NORTH COUNTY -- After a confusing start for the California Solar Initiative this spring, more homeowners in San Diego County have been applying in the last few months for the rewards that come from installing solar panels.

The state Public Utilities Commission in 2006 approved $2.9 billion in rebates to homeowners and businesses, encouraging them to install solar power over the next decade.

A set of new approval requirements put in place at the start of the year slowed the rate of applications for rebates on residential retrofits, compared with last year. But officials at the California Center for Sustainable Energy, which administers the rebates in the San Diego region and holds monthly workshops for homeowners, say that the number of applications has been increasing every month as people learn the ropes.

Local firms that specialize in installing solar systems agree.

"There was a hiccup at the beginning of the year," said Ned DeWitt, regional sales manager for Borrego Solar, one of the oldest solar system installers in California. "But things have picked up since then."

Some homeowners and small business owners around San Diego County say they have been waiting and watching to see if the financial incentives become stronger.

"Until the payback period comes down to less than 10 years, many people aren't going to be interested," said Nick Sherman, a sales manager at Irvine-based solar installer GenSelf.

For example, Valley Center veterinarian Deb Hofler said she has been interested in installing solar panels for years but balked because the price of batteries could almost double the price of a system for her business. For a country vet, having a backup power supply available in a pinch was critical.

In contrast, Valley Center neighbors Oliver and Janice Smith decided 2004 was the right time to install solar panels. The Smiths had hefty electricity bills because they need to pump water from a well for 1.5 acres of orange trees.

They used to pay a few hundred dollars per month in the summer, compared to the average monthly electricity bill in inland San Diego County of about $70 per month, according to San Diego Gas & Electric Co.

They report their bill for all of last year dropped to $350.

Grid-connected solar panel systems run under the principle called "net metering," which says that the owner can get credit for sending electricity back to SDG&E, but can't end up making money over the course of a year.

"One of the things I get a kick out of is watching the electric meter run backwards as fast as I have ever seen it run forwards," wrote Smith, an engineer who works for a medical equipment company, in an e-mail.

Through Home Depot, the Smiths bought a 6-kilowatt system costing roughly $65,000. A kilowatt is about the amount of power needed by a hair dryer. They expect the investment to pay off in about a decade, because they got about half the cost back from state rebates and a federal tax credit.

"Obviously I am still paying off the system with the money I am not sending to SDG&E," Smith wrote.

The California Solar Initiative is structured so that the rebates people can get gradually fall as more people adopt solar. People who install solar this year won't get the same level of rebate that the Smiths did.

From $4,500 per kilowatt in 2004, the rebate has dropped to $2,500 per kilowatt this year and is expected to continue falling.

The decline is designed to wean the solar industry from the subsidy and provide an incentive to join in sooner. The rebates come from a surcharge on residential and commercial utility bills, about $12 per year for residential customers.

The solar industry has criticized a requirement imposed at the start of 2007 that homeowners getting rebates sign up for time-of-use metering, which appeared to cause confusion.

In other parts of California, the requirement could make homeowners pay more than they would otherwise for energy used in the middle of the day, when demand is high.

Although the Public Utilities Commission removed the requirement last week, both the solar industry and consumer advocates said it had less of an impact in San Diego County.

"San Diego Gas & Electric doesn't really have time-of-use on the residential side," said Michael Shames, exective director of the Utility Consumers Action Network. "It only comes into play on the commercial side."

Still, applications have fallen off in the area covered by SDG&E since January.

The Sustainable Energy center reported more than 100 residential applications in the first four months of 2007, but that compares to more than 1,000 installations in 2006 and several hundred for each of the previous three years.

The Public Utilities Commission took over the residential retrofit rebate program from the state Energy Commission, which had run the similar Self-Generation Incentive program since 2001.

Solar installers say that applying for a rebate became more difficult -- more paperwork and more strenuous calculations -- when the PUC took over.

Although rebates from the state are expected to fall, in February, legislation was introduced into Congress to dramatically increase a federal tax credit homeowners get for installing solar panels.

Instead of a previous cap of $2,000, the new proposed limit is $1,500 for every half-kilowatt of capacity up to 30 percent of the total cost, so a system the size of the Smiths' could garner its owner $18,000.

The then Republican-controlled Congress failed to pass a similar bill in a previous session.

Also adding uncertainty, SDG&E's February proposal to flatten out its rate structure starting in 2008 may blunt the incentive to install solar because it could decrease bills for households using more electricity than the average.

Contact staff writer Quinn Eastman at (760) 740-5412 or qeastman@nctimes.com. Comment at nctimes.com.

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Business, governments embracing solar

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Useful solar Web sites:

www.findsolar.com

www.energycenter.org

www.bp.com/solarsavings.do?categoryId=3050485

www.noelectricbill.com