Utilities Couldn't Kill Distributed Solar, So Now They're Co-Opting The Business Model

First they ignore you, then they laugh at you, then they fight you, then they… steal your business model?

Solar energy is booming: More than half a million US homes and businesses have gone solar, some 200,000 in just the last two years alone. The Solar Energy Industries Association estimates that in the first half of 2014, a new solar installation went up every 3.2 minutes.

That scares the hell out of the electric utilities, who have been fighting rooftop solar tooth and nail.

Utilities are right to be scared—the rise of distributed solar energy generation presents an existential crisis to their business model. But solar's steady march has not slowed down, so now the utilities are taking a different tact: they're simply trying to co-opt the rooftop solar business altogether.

“You have to question their motives,” Will Craven, a spokesman for the Alliance for Solar Choice, told the San Francisco Chronicle. “They’ve been attacking rooftop solar for years at this point, and they’ve tended to lose most of those battles. This is just the latest tactic.”

Utilities' motives may be questionable, but the economics aren't. The traditional electric utility business model is no longer viable over the long term. As more people are generating their own energy and a push for greater efficiency lowers the amount of energy being cosumed overall, utilities are selling less.

Meanwhile, they still have to maintain the electric grid and the rest of their aging infrastructure, even as stricter emissions regulations push outdated power plants offline and measures to combat climate change, like President Obama's Climate Action Plan, which will force dirty power plants to rein in their global warming emissions, threaten their bottom line as well.

A particular point of contention is “net metering” laws, which have been adopted in 43 states, usually over the objection of local energy providers because that means that owners of solar-equipped houses get to sell any excess electricity generated by their solar panels to the utility in exchange for credits on their energy bill, even while the utility is still on the hook for the cost of building, maintaining, and upgrading the electric grid that the excess solar energy is being fed into.

Many utilities, in fact, fought for the right to charge a fee to customers who want their rooftop solar energy fed back into the grid, often pushing a bill drafted by the American Legislative Exchange Council that would scale back net metering laws.

Some utilities simply refused to hook up new solar systems to the grid at all. Utilities in Pennsylvania, acknowledging the inevitable but seeking to stanch the bleeding somehow, attempted to pass a law that would limit rooftop solar installation to 110% of the household's needs.

According to a study published by the Lawrence Berkeley National Laboratory, if rooftop solar comes to account for 10% of the entire electricity market (it's currently less than half of 1%), the utilities, accustomed to something on the order of $360 billion in energy sales, could see earnings could drop anywhere from 5% to 41%.

Which explains why electric utilities are now trying to get into the rooftop solar game for themselves.

Arizona's largest utility, Arizona Public Service, has proposed paying homeowners $30 a month to lease their rooftops and install solar panels. South Carolina just adopted a law to allow utilities to get in on the rooftop solar leasing game, and regulators in New York are considering doing the same. A similar law in Washington state that would have allowed utilities to rent solar arrays to consumers was defeated last year but may rear its head again.

Rooftop solar companies take issue with utilities getting into their business because regulators set the rates utilities charge, guaranteeing profits, which puts the utilities at a distinct competitive advantage that, combined with their built-in access to consumers, only serves to ensure their continued monopoly.

The South Carolina law, it should be noted, forbids utilities from recouping costs from ratepayers, so they will have to create unregulated business divisions in order to lease solar panels to consumers. Some utilities, including Edison International and NRG, have already created unregulated business units to deal in rooftop solar.

Interestingly, one Republican political consultant in Arizona doesn't think there is any ambiguity to the utilities' motives. Jason Rose, who helped form a conservative pro-solar group called Tell Utilities Solar Won’t be Killed, told the SF Chronicle: “This is nothing more than an effort to undercut the market, an expansion of the monopoly.”
 

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