SolarCity (NASDAQ:SCTY.DL) has been increasing its customer count at a phenomenal rate. Most of that growth has come from just one state, California, where most of its systems reside. While state regulation and support for solar is a big drive behind this focus and success, one looming headache to continued expansion could be utility preparedness.

No joke
It's almost laughable to say, but SolarCity's customer growth is set to slow over the next three to four years -- to just 70% or so annually. Between 2009 and the middle of this year, customer growth exceeded 100% per year. However, most of that growth occurred in just a small number of states (SolarCity only operates in 15, total).

(Source: ReubenGBrewer, via Wikimedia Commons)

California, SolarCity's biggest state, is the solar capital of the United States, with over 1.95 megawatts installed since 2011. Runner-up New Jersey installed about 0.9 megawatts in that time, less than half as much. This begs the question, "What makes California so special?" Plenty of sun, obviously, but also plenty of government support. And that goes beyond the financial realm.

For example, California recently passed a law that requires municipalities to streamline their permitting process for solar. The bill's sponsor, Assemblymember Al Muratsuchi, explained that the permitting process could take over two months to complete and add $1,000 or more to the cost of a solar installation. This could be a big issue: About 70% of respondents to a recent EnviroMedia poll cited cost as a stumbling block to solar adoption.

Beyond the government
But there's another California difference hidden within all of this. The state's utilities are better prepared to handle rooftop solar than others because they're seeing so many installations. In fact, according to the Solar Electric Power Association (SEPA), the average time for utility approval of a new solar installation in the United States was four weeks, but could run to eight weeks or more at some utilities. The best prepared users, often using online systems (17% of utilities made use of the Web, according to the survey results), took just two weeks.

How big an issue is this? According to SEPA, just 5% of U.S. utilities handle 75% of the solar hookups taking place. Statistically speaking, California utilities have to be high up on that list. But only 15% of U.S. utilities have systems optimized to handle large numbers of applications. In other words, utilities, by and large, aren't ready to handle SolarCity's growth.

Right now that's not a big problem. SolarCity, and competitors such as SunPower (NASDAQ:SPWR) and recently public Vivint Solar (NYSE:VSLR), are working off a small customer base. U.S. Energy Information Administration statistics show that renewable power provided 13% of the country's electricity last year, with solar accounting for just 2% of that total.

The problem personified
However, Hawaiian Electric Industries (NYSE:HE) shows that swift solar growth can quickly hit a roadblock if utilities aren't ready. Faced with too many requests to connect to the utility's grid, the company instituted new policies that cut solar permit requests in half. Hawaiian Electric's fear is that its systems will be overloaded and, thus, break. According to Greentech Media, SolarCity ($7.9 million in sales in the state in the first five months of the year) is the No. 2 player in the state behind Vivint ($18.4 million).

In fact, in a recent SEC filing, SolarCity specifically highlighted the Hawaiian market: "Hawaiian electric utilities have adopted certain policies that limit distributed electricity generation in certain geographic areas." While still positive on the market overall, it noted that "these limits have constrained our growth in certain parts of Hawaii." That's an understatement of a big industry problem. After hitting a statewide monthly peak of over 2,400 permits (for all companies) in October 2012, the number of solar permits across the entire state dwindled to just 700 in January of this year. They've fallen even lower since.

With only 15% of U.S. utilities reporting they are ready for swift solar adoption, it isn't far-fetched to think SolarCity, Vivint, and other large installers could face another Hawaii scenario elsewhere in the states. These giants will likely start by taking market share from smaller players, but eventually unprepared utilities could constrain growth. This sleeper issue isn't one to ignore.