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Summary:

Will your local utility one day go the way of dinosaurs? As more home and business owners install solar panels, wind turbines and other electricity and heat generating equipment, the roles of the utilities will change and new business opportunities will rise.

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Will your local utility one day go the way of dinosaurs? Well, as more home and business owners install solar panels, wind turbines and other electricity and heat generating equipment, the roles of the utilities will no doubt change. In fact, that shift has already begun.

“We are on a collision course with them and that’s a problem,” said Matt Cheney, CEO of CleanPath Ventures, which finances renewable energy projects, at a recent SolarTech conference in Silicon Valley last week “I would argue that at $2 per watt you will see droves of people exiting the grid and leaving a lot of the cost of the infrastructure to the people who are left.”

Rebates, tax credits and other incentives from federal, state and even utilities themselves have boosted the number of people who can basically run a little power plant on their properties. The rise of leases and power purchase agreements (PPA) also has turned solar service companies and their financing partners into quasi-utilities: the service providers sell the electricity using long term contracts, and they maintain and repair the solar energy systems.

These leases and PPAs entice buyers by promising electric rates that will be lower than what utilities charge. At least that’s the selling point, and consumers will have to read the contracts carefully to make sure they won’t end up paying more than initially anticipated over 15-20 years, a common length of a contract.

“We will be able to generate solar power on your rooftop at the same cost. It will bankrupt every power company, and we will reverse the role by subsidizing power companies because we will still need them to keep the lights on at night,” said Kevin Surace, CEO of Serious Materials, an energy efficiency building product and service provider.

So what can utilities do to make up for the loss of revenues? Instead of selling electricity and natural gas around the clock, they could do that part of the time but also devote resources to facilitating the flow of electricity and charge fees accordingly. Utilities control the grid and that responsibility won’t go away any time soon.

For some home and business owners, one of the appeals of owning solar electric systems is that they can sell the electricity they don’t use back to utilities at retail rates and get credits to offset their bills. So even if they don’t need power from utilities at all, and solar power covers all of their energy needs, they still need access to the grid. Utilities will spend money maintaining those interconnections around the clock even if they only make money from selling power part of the time or not at all.

Some utilities already have thought about levying a grid maintenance charge for these solar-owning customers, and at least one tried to implement it and faced a huge outcry from some ratepayers and solar companies that contend the fee would strangle their business. Xcel Energy in Colorado asked for regulatory approval for such a fee in 2009 and then withdrew the proposal. There is no reason utilities shouldn’t propose such a measure, and they might receive more sympathetic regulators down the road if the solar market grows and forces utilities to seek new sources of revenues.

The electric car market promises to provide good profits for utilities, many of which already are investing in projects to see how car charging will impact how they manage power supply and demand. Selling power won’t be the only source of revenues. Earlier this year, the California Public Utilities Commission approved San Diego Gas & Electric’s proposal to license a car charging technology to Juice Technologies.

Electric cars won’t win over the masses if there isn’t a good network of charging stations across the country. So far, it’s up to a handful of companies that have won federal money to build out the network. If charging station business proves lucrative, then utilities also could invest in, or even run them. Energy consumption data from electric car charging also could allow utilities to sell home energy management gadgets and services.

Utilities don’t have to simply sit and watch solar service companies take revenues away from them. They could join the game. These solar service companies need to raise money to finance the installations and maintenance of their network of solar electric equipment, and in the past they have mostly turned to banks for help.

Private utilities could be the financiers, too. The idea certainly has crossed many utilities’ minds, and Pacific Gas and Electric Co in San Francisco, in particular, has acted on it. Last year, the utility’s parent company announced a $60 million plan to finance installations by SolarCity. PG&E then created a $100 million fund to pay for installations sold and managed by SunRun.

Given that energy demand is expected to only grow, it seems unlikely that utilities will die out with the growth of onsite renewable energy generation. If anything, there are ample opportunities for them to shift away from the conventional business model and try new ones.

Image courtesy of The Star Traveller.

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  1. Guillermo | Electric car app Wednesday, April 6, 2011

    Even when it sounds like a very good idea, I don’t think this would economically viable. Having your own infrastructure means that you have to maintain it.
    I believe that these technologies will help to create more small utilities able to generate and distribute electricity to small remote towns, villages or industrial areas.

  2. Utilities don’t make money selling power or gas. They earn a return on the investment in infrastructure. The infrastructure still has to be there because solar panels don’t work at night and don’t work well in bad weather. Everyone will still have to pay for the infrastructure. Talk of bankruptcy is a little off the wall. Even battery storage systems will be expensive and most likely need large utilities to invest in them for all customers’ benefit.

