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What utilities really think about solar

The cost of producing solar electricity has been falling, and that should make it much more desirable to utilities. But what do utility executives really think about solar these days, and what will make them embrace solar more (besides being told by their regulators that they have to)?

At the Solar Power International conference in Dallas last week, a panel of utility executives served up some telling views about their interest and misgivings about investing in solar. Here is a takeaway of some of the key points:

1. Price is still a big barrier: There has been lots of talk about the rapid decline of solar panel prices and the rise of large-scale solar farms, but the price for solar hasn’t come down far enough, utility executives said. That means they aren’t likely to invest in it unless they have to in order to meet state mandates. The issue is particularly thorny in places of the country with super low electric rates (and lower numbers of sunny days). Robert Powers, president of AEP Utilities, noted that the average wholesale price for power in general in several northeastern states this summer was $0.04 per kilowatt-hour when the price for solar was around $0.20 per kilowatt-hour.

Larry Weis, general manager of Austin Energy, noted that wind energy development has continued to grow and at cheaper costs. “It’s difficult to say, OK, let’s go out and build 200 MW of solar now when can acquire 200 MW of wind for roughly half the cost,” he said.

2. Too much reliance on government help: The solar industry has largely depended on a 30 percent investment tax credit and other federal and state incentives to help them finance projects. While utilities can take advantage of the tax credit and other help if they want to invest in solar, they are leery of having to factor in government incentives when they do long-term planning for power plant construction.

“State and federal support will go away, and we have pressures from our owners they don’t want us to rely on the (investment tax credit) forever. They don’t like earnings that are based on taxes,” said Randy Mehrberg, Chief Operating Officer of PSEG Energy Holdings in New Jersey. “Cost, at the end of the day, is what haunts all of us.”

3. Money and technology: Although the government has invested billions of dollars into renewable energy, it’s facing high pressures to limit spending. “One thing we don’t talk about enough in the energy industry is capital as a resource,” Powers said. “There is a finite capital to solve the U.S. and the world’s climate issues. Policy makers will face the inevitable question: if I spend a dollar on solar, a dollar on natural gas, or a dollar on wind, how do I solve some of the broader policy issues because I’ll eventually run out of the capital if I don’t spend my dollars efficiently.”

Powers said one way to make solar attractive is to pair it with energy storage, which can bank solar and deliver power to utilities who need it to balance their supply and demand and to make sure any sudden flow of renewable energy (when the wind starts to blow or the sun comes out from behind the clouds) doesn’t disrupt the grid’s operation.

Doyle Beneby, CEO of CPS Energy, a municipal utility in San Antonio, said the use of demand-response technology can help turn solar into a more predicable source of energy sooner than storage can. The utility plans to build a communication network for 150,000 of its customers by 2015 that will allow it to reduce power use of households. “Our view is that on days when the cloud covers come in and your solar output dips, we can have volunteers have their power turned down,” Beneby said. “We can get that to market before battery technology is scalable enough to have an impact.”

4. Some policies are desirable: Utilities don’t like to be told they have to invest in more expensive energy or technologies. But if their consumers start to demand cleaner power or if there is one day a price on carbon emissions – and some utility executives think eventually there will be – then utilities want to make sure they can pay for all the costs. One way to do that is to support renewable energy mandates, which typically come with mechanisms for utilities to recover part of the extra expenses by passing on costs to ratepayers.

Armando Olivera, CEO of Florida Power & Light, said a big disagreement between proponents of centralized and distributed solar generation has made it difficult to lobby the Florida state legislature to pass a clean energy mandate. The company wants to do large-scale projects because they are cheaper. The retail electric rates in Florida are about 27-30 percent lower than national average, so the utility wants to do solar as cheaply as possible to minimize rate hikes, Olivera said. The company has built 3 solar projects totaling 110 MW in the last few years. “We think we can do the same projects at 30-40 percent cheaper now than we did three or four years ago. We have another 500 MW we can start construction if we have the right policy,” Olivera said.

