Pinnacle West Capital Corp.'s (PNW) top executive said Wednesday the company's Arizona utility plans to invest at least $500 million over the next few years to develop solar-power generation and expand its rooftop solar program to include more residential customers.

Arizona Public Service Co. currently owns and operates 1.5 megawatts of small solar systems, but the company wants to expand that with a $500 million program that would develop about 100 megawatts of solar-panel generation over four years, said Don Brandt, chairman and chief executive of Pinnacle West and chief executive of APS.

With electricity demand in the utility's service territory growing about 2% a year, APS will need to tap about 1,500 megawatts of new renewable power by 2025 and "the majority will be solar," Brandt said, speaking on the sidelines of a solar-power conference in Anaheim, Calif.

"We see solar as virtually our only viable opportunity to supply the megawatt-hours," Brandt said. He added that state regulators have been supportive of APS's foray into solar power generation, although the company is awaiting their approval for its proposed $500 million solar program.

The company's focus on solar is driven largely by state regulations that require utilities to use renewable sources for 15% of the power they sell by 2025, with nearly a third of that coming from distributed generation, like rooftop solar, that is used close to where it's generated.

APS recently received $3.3 million in federal stimulus funds to support a $14 million rooftop solar program in Flagstaff, Ariz., involving 300 homes. Brandt said he wants to expand that program to allow more of the utility's 1.1 million customers to participate. APS installs and owns each rooftop solar system and signs a contract with the homeowner that locks in the customer's utility rate for 20 years. The rate is often about half of what the customer would ordinarily pay for electricity, Brandt said.

It makes sense for the utility to pay for the system, Brandt said.

"After our rebate and federal and state tax credits, (a solar system) still costs about $10,000 to $15,000...that's a lot of money," Brandt said. "We can finance it on our balance sheet a lot cheaper than a customer can on their credit card."

Brandt noted that solar power is one of several resources that APS, which owns the nation's largest nuclear power plant, is counting on to meet future growth. In Arizona, where the sun shines strongly 300 days a year, investing in solar makes sense, said Brandt, who was named Wednesday as the Solar Electric Power Association's "utility CEO of the year."

Shares of Pinnacle West were recently trading 13 cents lower at $33.28 apiece.

-By Cassandra Sweet, Dow Jones Newswires; 415-439-6468; cassandra.sweet@dowjones.com