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Guess Who’s in the Crosshairs as a Solar Power War Erupts

by | published August 27th, 2013

As long as solar power remained on the fringes, the big utilities never really had any reason to be concerned.

But now that solar power is beginning to boom, the “old boys” of electric power have a serious fight on their hands.

According to GTM Research, a solar photovoltaic (PV) system is now installed every four minutes in the U.S. And by 2015, the country’s distributed PV market is expected to jump by more than 200%.

In places like Arizona, that means a solar power war has begun to erupt.

For the “old boys” it’s a matter of simple math: Every kilowatt of power that’s generated from a rooftop means that much less demand for power from a utility.

These trends are especially troubling considering solar power is becoming less expensive even while massive government subsidies are being reduced.

The Holy Grail for solar power would be reaching grid parity. That’s the point at which powering your home with solar is on par with what you could purchase from the grid.

For the big utilities, “grid parity” could spell the end of their longtime business models.

Just don’t expect the “old boys” to go down without a fight…

The Seeds of the Solar War

In fact, the solar war has already entered into a new stage.  Unfortunately, it is the consumer that is likely to come under the most fire.

Here’s why.

Utilities buy power from all sources. While a generating plant dependent upon coal may have a vested interest in discouraging the use of solar, a utility does not. A utility only needs to balance its demand levels with the availability of solar or wind to determine a proper business plan.

The primary problem with “green energy” has always been the variable nature of renewable distributed energy resources (DER).  As you know, the wind doesn’t always blow and the sun doesn’t always shine. What’s more, the current state of battery technology is insufficient to use as a remedy.

As a result, solar power production peaks when the sun is at its highest point. That time of day also happens to coincide with the industry’s peak-load pricing programs.

That is, given the largest volume of production taking place during that time of day when demand is highest, utilities have had the double advantage of buying power at a discount from solar providers while being able to charge consumers highest-usage rates.

And that is one of the reasons why utilities don’t like the rising number of people disconnecting from the grid and generating their own power using rooftop solar.  It hurts their bottom lines.

In fact, the private solar panels are reducing what has been the industry’s highest margin period – that primary demand period during midday.

Now, right on cue, the Edison Electric Institute (EEI) has published a report discussing the financial implications and strategic response to the changes in the retail electric business brought on by solar power.

The EEI represents all U.S. investor-owned utilities providing power to about 68% of the entire country. Its report highlights the industries’ concerns with renewable residential energy impacting their ability to sustain their current business and financial models.

Meanwhile, both federal and state officials are attempting to reduce fossil fuel electricity generation, for both environmental and infrastructure reasons.

You see, the more people that resort to rooftop panels, the less expensive it is to expand existing power facilities to meet anticipated higher demand.

Consumers in the Crosshairs

That brings us back to the struggle in places like Arizona–and the prospect of higher prices for consumers.

Initially, the state had introduced a targeted energy reduction program. At first, the utilities went along with the move, providing rebates to customers who installed solar panels.

The thinking was straightforward enough. A percentage of end users not requiring additional power from the grid would reduce overall infrastructure capital requirements. The rebates were regarded as a bottom-line consideration.

In 2010 rebates were $3,000 per kilowatt. But as the usage of roof panels increased (and started cutting into utility profits), those rebates began to come down.

Today, these rebates are at $100 per kilowatt. And, you guessed it, it is the consumer that is taking it on the chin despite the fact that the installation cost of panels has come way down. This has now pushed up the cost of electricity by 50% to the homeowner using solar panels.

In response, the utilities claim that solar power has now reached competitive levels (grid parity) and no longer requires the rebates. Of course, these guys never consulted either the solar power producers or their customers to see what they thought.

In addition, Arizona’s electric utilities are still collecting something called an “environmental benefits charge” of some $220 million annually. However, the money is used to build central solar and wind generating projects, not residential distributed solar resources. Consumers end up paying this additional fee without realizing any benefits.

What’s more, energy efficiency or “green building” initiatives also pose threats to Arizona’s utilities.  And if energy use declines, rates have to rise to cover the difference.

In fact, a recent price increase was justified after a claim that some rather limited solar adoption had reduced overall energy volume and the revenue was needed to sustain the current infrastructure.

So it seems a greater reliance on private solar power systems will lead to increases in everybody’s electricity prices in Arizona.

