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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.