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The Fate of Utilities

April 4, 2016

As energy consumers’ interest in renewable energy alternatives —like rooftop solar— increases, utility companies must respond. The old infrastructure of utilities cannot last much longer thanks to the increasing capacity of rooftop photovoltaic installations.

What happens when you go solar?

When you make the decision to install rooftop solar PV, the way you pay for electricity will change. That makes sense, right? You’re changing the way you obtain your electricity, so how much you should pay ought to change, too. 

When you produce solar energy, you use less of the power supplied from the traditional grid that’s operated, maintained, and sold by utility companies. Before solar, you paid a retail rate for your electricity to the utility company who provided you with the power. After solar, you use more of the energy from the panels on your roof, or “off-grid” energy. This means you inevitably pay less to the utility company. If you produce more energy than you would have consumed “on-the-grid,” the utility company essentially purchases that extra energy from you, and pays you retail rate for the overage produced. 

This all sounds great: homeowners produce cleaner energy, and fossil-fuel-using utility companies pay solar users for the energy produced. But, it’s not so cut and dry.

The truth is, despite the growing number of rooftop solar PV installations, a vast majority of Americans are financially unable or have not yet invested in solar power. We must continue to be interested in the health of American utility companies because utilities will provide power to Americans for many years to come. The health of utilities is, in fact, at stake. 

At the end of 2015, the US had 23 GW of installed solar capacity. That’s enough to power 5 million homes, and those numbers are expected to double by the end of 2016. As the solar industry continues to expand with more solar homeowners, utility companies are making less money. When a business’ revenue declines, changes must be made. Just this week, the Edison Electric Institute hired a new marketing official to rebrand the utilities industry. 

Two main conflicts face utilities and will help decide their fate: 

  1. How electricity rates are structured, and if solar users will be compensated for their solar use 
  2. Developing an entirely new business model for utilities that is more friendly to renewable energies

Utility executives even recognize this necessary change of infrastructure. In the 2015 Utility Dive survey, 31% of utility executives saw Distributed Energy Resources (DER) as the largest growth opportunity. 56% recognized that opportunity, but didn’t know how to proceed, while 33% are already building new infrastructure around DER. 

What is the fate of utilities? 

At first, utility companies tried to take shelter in competitive wholesale markets. States like Arizona, Wisconsin, and New Mexico, at one point, attempted new measures that would add new fees to solar homeowners. David Roberts, Energy and Politics writer for Grist, points out that solar supporters should be questioning regulatory agencies just as much, if not more than the utility companies themselves. For example, the Arizona Public Service has started asking regulatory agencies to take up the issue of “how to share costs across solar and non-solar customers in a future proceeding, meant to determine the true cost of serving the distribution grid.” 

For solar PV to work, the consumer interest must exist in addition to policy and regulatory compliance. Multiple states have taken measures towards making solar PV more accessible, including Arizona, Vermont, Wisconsin, New Mexico, Hawaii, California, Minnesota, and New York, among others. 

In addition to action on a state level, the federal Clean Power Plan has made great strides in providing regulatory measures as well as incentives for solar users. The latest draft of the Clean Power Plan calls on a need for technologies like energy storage and demand response. The plan also designates a role for grid technologies that can help reduce the net amount of power generated from carbon-emitting, fossil-fuel-fired power plants. 

These measures include options for reducing line losses (like Volt/VAR optimization —VVO), or reducing end-of-use demand, like conservation voltage reduction (CVR). In layman’s terms,VVO and CVR are technologies that fine-tune voltages to save energy and reduce peak-driven strains on the grid by using more advanced meters to measure the use of electricity.

Community Action

In addition to these policy and regulatory measures, there are also actions communities themselves can take to improve their access to solar and benefits as users of that energy. One of these measures includes something called a “Community Choice Aggregation,” or CCA. CCAs have supportive legislation from California, Illinois, Massachusetts, New Jersey, Ohio, and Rhode Island. CCAs bring together customers from participating cities, towns, and counties, and uses its collective purchasing power to get exactly the type of electricity it wants rather than the power provided by traditional grid utilities. In addition to purchasing the chosen power method, CCAs also have the ability to provide a platform for other programs like feed-in tariffs, efficiency programs, and net metering, which we’ll talk about in more depth next week. 

Another option, and one attractive to utility companies, is that of “community solar projects.” Community solar projects are installations paid for and benefitting multiple community members, and often times, are sponsored by utility companies. Many utility companies, like Greenmountain in Vermont, have seen the light of community solar projects, and have been able to customize their power offerings, similar to home energy management companies. 

These community solar projects are an exciting advancement in the world of solar PV installations, because they bring together neighborhoods in the hopes of providing greater access to solar energy while providing an opportunity for the already-established utility companies to change their infrastructure while still producing revenue. As of 2015, community solar projects accounted for 115 megawatts of the US’ solar installations.

Many writers have theorized on the fate of utilities. Some hypothesize that years from now, utilities will only exist as battery charge stations. Fewer writers stay on the side of utilities entirely, believe solar energy is just a passing phase and that utilities’ old infrastructure will prevail. The middle ground is found within the idea of community solar projects, which benefit both solar homeowners and utility companies. 

The bottom line is this: utility companies must respond to consumer desire for solar energy. Solar PV installations will continue to increase in capacity, and utilities have no choice but to restructure their infrastructure to become more friendly and capable of addressing their solar energy-using neighbors.

 

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