  3. This article perpetuates the myth that rooftop PV panels or wind turbines generate power that is used by the properties they are mounted on, and thus each of these residences is equivalent to an “off grid” installation. This is so not the case.

    Net metering was invented because off grid installations (with propane/battery/generator backups for non sunny/windy days) are impractical except where there is no other choice (i.e. remote locations).

    Instead, the grid acts like a giant battery. 99.99% of PV installs today are grid-connected, which means the power produced by those PV panels is simply dumped to the grid. All of these houses draw ALL of their power from the grid. These PV systems are simply equivalent to other grid connected generating stations (albeit much much smaller).

    Certainly the grid will likely need adjusting to accommodate millions of additional generating stations, but the idea of people “exiting the grid in droves” shows a lack of understanding of the basics of PV installation.

    As Dave Smith has said, this article is a “little off the wall”, to put it mildly.

    1. Hi Kurt,

      You are right in that many residential PV installations are installed external to the household circuitry – typically on a second meter.

      However, the electricity produced flows downhill to load. Any residential load satisfied is (!) shed from the generation and transmission systems (which in ‘deregulated’ markets can be completely separate entities).

      Perhaps a distribution feeder will see the impact of residential PV system generation (e.g. the electrical distribution within a condo complex). But, is it even possible (until we reach high saturation levels) that the Distribution substation will have any impact other than needing to serve less load?

      In terms of the major assets of the utility system (i.e. generation through transmission to the distribution substation), there is an effective load shedding with the addition of residential PV systems.

  4. David Dunnison Wednesday, April 6, 2011

    Thanks Ucilia for the thought provoking article. And, I don’t believe it is ‘off the wall’.

    @DaveSmith – yes, Utilities have an ROA model. This, however, contributes to the problem.

    Back in the good old days of utility deregulation (aka re-regulation), and catalyzed by PURPA, there was considerable discussion and concern over a death spiral that could or would be created from large industrial ‘ratepayers’ that could leave the utility to self-generate or play the market. Those new to the utility industry were introduced to the concept of ‘stranded assets’.

    In the case of low cost PV power, it could be the small Residential ratepayers who, en masse, reduce their loads. Combined, the massive load-shedding alone (even if there is no export to the grid) could provide an even more significant impact than large industrial ratepayers. Even if they do not leave the grid altogether, the prospect of stranded generation, transmission and distribution assets remains. And, the prospect of utility petitions to the utility commissions could again raise its head.

    Matt Cheney is almost certainly correct – though perhaps a ‘virtual’ departure rather than an actual departure is more appropriate. At $2/watt, residential customers should be adopting as much solar as they can connect. In fact, recent data released from the DOE underscores that the US Residential PV market grew geometrically between 2002 and 2009 at 40% per year on average, with a stable installed cost of just under $5/watt.

    See: http://d-bits.com/residential-pv-price-sensitivity/ for more insight on US Residential PV price sensitivity.

    At $2/watt, market adoption will have a major impact on the grid. And, as a whole, will represent a tremendous amount of load that exits from the grid. Even if night-time loads are still utility supplied, the grid assets were built out on a completely different utilization model.

    Anyone who lived in California through the late ‘90s will remember well the problems of stranded assets. Anyone living in California now is still paying for them.

    Regards, David

  5. Adding one watt of net-metered PV to a rooftop does not shed one watt of load, it adds one watt of (intermittent) generation capacity. These are two very different things. Efficiency measures shed load. PV does not. PV is just a different generation mechanism.

    Utilities are power distribution companies. Their business model is definitely load-dependent (we agree on that). Rooftop PV just shifts generation from away from centralized, gas-fired and nuclear plants without affecting load, so the effect of rooftop PV on a utility is, in the abstract, neutral.

    The effect on power generating companies (which overlap with, but are distinct from utilities) is a net negative, but even that assumption assumes no growth in load, which historically has only been true in California because of our energy efficiency policies.

    Net: efficiency measures reduce load and reduce utility revenues. PV adds generating capacity and is independent of load but, if adopted en masse, could affect traditional centralized power plant operator revenue. Power plant operators and utilities are overlapping, but distinct entities with distinct assets and revenue models.

    Or maybe I’m just not understanding what people are saying here. That’s happened before — apologies if so!

  6. Will our local utility one day go the way of dinosaurs?
    Of course, it’s inevitable. But only once we have a commercially viable ”power pack” that stores enough electricity needed in an average home for approx 1 week.

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