The World's #1 Renewable Energy Network for News, Information, and Companies.
Untitled Document

Solar Disruption? Yes. Utility Death Spiral? Not Necessarily

Suddenly, we have seen a spate of “death spiral” talk about electric utilities. Grid parity — through lowered costs — is supposedly triggering this decline. Homes are expected to defect from the grid, or maintain a limited link with it for reliability, thanks to solar panels backed up by batteries and gas-generators.

Death Spiral? 

The argument: As households reduce their use of grid electricity using solar, the customer base needed to cover the utilities’ fixed costs drops, thereby increasing rates. The increased rates create incentives for more customers to deploy solar to reduce their bills, thus reinforcing progressive grid abandonment.

Contrary to such expectations, however, a REW article by Jake Rozmaryn states, “despite the seemingly obvious fiscal choice to switch to solar, it still remains an exceedingly hard sell. Part of that is due to the soft costs, which inflate the installation price tremendously. Cost perception is monumental for someone to make the switch.”

While lowered costs, hard or soft, help, they are a necessary but insufficient condition for residential solar to take off. What also limits the industry is that it confronts the market schism described in Geoffrey Moore’s 1991 classic, Crossing the Chasm(Figure 1).  

Figure 1: Technology Adoption Life Cycle

Based on Geoffrey Moore (1991) Crossing the Chasm. Harper Business Essentials.

Grid Parity — Meaningless for Residential Solar Adoption

Let us segment the market following Moore and as shown above in Figure 1. To “innovators” and “early adopters,” let us add a 5 percent segment specific to the residential solar industry that consists of  “families with young children.” They use organic food for their preschoolers, possess college degrees, and have taken environmental science courses in high school and college.

The focus of residential solar deployment is concentrated on the first three segments amounting to ~20 percent. Since we are in the early stages of the industry, growth rates are high on a small base. This calls for caution. Moore’s thesis states that we may not rely on this segment alone; it is unlikely to be large enough.  For a business to flourish, it needs success with the “early majority.”

Moore argues that a gap exists between the early adopters of a new technology and the mass market. Many new technologies initially get pulled into the market by enthusiasts yet fail to gain wider adoption. The early majority typically thinks and researches, talks and consults, but does not readily buy. To reach them, companies need strategies to cross the chasm.

Grid parity presents little incentive for residential customers in the early majority. Electricity works reliably, and their bills are not huge when compared to wages. Climate change cannot compel solar deployment. The industry needs business drivers beyond lower costs to drive adoption. Given these segment attributes, the residential solar industry must brace for a lull in growth.

Figure 2: Residential Solar: Industry Position

Cost reductions – solar panels and balance of systems – necessary but insufficient conditions for grid defection and solar takeoff. Modified from a presentation at Brown University by A123 Systems, 2012.

The “S” curve in Figure 2 shows the “latent market” stage — the slowly growing part of the industry that includes the residential solar market.  

Untenable Comparison with Telecom

Many people in the industry make an erroneous comparison with telecom, claiming electricity customers going off grid is analogous to telephone customers going wireless. Writes Stephen Lacey: “Utilities may soon be on the verge of a "death spiral" as more customers leave the grid and implement distributed energy technologies like solar. A similar shift happened in telecom as the rise of mobile phones made copper lines nearly obsolete.”

This “cutting the cord” argument is unwarranted because, unlike telecom, the electricity business does not have a new, compelling, mass-market product like the cellular smartphone — representing a new service and requiring a new infrastructure — for customers to embrace.

The movement toward renewables is instead back-office substitution, not the introduction of a new consumer product. Grid parity is not about customer choice by walking the aisles of Sears, Best Buy, Home Depot, or Costco. Deploying solar may appear toparallel buying a refrigerator, cooking range, or a smartphone, but it is not.

Solar panels look dark, intimidating, and geeky to a consumer. They are a component of an industrial value chain, and not a consumer good. Even when the swap of renewable for traditional electricity occurs, the customer’s electricity experience remains the same as before, unlike telecom. 

Grid Parity — Meaningful for Electric Utilities

As solar photovoltaics attain grid parity, it signals to the electric utilities that they now have an additional choice for electricity generation beyond traditional coal or gas. Given that solar photovoltaic prices are likely to fall further and fossil fuel prices will likely rise, it makes sense for utilities to introduce solar in their generation mix. Grid parity means solar now substitutes and complements electricity generation by other means.

