The Edison Electric Institute (IEE) recently published a report discussing the financial implications and strategic response to a changing retail electric business. It highlights the industries’ concerns with renewable residential energy impacting their ability to sustain current business and financial models.
From a utility’s point of view, every generated kilowatt of rooftop solar power is a kilowatt of reduced demand for the utility’s product.
The government objective is to reduce fossil fuel electricity generation and reduce the need for fossil fuel central generation expansion to keep up with current and future electricity demand. Initially, various utilities went along with the target energy reduction programs by supporting large rebates to customers who wanted to place solar generators on their roofs.
In 2010, several utilities were providing rebates of $3,000 per kilowatt, but in 2013 those rebates are now down to about $100 per kilowatt (a 97 percent reduction). Utilities across the board now say that solar is self-sustaining and that solar installations do not require rebates.
Utilities are still profiting on customers’ “environmental benefits charge” of around $220 million a year; however, this money is going toward solar and wind generating projects and not residential solar resources. This strategy allows utilities to keep the same distribution model as they have with current fossil generation models, and satisfy investor and management financial goal. The major flaw in this strategy is that the consumer is paying for these changes, but not getting the benefits.
Energy efficiency poses many of the same threats to utilities. If energy use declines, rates rise to cover the difference. Recently, the Arizona utility, APS, justified a price increase based on solar adoption. APS claimed that the solar installations reduced energy volume as well as revenue causing decreased funds to sustain current infrastructure. This will continue if more people adopt solar believing that their energy costs will go down.
Solar power peaks when the sun is at its highest and so does the utilities’ peak load pricing program. Peak power is the most expensive power. So when solar panels provide peak power, they aren’t just reducing demand, they’re reducing premium demand. However, the utility is buying it at the lowest cost from the solar provider (6 cents per KWh) and selling it to the non-solar user at the premium rate (16 cents per KWh) so they should not complain. Of course, net-metering neutralizes this gain for the solar provider.
Due to the variable nature of renewable distributed energy resources, there is a perception that customers will always need to remain on the grid. However, Duke Energy CEO Jim Rogers said, “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.” This was reiterated in the IEE report emphasizing irreparable damages to revenues and growth prospects of utilities.
As homeowners adopt solar, it raises utility costs on other ratepayers. This increases the attractiveness of solar, so more adopt it. Costs on remaining ratepayers are even further increased, and the utility’s credit rating may also be damaged. It’s a vicious, self-reinforcing cycle. Increased uncertainty and risk will not be welcomed by utility investors.
Not surprisingly, the EEI 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. That would insure a minimum contribution from everyone. Second, they want 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.” And third, it 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.