Is the Other Shoe About to Fall?

Some utility heads have gone even further.

Duke Energy (NYSE: DUK) CEO Jim Rogers, never reluctant to thrust himself into the middle of such debates, has said that, “If the cost of solar panels keeps coming down, installation costs come down and if they combine solar, battery technology and a power management system, then we have someone just using the grid for backup.”

The observation is a bit hyperbolic (for example, there is no breakthrough on the battery front anywhere on the horizon). Nonetheless, a very similar observation was made in the EEI report.

But there is an underlying and longer-term problem for the utilities in all of this. As homeowners adopt solar, it raises utility costs on other ratepayers.

This increases the attractiveness of solar, so more will adopt it. Costs on those still dependent upon the grid will go up even more.

At some point, the other shoe falls.  The utility’s credit rating may be called into question. The increased uncertainty and risk ushered in by this cycle will not be welcomed by utility investors.

Not surprisingly, the EEI’s short-term recommendations mostly amount to making rooftop solar customers pay more.

First, EEI wants all power bills to include a flat charge for fixed costs, which would apply to all grid-connected customers.

Second, it wants solar customers charged for the services the grid provides them: “off-peak service, back-up interruptible service, and the pathway to sell [distributed energy resources] to the utility or other energy supply providers,” is the way the report puts it.

And last, the EEI wants net-metering programs revised to pay solar customers only the going market rate, not a higher subsidized rate. All these measures would have the same effect: reduce the economic incentives for rooftop solar and thus slow its adoption.

State governments may have been instrumental in starting the war but now they have been pushed into a corner as well. After all, they collect tax revenues from the bill homeowners pay to the utility.

In Arizona, for example, that translated into a contribution of at least $450 million a year to the state budget.

It seems the only people left holding the bag are the folks who bought into the solar rooftop idea to begin with.

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  1. eric taylor
    August 27th, 2013 at 09:51 | #1

    Germany is the most advanced developed country building out solar energy to such a high degree that the public electric utilities are failing, as a matter of Governmental Policy, and full smart grid integration makes green energy that much more efficient! The business oil & gas interests in the U.S., that are being subsidized by our government, know that, with old money fighting to destroy green energy that they cannot deploy & control purely for their personal profit, and so they often lie about the viability of solar energies being able to be successfully deployed in the United States on financial grounds!

  2. Sabin Brunet
    August 27th, 2013 at 10:10 | #2

    This is a much more efficient way to use solar energy as it is a concentrator to heat water. A canadian developped product popular in Spain because of the no. of solar hours.
    It is a 15 ft diameter dish producing 10kw/hour of thermal energy and tracks the sun.
    Users in Maine use it and store hot water in underground reservoirs and reduce heating and air conditioning electric bills by 90%. Using batteries and electric voltaic panels is not yet the way to go as compared with this technology.

  3. mark
    August 27th, 2013 at 12:32 | #3

    Solar power needs to go into a Fly wheel like turbine device. The power goes into the flywheel which will generate power for days or weeks. The utilities need to move ahead. They just pay for what you contribute to the wheel. If you don’t like it get your own wheel. I don’t think they exist yet. Just throwing out an Idea. Might be crazy enough to work. You could save money every day on an exercise bike plugged into the grid. The technology is not there yet. However utilities need to evolve to accomidate the situation. My electric car (I don’t really have an electric car) runs off coal. Why not go with power from the wheel. 4 miles wide in the middle of Nevada, They got sun. Might take some coal or gas to keep it up to speed, or a plea to the general public to get on their bikes.

  4. Fred
    August 27th, 2013 at 12:32 | #4

    @eric taylor
    You must be dreaming, or just mindlessly repeating what is not true any more. After Fukushima, Germany along with France, announced to shut down nuclear power. But they quickly found out solar power is nowhere near to replace missing energy from nukes, and is too unreliable, inconsistent. France is already back-tracking on this nonsense, Germany is in political squeeze, which they are having hard time to resolve. Stupid hysterical uninformed public demands shut down of nuclear power, but they don’t explain where the replacement come from. “it’s government’s problem”. Whole Europe is burning MASSIVE amounts of coal again, as NG is too expensive there, and coal is being dumped on Global markets at or below cost.
    So much for your “green” dreams. Time to wake up.

