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Summary:

Down the road, the utility sector could be totally fracked (power joke) if they don’t embrace and enable new cleaner, distributed, and digitally-managed technologies for the grid.

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Someday your seemingly-stable utility could become utterly disrupted by emerging technology changes. It could occur in much the same way that once huge brands like Kodak, Blockbuster, and Borders slowly — and then all-of-a-sudden rapidly — fell at the sword of the digital technology revolution.

It’s not a new idea, but it’s one that is gaining prominence even in the mainstream media. This weekend the New York Times penned an article On Rooftops, a Rival for Utilities, bringing attention to the emerging threat that solar panels are already starting to have on slow-moving utilities across the U.S.

U.S. Army solarThe article quotes a fellow at the non-profit arm of the utility industry, the Electric Power Research Institute, as saying “We did not get in front of this disruption. It may be too late.” EPRI put out a report earlier this year that soberly stated:

The timing of such transformative changes is unclear, but with the potential for technological innovation (e.g., solar photovoltaic or PV) becoming economically viable due to this confluence of forces, the industry and its stakeholders must proactively assess the impacts and alternatives available to address disruptive challenges in a timely manner.

Essentially, get moving or you’re fracked.

Solar panels — on the rooftops of both homes and company buildings — are one of the leading weapons in this disruption. That’s because solar panel prices have plummeted in recent years, and upstarts like SolarCity, Sungevity, OneRoof Energy, Sunrun and Clean Power Finance have emerged with new business models to make buying solar panels cheaper and more convenient. Larger companies like NRG Energy are aggressively getting into the centralized utility-scale solar project building business, too.

solarpanelThe New York Times notes that because of “net metering” — which is a system that pays solar panel owners for how much access solar power they put back into the grid — California utilities could lose $1.4 billion a year to solar customers. If that trend continues, their argument down the road could be, why do we have to maintain the grid for everyone to use at the same time that we’re losing revenue?

It’s a similar argument to the one that telcos and cable companies have used for years about building and maintaining data networks and then having device and app makers come in and reap the benefits. Telcos in particular have long been called “dumb pipes,” as they moved away from application innovation and relied on maintaining the network connection. It took Google and Apple to really crack the mobile phone logjam that such thinking had created.

But for utilities, it’s not just solar panels. It’s actually all forms of distributed, cleaner power generation, digital network technology and even energy storage technology. Grid energy is undergoing a fundamental transformation where it won’t just be cleaner, but it’ll be managed in a much more digital way, and will be able to be stored much more readily on the grid. As Grist’s David Roberts wrote earlier this year in What’s Threatening Utilities: Innovation at the Edge of the Grid: “utilities shouldn’t be opposing or hampering this stuff. They should be enabling it.”

There are a variety of differences between the utility industry and telcos, as well as other tech sectors that have been disrupted — utilities are mostly highly regulated, many aren’t incentivized to be more efficient, sell cleaner power or use energy storage, and the grid itself is highly complex. Which makes the situation of utilities in the U.S. highly unique, and perhaps could lead to one of the greatest, and most painful, sector disruptions in recent history.

  1. Look to the state of Texas and how electricity is sold and delivered there. In Texas you can buy your power from any of a wide variety of companies but you pay for the use of the distribution grid separately. Just “Google’ ERCOT to get an understanding of buying your residential electricity in Texas.

    Also most of Texas has “Smart” meters installed, allowing residents to manage their electricity use.

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    1. There is a lot of confusion about distributed energy. Buying your electricity from a variety of alleged suppliers, and installed smart meters, which presently do nothing, is not the point of this post.

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  2. Distributed Energy/Smart Grid is clearly the right direction for the future. I like to point out that it mirrors the design of the Internet…No one node can bring the system down, as well as the system being optimized for net metering.

    The most serious potential obstacle I see is not the old grid infrastructure, but utility industry and labor union political opposition and lobbying. It is all about fear of losing jobs and the industry’s huge political power.

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  3. There are sectors of the utility industry that are adjusting to the DG/microgrid transition faster than others. Municipal utilities are less regulated and when located in more progressive towns (e.g., CA), tend to embrace the transition more readily. Similar shift is happening with Co-ops like those in SC trying to utilize “on-bill financing” with utility acting as facilitator and financier of DG buildout.

    Increasingly it appears that regulatory constraints and lack of incentives play a key role in slower movement by IOUs towards the DG/microgrid future.

    Either way, America’s energy future will be different than what we have today.

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  4. Distributive energy has its place as does the large high voltage transmission system. Solar is great but without storage, cloudy days and nights are a challenge.

    The propoer mix is the propoer solution.

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  5. The distributed generation community needs to work hard and fast at quantifying the benefits provided by small solar and wind installations. Utilities are very capable of modifying net metering tariffs to better reflect the capacity and back up power they provide. APS is currently attempting to implement a demand charge for solar net metering customers to more fully recover their fixed costs (i.e. the poles and wires necessary for solar customers to sell back their power to the utility but for which the solar customers do not pay, under retail net metering).

    Kate – EPRI is different than EEI.

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  6. I would argue that the “net-metering” rule in California is counter-productive. As the article from the NYT points out, in California costs to transmit and distribute electricity simply get shifted to energy consumers that haven’t yet installed solar arrays. So then everyone installs solar, but what happens to the grid if everyone is producing solar power, and no one is paying for the poles, wires, and meters? Who pays for the solar energy to get from Ivanpah to a house on the coast? What happens is the utility companies go to the PUC, hold everyone hostage in the name of “reliability”, and get bailed out. Remember that utility companies are guaranteed a rate of return by the PUC’s in the states in which they operate. Many are already re-couping the installed cost of smart meters and profiting handsomely from ratepayers. So really, it’s a question of state energy policy. Each state will battle with their utility companies on this issue, unless they wise up in Washington D.C. ha!

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  7. If utilities are losing money when people use less, then their rate structure is flawed. One solution is to lower the KWH rate to more closely match wholesale power costs, while increasing the monthly “service availability” fee paid on each electric meter. If the service availability fee properly covers the utility’s fixed costs, then the electric company can maintain substations and pay employees even if KWH sales drop dramatically. If this shift is done right, traditional consumers will see no change it their bill, while those customers generating their own solar energy pay a monthly fee (as they should) for utilizing the utility’s infrastructure instead of buying their own battery storage system.

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    1. Ron, what you say makes sense except that it is ILLEGAL in California. The solar bill, SB1, requires that net metered customers be treated no differently (for true-up, bills, rates, etc) than other non-solar customers. You can not charge solar customers a charge for using the distribution system as a battery (that’s what net metering really is) unless it is charged to ALL customers. For our utility, the cost of service for the customer charge (billing, engineers, computers, customer service, etc) is $14/month and covering all the distribution system costs is another $13/month. This means that granny who uses 300 kWh per month will probably double her electric bill because it will start at $27/month (relative to TX and other areas of the country this is a bargain).

      A rate could be designed to utilize individual storage (like the German system noted here recently) but costs have come down a long ways or Californians will be paying the German $0.40/kWh average rate.

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  8. Yes, solar is the way to go! We love to see people making the switch to solar, and SolarCity, Sungevity, and SunRun are definitely a great place to start. In addition, you can use the EnergySage Marketplace (it’s free) to compare this with the other options you may have, giving you more choice and transparency with every decision. Getting multiple quotes allows you to pick the best installer, panels, and financing option for YOUR needs. Try it out here: http://bit.ly/148yg0y Our system only takes about ten minutes of your time, and provides you with valuable information from many installers at once. In the end you may find that SolarCity, Sungevity, or SunRun are the way to go, but it never hurts to check out your options.

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