As lower-cost substitutes, solar benefits the utilities by bringing down their overall cost structure. With or without Renewable Portfolio Standards (RPS), utilities have reason to deploy solar. This is what NRG Energy appears to be doing, and what all electric utilities might do. And the sequence of deployment priorities is clear — grid-tied first, followed by businesses, and finally, residential customers.

If customers do defect, they might defect to the utility itself; why would they go to new service providers? The inevitable industry restructuring — metamorphosis — will be done by the utilities, just as telecom companies did, nudged by public policy and technology shifts.

Love of Disruption 

The apocalyptic talk about the death and disruption in the electric utilities business has been gathering momentum. Here is a select list of writings on the theme: 

We love disruption on occasion. When the current state of a market appears ill-suited to transformed needs, and yet companies in the domain enjoy power due to incumbency, incremental change appears insufficient. In Omar Khayyam’s words, we wish: 

To grasp this sorry Scheme of Things entire,
Would not we shatter it to bits — and then
Re-mould it nearer to the Heart's Desire!

We would like to rebuild a new structure from first principles. We seek destruction and reconstitution. The traditional foundations that regulated electric utilities — the natural monopoly argument and economies of scale — are broken; it is unclear how the new industry structure will emerge. Hence the appeal of disruption and "death spiral."

Lead image: Spiral staircase via Shutterstock

Untitled Document

RELATED ARTICLES

Sunrise in Pakistan as the Country Delves into Solar PV

Robert Harker Pakistan has joined the list of countries that are exploring solar power as a means to bridge critical energy generat...

Global Renewable Energy Roundup: China, Kenya, Turkey, India Seeking More Renewables

Bloomberg News Editors China is being encouraged by three industry groups to double the nation’s solar-power goal for 2020 to make up for sh...

Why Smarter Grids Demand Smarter Communications Networks

Mark Madden

Historically, utility networks and communications networks have had little in common.

The Importance of “Switching Costs” to the US Residential Solar Industry

Paula Mints The DoE and numerous organizations and governments globally are focused on driving down the cost of solar convinced t...

PRESS RELEASES

Array Technologies’ DuraTrack HZ v3 Continues to (R)evolutionize at SPI

Array Technologies, Inc. (ATI) prepares to showcase its recently launched tracking syst...

Appalachian's Energy Center assists counties with landfill gas to energy projects

The Appalachian Energy Center at Appalachian State University recently completed a proj...

Early Bird Registration Deadline for GRC Annual Meeting is This Week

The deadline for early-bird rates for registration for the biggest annual geothermal ev...

Redesigned HydroWorld.com Video Gallery

Hydropower news and information, and interesting promotional announcements are now avai...

FEATURED BLOGS

Transitioning to Net-Zero Living

Judith and Jeffrey adore living in Belfast, Maine – a quaint harbor town of Belfast, Maine. They previously res...

The True Cost of Electric Vehicles in Australia

In order to avoid increased congestion, further greenhouse warming and lessen Australia’s reliance on imported ...

The Coming Multi-trillion Dollar Energy Investment Drive

In coming years, a multi-trillion dollar low-emission energy investment drive will get underway. Three catalysts wil...

The Perfect Elevator Pitch

The elevator pitch is a concise statement that grabs attention and communicates value, ideally leading to a next step...

FINANCIAL NEWS

Mahesh Bhave is a Visiting Professor of Strategy at Indian Institute of Management, Kozhikode, India since Fall 2010. His home is San Diego. He has worked in product management, strategy, and business development positions at Hughes, Sprint, and C...

CURRENT MAGAZINE ISSUE

Volume 18, Issue 4
1507REW_C11

STAY CONNECTED

To register for our free
e-Newsletters, subscribe today:

SOCIAL ACTIVITY

Tweet the Editors! @jennrunyon

FEATURED PARTNERS



EVENTS

Intersolar North America 2016

Exhibition: July 12 - 14, 2016; Conference: July 11 - 13, 2016 Intersola...

Intersolar South America 2015

Exhibition and Conference: September 1-3, 2015 Intersolar South America ...

Intersolar Europe 2016

Exhibition: June 22-24, 2016; Conference: June 21-22, 2016 Intersolar Eu...

COMPANY BLOGS

Less Is More

When you’re giving a presentation, one of the easiest things to do...

Captivology

One of the biggest challenges we face as efficiency sales professionals ...

How To Optimize Your Meeting Schedule

Do you spend more time in meetings than you do actually working? While m...

NEWSLETTERS

Renewable Energy: Subscribe Now

Solar Energy: Subscribe Now

Wind Energy: Subscribe Now

Geothermal Energy: Subscribe Now

Bioenergy: Subscribe Now  

 

FEATURED PARTNERS