  5. Fred
    August 27th, 2013 at 12:40 | #5

    @Sabin Brunet
    I was just going to say that.
    Also, a Canadian university developed a storage system based on calcium chloride, a dessicant. The professor installed it his home, cheap. It’s not cheap any more, calcium chloride price has gone up dramatically, but so has other fuel.
    It works by drying c. chloride by summer heat, and in winter you add water to storage, which releases the heat.

  6. CP
    August 27th, 2013 at 13:37 | #6

    It all comes back to the markets setting the rates. Not the utilities or the government subsidies of renewables. Keynesianism at it’s best.

  7. Horace Heffner
    August 27th, 2013 at 16:42 | #7

    Low cost energy dense battery technology is likely only about 2 years away from commercialization. One example is the NanoCap technology patented by Dais Analytic Corporation.

  8. Tim
    August 27th, 2013 at 17:13 | #8

    Sorry Mark, Propetual Motion might be able, with Electro Magnets located exactly around your flywheel, to work but it hasn’t been perfected yet, to my knowledge.
    Great idea, why don’t you get it going!

  9. Malcolm
    August 27th, 2013 at 23:18 | #9

    I do not know of any business that can sustain itself when there is a subsidized campaign to stop people using its product. Whether it is paying people to install low power light bulbs or installing their own production facilities (solar panels, wind generators etc) the net result is lower demand. Lower demand – by the well established rules of mass production – means higher unit costs. Higher Unit costs mean solar and wind etc become more competitive and so the saga continues.

    Such a policy only has one outcome. The power producers as well as the utilities will go broke. There will be no money to invest in the grid and we will be dependent upon our own resources to produce electric power. The grid will cease to exist.

    What electricity producers MUST DO is reverse their idiotic ill thought out policy of supporting the destruction of demand for their product and start promoting equipment that USES their product. I suggest utilities and power plant operators start promoting electric air conditioning, electric furnaces, electric cars and electric hand dryers……before they have no money left to spend on such campaigns.

    In Germany RWE has just shutdown a number of its power plants since they are now uneconomioc to operate…that is a sign of things to come.

    Malcolm

  10. Malcolm
    August 27th, 2013 at 23:24 | #10

    Just by way of analogy – imagine a car company – let’s say Ford – putting out paid ads on the TV for you NOT to buy a Ford. Buy someone else’s vehicle (energy) don’t buy our product!!! How long do you think Ford will stay in business……a few weeks and they would be in Chapter 11.
    Why any power company would not expect precisely the same to happen to them defies any kind of logic and common sense.
    Any CEO that backs a reduction in demand for the product his/her factory (power plant) ought to be summarily fired by the shareholders.
    Malcolm

  11. Keith
    August 28th, 2013 at 09:34 | #11

    I work in the energy efficiency business and have several observations or opinions to offer. 1. When a utility (public or investor owned)is forced by federal and or state governments to implement energy efficiency, reducing continuous and demand loads, they have no alternative but to raise the rates on the customer, whether they are industrial, commercial or residential. 2. Whether you support the programs or not, somebody is going to pay for it. The government hands out money or forces the utility to pay incentives, well look at your bill. You are either charged a “public purpose fee” or an “energy conservation fee”, etc. Your taxes also will increase because somebody has to pay for it. Plus as noted by Dr Moors, the rate that you pay for energy and the rate for the infrastructure are going to increase. 3. Count on the political winds to blow in the direction where the largest number of votes will be generated. Not everyone supports green energy and when the real costs are realized in your monthly power bill, a lot of green supporters start having second thoughts. 4. Much like the health industry is experiencing now, government rules and regulations add significant expense and little benefit for the masses. When the utilities no longer can depend on consistent revenue stream, the cost of maintaining the grid will increase dramatically. So, you will pay more, meaning that no matter how much you save or sell back to the utility, the bill you pay each month will not go down. The marketplace is the decision maker, not the government, not the green movement, not the environmentalists. If we the people cannot afford it, it will not succeed in the long run. Keith

  12. Alfred
    August 28th, 2013 at 11:02 | #12

    From where and what motivates this hysteria about solar? There just aren’t any watts coming from solar to warrant these wildly misplaced predictions. No wonder the utilities are not bothered by it knowing especially that it is politically motivated by the green environmental extremists. The demand for electricity will slow down mainly due to efficiency but that is no reason for the solar enthusiasts to get worked up into frenzy of wishful thinking.