5. Idealism and reality: Solar energy advocates have been touting many polls showing that Americans want clean energy, and utility executives largely agree. But they don’t always want to pay for it. Armando Olivera, CEO of Florida Power & Light, said its residential customers have expressed a willingness to tag on another $3 per on their bills to support solar. Randy Mehrberg, chief operating officer of PSEG Energy Holdings in New Jersey, offered up this anecdote:

“We ask our customers regularly what they would like to see from us. So we asked them, what is the No. 1 we can do for you besides lowering your bill? The No. two answer was more renewables. Guess what the No. 1 answer was? The answer was ‘Lowering the cost of our bills.’”

Photo courtesy of BFS Man via Flickr

9 Responses to “What utilities really think about solar”

  1. Whitney Rauh

    Armando Olivera, CEO of Florida Power & Light, said its residential customers have expressed a willingness to tag on another $3 per on their bills to support solar… but what Olivera did not state is that the ratepayers would want to pay for solar, if these payments went to incentivize residential and commercial businesses to put solar on their rooftops… NOT that the ratepayers want to pay to have FP&L build solar farms.. Mr. Olivera is skewing the response in the utilitie’s favor, when in fact the truth is the ratepayers DON’T want the utilities to benefit from solar, the ratepayers want incentives so they can actually reduce their own utility bills and benefit from distributed generation.

  2. David Dunnison

    Hi Ucilia,

    Thanks for providing this summary. It is helpful to understand the current thought within the utility industry. Arguably, as this group presented at SPI, this represents the leading edge of adoption.

    A couple of things really struck me from your summary. One was the cost argument, and the other the storage (3. Money and Technology) argument.

    The view appears to be still mired in the utility mindset of baseload generation, and average costing. It is surprising, especially after this past summer, that there is not more appreciation for the value of peak load coincidence. Moreover, when it comes to the call for storage for cloudy days that this group does not appreciate the impact of even relatively small clouds on peak demand. In the control rooms at SCE, for example, they ‘calibrate’ clouds with respect to their impact on reduced loads from AC’s.

    In terms of new or replacement generation, PV is already attractively priced.

    It is false economics to compare PV to average baseload costs from generators that are already on the grid. The real question is how does it compare against new sources of generation?

    PV is already cheaper ($/watt) than new hydro (, for example.

    But, the facts are never the real story. The real story is one of perception and mindset. It appears we still have a long way to go.

    Regards, David

    • Hi David, thanks for your thoughts. Solar isn’t a baseload or dispatchable power, and you need both to make ratepayers happy. So, even if PV is attractively priced, it still falls short of that baseload/dispatchable requirement. Interesting point you made about comparing the cost of solar to new sources of generation. I’m not sure hydro is a good comparison since I don’t hear much about new, big hydro projects in the U.S. Besides, companies like GE are improving their gas plants’ efficiencies, so it’s hard to compete against cheap natural gas.

  3. Electricity is quite costly in the state of NJ, where I’m a PSE&G customer. It’s interesting to read COO Randy Mehrberg’s comments knowing that they’ve installed a single solar panel on thousands and thousands of utility poles. How could that be cost-effective?

    I’d have a solar array installed on the roof here at Rancho Indebto, if I wasn’t three steps away from fleeing the insane taxes and overall high cost of living in the Garden State.

  4. I am all for renewable energy such as wind and solar, but the hardest choice everyone will have to get over (including me) is to equally carry the load to bring these changes faster. I understand some are going to say, “We do not have the financial resources!”. The key part is, if you have the capacity to carry the load without breaking the bank account in the long run, then do it. In this way, you help to lower the individual cost for those who are not yet able to. When the cost becomes lower and lower overtime, more and more are able to carry load. It’s a gradual geometric progression, not an overnight cure!

  5. A well-researched article. I’m glad I came across it.

    Fascinating quotes from energy company executives.

    Please read my blog on solar power at – which (this week) describes the solar power situation in the world’s biggest petroleum producing country in the world, Saudi Arabia.

    The first of many such projects in GCC countries, I’m informed.