As a war brews between goliath investor-owned utilities and distributed solar energy supporters, solar advocates say they think the utilities have already lost – they just don’t know it yet.
Utility companies from Hawaii to Texas, Arizona and Louisiana have launched efforts to eliminate or reduce net metering payments – credits on utility customers’ bills for the power they generate with rooftop solar systems. The rate is typically the same as the retail rate customers pay for the power they purchase from the utility companies, but some utilities are trying to reduce the amount of the credits.
It’s happening all over the country with utilities lobbying elected officials to reverse state laws requiring net metering and launching full-scale publicity campaigns to turn public sentiment against solar like the one Arizona Public Service started earlier this month with full-page newspaper advertisements and funding for anti-solar websites.
The backlash, though, goes deeper than simple hurt feelings and sour tastes in the mouths of customers who invested in solar, according to renewable energy advocates.
There are clear political consequences for trying to stop a revolution already steaming ahead as solar energy grows in popularity.
More than 52 percent of Arizona voters said they want to encourage solar energy generation in the state more than any other type of energy generation, wheres 60 percent of the state’s Republican primary voters said they would be less likely to vote for a candidate who voted to end the state’s net metering program, according to a release from solar advocacy group TUSK – Tell Utilities Solar won’t be Killed. The advocacy group, chaired by noted conservative and former Republican representative from California, Barry Goldwater, stands behind solar in the same way it supports school choice, according to a press release. The argument from TUSK’s perspective isn’t about saving the environment; it’s about preserving a free market and allowing competition.
In Hawaii, regulators put Maui Electric and its parent company Hawaiian Electric on notice, arguing investment in renewable energy is not an optional expense. The Hawaiian Public Utilities Commission revised allowable profits for the utility downward from 10 percent to 9 percent, half because of “over curtailment of renewable energy.” Citing concerns that Maui Electric was not investing enough in renewable energy, wasting the renewable energy generation it had and taking too long to decommission fossil fuel electric plants, the commission is requiring the utility to refund more than $8 million to ratepayers.
“I think this is a really pivotal moment for utilities,” said Bryan Miller, president of TASC – The Alliance for Solar Choice and vice president of public policy for Sunrun, a company that leases solar to homeowners. “This is regulators saying, ‘we’re lowering your rate of return because we’re sick of you not planning for the future.’ They’re saying, ‘we expect a real plan for the future from you.’ And utilities have never been asked to do that before.”
Miller said he expects more utility commissions to become increasingly critical of the companies they govern as regulators grow more and more aware, as utilities already are, that solar could be a real alternative to grid power.
The only difference, Miller said, is that utilities aren’t calling solar an alternative to their product – they’re calling it a threat.
How solar threatens utilities
The Edison Electric Institute, a trade group representing most of the country’s investor-owned utilities, released a report titled: “Disruptive Challenges: Financial Implications and Strategic Responses to a Changing Retail Energy Business” earlier this year.
The report said utilities need to stop ignoring the imminent threat that distributed generation, particularly solar, poses to their business model, especially as battery technology advances.
“As the cost curve for these technologies improves, they could directly threaten the centralized utility model,” the report reads. “One can imagine a day when battery storage technology or micro turbines could allow customers to be electric grid independent.”
The report compared today’s utility structure to the telecommunications industry 10 years ago when it was hard to imagine consumers snipping their landlines in favor of cell phones.
“That report is really a remarkable document because it’s actually a self-written obituary,” said Bryan Miller, president of TASC and vice president of public policy for Sunrun.The report highlights the threat that distributed generation poses and recommends fighting it in order to preserve the current business model.
“There’s almost zero discussion about being innovative,” Miller said. “What the utilities don’t realize is that the net metering debate is missing a huge piece of the puzzle. Storage is going to happen.”
When storage catches up, utility customers will have a true alternative to grid power. Residential customers in particular will be able to choose between buying grid power, investing in solar and battery systems they own, or leasing solar panels and batteries similar to leasing solar panels from companies like Sunrun, SolarCity, Sungevity and Vernego. When solar and storage can be an outright replacement for grid connections, it won’t matter anymore if utilities allow third-party owned energy production on their grids, which has kept leasing companies out of some markets. Consumers will be able to choose to replace grid power with solar.
“The global investment in electric vehicles has created global scale demand for storage and rapid cost declines,” Miller said.
Germany, which led the solar revolution with its feed-in-tariff years ago, has shifted its focus to incentivizing innovation and adoption of advanced battery and energy storage technologies.
Can utility companies innovate?
Traditional utility companies know there is a looming threat to their business model in distributed solar energy generation.
The Edison Electric Institute, a utility trade group, has acknowledged similarities between its current position and the crossroads that the telecommunications industry stood at a decade ago. Telephone companies, like Bell Atlantic which evolved into Verizon, thrived after making the switch to an increasingly popular technology that better adapted to the way people's lifestyles
Companies like BellSouth, NYNEX, Ameritech and Pacific Telesis, which were once major corporations controlling significant percentages of the U.S. telecommunications industry are all but forgotten today, most absorbed into AT&T and Verizon.
Bryan Miller, president of TASC and vice president of public policy for Sunrun, said the issue facing utilities is significantly more complicated than the one the telecommunications industry went through because there are so many overlapping regulations and so many different regulating bodies for utilities. One federal regulation was able to reform telecommunications. The logistics for utilities are far more nebulous, which could explain utility companies’ reluctance to be proactive.
Still, utilities can choose to embrace the new technology that isn’t on the horizon, but has already arrived. The other option is to fight it, which most are opting to do.Utility companies all over the country have launched campaigns to end or slash net metering programs, asserting to rate payers that they are all going to see higher bills as a result of the money utilities are paying for distributed generation.
“Utilities need to get the message to stop fighting,” Miller said. “They need to stop being the typewriter lobby fighting to stop computers.”
He said there have been rumblings from some utility companies attempting to test the waters with their own distributed generation programs, which is what smart utilities should be doing. Only a handful of utility companies have been making meaningful investments in distributed generation. Edison International filed with the FERC on June 25 for approval to purchase SoCore Energy, a Chicago company focused on solar energy installations for real estate investment trusts. Duke Energy recently announced a major growth equity investment in San Francisco-based Clean Power Finance, a financial services and software provider for the solar industry and capital markets.
Edison International also recently invested with Clean Power Finance and NextEra Energy Resources acquired Smart Energy Capital, a distributed generation solar development and finance company, according to a release from the Solar Electric Power Association.
“The investments of Edison International, Duke Energy and NextEra in distributed solar companies demonstrate that these forward-looking companies recognize the important role that solar will play in the future of the energy industry,” Julia Hamm, president of SEPA, said in a statement. “Customers are increasingly being presented with energy choices, including solar, which foreshadow that the role of the electric utility is likely to shift. Utility holding companies are getting in front of the change and preparing their businesses for continued success."
Companies like American Electric Power are also considering getting into the distributed generation business, according to a May 28 article in the Wall Street Journal.
"On its face you would look at it and say distributed generation is a threat," Nick Akins, chief executive of American Electric Power, told the Journal. "But on the other hand we see it as an opportunity because our business is changing. There's no getting around it."
See part II: How solar threatens utilities
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