Utilities shouldn’t fight distributed solar, they should own it

d solar
Credit: teeic.indianaffairs.gov

Electric utilities are in big trouble. Investment analysts and industry executives are both using terms like “utility death spiral” and “failing utility business model” to describe how energy generated by residential solar units is threatening the future existence of grid-based electrical service.

Utilities are fighting back. They’re trying to eliminate government incentives that currently make installing residential solar units more affordable. It’s a very dumb and short-sighted response.

When a combination of technology and consumer preferences made cell phones another way to get in touch, major landline-owning telephone companies didn’t fight the trend. They got into the cell phone business. Today, when solar cell technology is developing so rapidly, its costs dropping so dramatically, and consumer affection for solar so obvious, electric utilities should go the same route. Not fight a solar future. Take steps to get a big piece of that future.

Properly viewed, residential solar isn’t a dangerous competitor of electric utilities. It’s a natural adjunct to their present electricity supply operations. Getting involved here guarantees that no matter the mix of electrical generation in years to come, centrally produced or residential sourced (i.e. distributed), utilities will profit.

Changing the utility business model from totally grid-based to a grid and distributed solar-based model is the obvious solution to the industry’s present market challenges. Indeed, it’s really the only long-term solution.

How might an electric utility get into the residential solar business? There’s no one answer to this question. No template at present to follow. But actually manufacturing and installing solar units would certainly not be required. Rather, deals of one sort or another would likely be cut with companies already in the field.

The advantages an electric utility would enjoy in any such arrangement are considerable. It already has direct and long-standing contacts with all potential solar customers via the electric service it currently provides. It can fund its residential solar involvement at very advantageous terms because it is able to borrow at near zero interest rates. It can take a long-term view on realizing profits, unlike many companies that must perform better every quarter.

Environmentalists should also cheer a move by utilities into the residential solar market. Utilities have the financial and marketing clout to hasten greatly acceptance and implementation of solar. And there’s the political factor as well. It’s far better to have a very powerful ally with well-established political contacts backing distributed solar power for the sake of its own profits, than a very powerful enemy fighting solar at every turn.

While utilities and environmentalists would both benefit from the former’s move into residential solar, there would be one big loser here. The fossil fuel industry. The more solar that generates electricity in homes, the less utilities will have to spend burning fossil fuels to feed their grids.

Residential solar isn’t the enemy of electric utilities. Acting in short-sighed ways that only benefit fossil fuel suppliers is the real threat to future utility profits.

(Michael Silverstein is a former senior editor with Bloomberg’s flagship Markets magazine. Kay Wood is an environmental writer and graphic novelist.)

Comments

5 responses to “Utilities shouldn’t fight distributed solar, they should own it”

  1. Alexander Dudley Avatar
    Alexander Dudley

    Well put. To me this is a no-brainer, and critical for the long-term survival of any electric utility company. While they still have money, investing it in solar leasing programs and storage would be a smart move. Otherwise, the death spiral awaits.

  2. Chris Fraser Avatar
    Chris Fraser

    The energy companies may have to decide if fossil providers are a part of their future, but don’t those generators have some kinship with transmitters and network providers ? It might appear at first glance that providing storage solutions is some attempt to reduce volumes to the grid and selling out on it … but I may be wrong.

  3. patb2009 Avatar
    patb2009

    for cell phones, the business model didn’t change, actually costs went down, you got a bunch of new revenue lines and you convinced customers to accept crappy service. the problem with distributed solar is it makes it attack primary revenue and your costs go up. Central utility grade solar, is cheaper, and they can control that.

  4. Tony Pfitzner Avatar
    Tony Pfitzner

    I guess the issue is one of control. The utilities don’t own the panels on your roof – unless they lease them. The problem for the utilities is to offer a better deal than the home owner can achieve for themselves by direct ownership, i.e. through feed in tariffs.
    Feed in tariffs cannibalize other investments the utilities may have in power generation, and their internal business processes are not designed for this distributed scenario.
    I think it is likely that the utilities will start to support distributed generation to some extent, but they may not be competitive with completely new business models that will arise. Think Tesla versus General Motors.

    An example of a competitor could be.a cooperative of small scale pv owners using Internet based metering and calling themselves a power company.

    I have no idea as to what regulatory barriers to entry – e.g. to the grid – may apply in the latter scenario, but it is technically feasible.

  5. Max Boronovskis Avatar
    Max Boronovskis

    Agreed, spot on. Here in Western Australia on our main grid the monopoly residential retailer, Synergy, did try to embrace solar several years ago by selecting at least one private solar company which they promoted and co-hosted community solar information sessions with. Depending on your point of view this was successful but was challenged by other solar vendors as anti-competitive and shut down. They now only promote that equipment be Clean Energy Council approved (which unfortunately does not ensure quality). I will suggest to them they investigate and promote the industries own fairly recent voluntary quality standards Solar Gold (for installers) and Positive Quality (for PV modules).

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