Can the Utility Market Survive the Solar Power Boom?

by Jack McDermott

 

In the late 1970’s, every watt of electricity generated from a silicon photovoltaic cell cost $76.67. A watt produced by the same kind of solar panel in 2016 cost just $0.76[1]. The rapid increases in efficiency and cost-effectiveness of solar generation, both on the industrial scale and privately-owned, residential scale, are causing large scale adoption, especially in the American Southwest, but this kind of unprecedented expansion in private power generation has created massive pushback from the energy distribution industry. Solar-paneled home and business owners are subject to fees, rate-hikes, and companies are trying to reduce the amount of solar power privately adopted. Utility companies need to change their business model moving forward, incorporating increased storage capacity across the grid, coupled with programs by utility and power generation companies to retain ownership over solar panels on private residences.

 

Due to increased efficiency from technology and cheaper production, the cost per kilowatt hour of electricity generated from solar panels, though sporadic, is at or near the average cost of retail electricity in the United States in 2016[1]. It should make economic sense for private homeowners and businesses that can afford to take on an infrastructure project like large scale solar panel installation to do so, and indeed, many have. Walmart has about 90 megawatts of solar capacity across all of its US facilities, and since 2000, residential solar capacity has increased from near zero to more than 2,000 megawatts in the United States[2][3]. Every watt of power generated by these homes and businesses however, is electricity that they no longer have to buy from a utility provider, and on days with intense sun, most states, including California, which has the most private solar systems in the country, require the utility to buy back excess electricity generated from these systems[4].

 

This rapid adoption of solar infrastructure leads to what many industry experts refer to as the “solar utility death spiral.” The more consumers that install solar panels, the utility will sell less units of electricity. Because these solar systems are not self-sustaining, and must remain connected to the grid, fixed costs like grid maintenance per unit area and labor remain constant, while sales drop. The utility will have to raise prices for the remaining customers, which in turn further incentivizes them to adopt solar. Additionally, although customers with private solar systems are not purchasing as much energy, the state requirements that electricity be bought back by the utility lead to these homes still necessitating grid costs and maintenance[5].

 

Utilities have responded in multiple ways. In California, utility companies are acting to limit solar credits, creating a cap on the amount of electricity that they are obligated to buy back, drastically reducing the economic incentives for homeowners to install private solar systems6]. In Arizona and Colorado, utilities have proposed two options. One, a flat, grid-use charge levelledt all consumers, regardless of metered energy consumption and generation, or two, a set price solar credit that allows the utility to buy the electricity generated from private solar systems and sell it back to the consumer at market rates. Both of these options reduce the benefit of installing solar systems[7].

 

Utility companies need to fundamentally change their business model to meet the changing needs of the energy consuming public. Utilities can continue to expend time and effort fighting the “net-metering” scheme that incentivizes private solar system adoption, but based on solar price trends, it will only become more economically viable for homeowners to do so[8]. Utilities could stay viable by following the example of Duke Energy in North Carolina, which created a program wherein they pay a rent fee, based on the market price of electricity generation, to private homes and businesses to operate solar panels. This gives the utility more freedom to control the market price and to more accurately estimate and account for grid costs without the inequality inherent in a net-metered scheme[9][10]. Moving forward, many utilities should be prepared to shift their role from “energy supplier” to “energy distributor.” An increase in the infrastructure of capacitors and batteries, stemming from lowering costs and advancing technology, providesot only an increase in renewable capacity for intermittent, clean power sources like wind and solar, but also provides new income streams for the utility[11].

 
 
 

Works cited

  1. Shahan, Zachary. “13 Charts On Solar Panel Cost & Growth Trends.” CleanTechnica. N.p., 28 July 2016. Web. 17 Apr. 2017.
  2. “Solar Industry Facts and Figures.” SEIA Industry Data, n.d. Web. 17 Apr. 2017.
  3. “What Walmart, Google, Apple, Facebook, IKEA, Costco, Staples, Kohl’s, Macy’s, & Walgreens Know That You Don’t.” Cost of Solar. N.p., 19 Nov. 2013. Web. 17 Apr. 2017.
  4. Boyce, Dan, and Lauren Sommer. “Utilities Fight For Revenue Lost To Solar Power.” NPR. NPR, 03 Jan. 2015. Web. 17 Apr. 2017.
  5. Hernandez, Mari. “The Utility vs Solar Fight — Why? What’s At Stake?” CleanTechnica. N.p., 22 Aug. 2013. Web. 17 Apr. 2017.
  6. Hernandez, Mari. “The Utility vs Solar Fight — Why? What’s At Stake?” CleanTechnica. N.p., 22 Aug. 2013. Web. 17 Apr. 2017.
  7. “Solar Industry Facts and Figures.” SEIA Industry Data, n.d. Web. 17 Apr. 2017.
  8. Hernandez, Mari. “The Utility vs Solar Fight — Why? What’s At Stake?” CleanTechnica. N.p., 22 Aug. 2013. Web. 17 Apr. 2017.
  9. Boyce, Dan, and Lauren Sommer. “Utilities Fight For Revenue Lost To Solar Power.” NPR. NPR, 03 Jan. 2015. Web. 17 Apr. 2017.
  10. Warrick, Joby. “Utilities Wage Campaign against Rooftop Solar.” The Washington Post. WP Company, 07 Mar. 2015. Web. 17 Apr. 2017.
  11. Sklar, Scott. “Time to Consider Solar Net Metering Alternatives: Storage.” Renewable Energy World. N.p., 21 Oct. 2013. Web. 17 Apr. 2017.

 

 

 

 

 

 

 

 

 

 

 

 

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