed the 800 target. Half of these are expected to come from a new module manufacturing operation that Mission Solar (formerly Nexolon America) is building now. Mission panels will be used for future OCI projects.

OCI is making steady progress with new installations, currently building its third project under the CPS contract, the 39-megawatt Alamo IV project near Brackettville.

Other developers are now attempting the unthinkable: a merchant solar plant that will sell its power on the spot market without a long-term contract.

First Solar is building the first merchant solar in Texas with its 22-megawatt Barilla project in Pecos County in west Texas. It is under construction now and expected to begin commercial operation in mid-2014.

“We want to demonstrate how fast solar can come to market and help meet peak,” said John Lichtenberger, senior manager of project development for First Solar. “We want to be on-line this summer when peak hits.”

While First Solar’s merchant strategy is still embryonic, Lichtenberger is bullish on the prospects of profitability. “We’ll maximize prices in the summer, and we expect prices to be strong going forward. Solar competes very well with other peaking resources," he said.

A second merchant project is also in the works. White Camp Solar plans to develop a 135-megawatt solar project in Kent County, with 460,000 ground-mounted panels on 625 acres.

In an interview with the Houston Chronicle, project developer Randle Taylor blamed the regulatory environment for the difficulties of doing solar in the state.

“There's no direction from the PUC or the legislature or ERCOT of the direction they want to go,” Taylor said. “That's created a lot of uncertainty for the financial institutions, the developers, and everyone involved in the process.”

Reached for comment, Taylor was hesitant to discuss the project, which he claims is days away from a breakthrough. He is trusting in divine help, quoting the book of Matthew on the project's website: “With man this is impossible, but with God all things are possible.”

Distributed solar, on the other hand, is in the doldrums. Without statewide policy, developers face a patchwork of barriers and suboptimal opportunities for competitive markets, municipal and cooperative utilities, and non-ERCOT utilities.

In a 2011 report, Public Citizen called on policymakers to “fix Texas’ broken net metering policy.”

“Net metering is horrible in Texas,” said David Power.

Retail electric providers serve about 80 percent of the state, but are not required to offer net metering. Only three of the 47 REPs in Texas offer a payment for any surplus.

REPs use meters that track production and consumption separately, Power explained. If a customer produces more power than it uses, at any time, the out-flow is counted separately than in-bound power, so there is in effect no net metering.

This gives an incentive to solar customers to shift their power consumption to when the sun shines, thus avoiding sending surpluses to the utility -- negating the peak reduction benefits of solar.

Whether the out-flow is valued is determined by the customer’s arrangement with their REP. The REPs are not even required to pay for avoided costs, which Power places at about 3 cents per kilowatt-hour.

At least two REPs reimburse customers for out-flow power: Green Mountain Energy and Reliant, both subsidiaries of NRG. Reliant recently launched a rooftop solar lease for residential customers in north Texas. This includes a “Solar Sell Back plan” for customers who produce more power than they need.

The situation outside the competitive market is better, though still a patchwork. When Public Citizen surveyed utilities in 2010, only twenty-four of 80 co-ops and only five of 74 municipal utilities had a net metering policy.

“The main reaction we got from a lot of munis then was, ‘What is net metering?’” said Power.

Since then, about 25 percent of munis have started net metering, which Power attributes to customers asking for it, better media coverage and a law prohibiting neighborhood associations from blocking rooftop solar.

The quality of net metering ranges widely. One small west Texas co-op offers true net metering, but charges a $30 monthly fee for solar customers. It has 18,000 miles of wires for only 28,000 customers and thus needs to recover very high fixed costs.

Then there is the value-of-solar tariff, or VOST, which was born in Austin. Austin has a “buy all, sell all” arrangement whereby customers buy all their power from the utility and sell all their solar to the utility. The utility recently dropped the rate from 12.8 cents to 10.7 cents per kilowatt-hour.

San Antonio’s municipal utility, CPS, tried last year to replace its net metering program with a tariff modeled after Austin’s VOST. But CPS proposed a 5.6 cent “Sun Credit,” significantly lower than its 9.9 cent retail power rate.

“With greater numbers of solar installations coming on-line,” the utility wrote at the time, “net metering for so many systems will eventually overburden those who do not have solar systems with the fixed costs for other utility infrastructure, like poles, wires, substations, etc. We believe the proposed structure is fairest for all customers.”

After an outcry from solar customers and the local solar industry, CPS put the discussion on hold. Now, after consultation with stakeholders, CPS is planning to continue net metering, put another $20 million into a rebate program that has offered $30 million since 2008, and to work on a long-term plan for growth.

“We were ranked the sixth-best city for solar in America in a recent study,” said Lisa Lewis, a spokesperson for CPS. “But we want to be number one.”