  13. George
    August 28th, 2013 at 11:23 | #13

    @Malcolm
    You say that as if you believe utilities have a choice in the matter. Don’t underestimate Government regulation.

  14. David R. (Canada)
    August 28th, 2013 at 18:44 | #14

    If utility companies start jacking up charges to those customers with roof-top solar elec. collectors then there’ll be many who’ll simply decide to disconnect from the grid.
    I know of a couple of people that’ve done this already; purely on principle.
    My last elec. bill actual usage came to $11.04. The total electric bill came to $65.22.That $54 was a bunch of extra charges tacked on.
    This is how the utility companies fight any consumption reduction.
    Solution (for the customer)? Disconnect from the grid.

  15. Christy
    September 11th, 2013 at 10:40 | #15

    Its really a matter of nation and global security that we switch to renewables. The only way this will be done by the market is if power generators have to pay for the external costs of fossil fuels. Wars,health care costs and the effects of global warming which could very well destroy much of the accumulated assets of mankind. It has recently been shown that the global oil and gas reserves are over 5 times what it would take to really change the climate to the point of seriously disrupting our civilization. You may hear a lot of corporate funded information to the contrary, but this is not supported by most scientists. When it comes to destroying our way of life so certain corporations can make money, lets err on the side of caution and not let them do it. It may be more work it might even cost more (but not necessarily). That is the big picture. We have the technology and the ingenuity to deal with it. We can no longer afford to let investor owned utilities and oil companies determine our future or be allowed to dump their carbon for free when it affects us all. Do some resarch on what a 2 or 4 or 6 degree average temperature rise will mean to you and the world. Get active in creating a viable future.

  16. Mike Holly
    September 12th, 2013 at 14:02 | #16

    Moors is buying the hype. Peaking is only 7% of demand. Moreover, distributed solar PV is very expensive at about 30 cents per kWh even with excessive tax credits.

  17. Ralph Sabean
    April 17th, 2014 at 15:27 | #17

    I am in the process of setting up Solar Power and once I get set up I will quickly go off the grid. You only need Solar, Wind generator and Batteries. If 100 people in Nova Scotia go off grid in 2014 and the same in every province in Canada. The price of energy will drop not raise causing people to rethink going solar(green energy) You know you can heat Geothermally using heat pumps that run on solar energy. This would take a lot less energy because you only have to heat the water a few degrees and in summer cool a few degrees for Air conditioning. The sun has more energy than we will ever use in a billion life times. It just has to be accessed the right way. Think of it if one drop of sun was dropped on a city every body would likely be destroy within a 20 mile circle. Think another way look how much energy there is in a atom. They made a atom bomb and then a nuclear bomb. Just think what could be done with molecules of light in accessed properly. A handful would energize the entire Earth. The sun has enough energy to keep us going in solar power to heat our homes and run our cars and never use any grid power ever.

  18. August 15th, 2014 at 04:14 | #18

    @eric taylor@Fred Silly comment, Nuclear has always been supremely subsidised, solar is now close to not being subsidised, Germany is doing very well and because it replaced it’s old in-efficient coal fired power stations with much more efficient ones is actually burning considerably less coal.
    The one issue no-one is mentioning is the customer, – most customers have experienced the heavy handed monopoly (in most cases) power companies and hate their guts, so when an opportunity comes along for them to be independent from at least one of the bureaucracies in their (our) lives, they leap at it, and the more the utilities jack up the prices the more we will all leap at it, even paying slightly more than what is economic for storage just so we can be independent of the bastards, and looking at other technologies to reduce our slavery, bio gas from our sewerage or whatever we can find.
    Power is crucial to our modern lifestyle, while ever the utilities and their bloated shareholders have their feet on our necks it is hard to feel free, – those feet gotta GO.

  19. Richard E White CPE
    October 21st, 2014 at 16:15 | #19

    @mark
    Hey Mark . That flywheel technology for energy storage is available.
    I actually researched it 2 yrs ago. I needed to know the cost for a project I was working on in Omaha. That is one of many good ideas. I’m just saying.
    Dick

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