Solar panels could destroy U.S. utilities, according to U.S. utilities - 0 views
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That is not wild-eyed hippie talk. It is the assessment of the utilities themselves.
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Back in January, the Edison Electric Institute — the (typically stodgy and backward-looking) trade group of U.S. investor-owned utilities — released a report [PDF] that, as far as I can tell, went almost entirely without notice in the press. That’s a shame. It is one of the most prescient and brutally frank things I’ve ever read about the power sector. It is a rare thing to hear an industry tell the tale of its own incipient obsolescence.
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You probably know that electricity is provided by utilities. Some utilities both generate electricity at power plants and provide it to customers over power lines. They are “regulated monopolies,” which means they have sole responsibility for providing power in their service areas. Some utilities have gone through deregulation; in that case, power generation is split off into its own business, while the utility’s job is to purchase power on competitive markets and provide it to customers over the grid it manages.
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But the main thing to know is that the utility business model relies on selling power. That’s how they make their money.
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Here’s how it works: A utility makes a case to a public utility commission (PUC), saying “we will need to satisfy this level of demand from consumers, which means we’ll need to generate (or purchase) this much power, which means we’ll need to charge these rates.”
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The thing to remember is that it is in a utility’s financial interest to generate (or buy) and deliver as much power as possible. The higher the demand, the higher the investments, the higher the utility shareholder profits.
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Now, into this cozy business model enters cheap distributed solar PV, which eats away at it like acid.
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First, the power generated by solar panels on residential or commercial roofs is not utility-owned or utility-purchased. From the utility’s point of view, every kilowatt-hour of rooftop solar looks like a kilowatt-hour of reduced demand for the utility’s product.
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(This is the same reason utilities are instinctively hostile to energy efficiency and demand response programs, and why they must be compelled by regulations or subsidies to create them. Utilities don’t like reduced demand!)
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It’s worse than that, though. Solar power peaks at midday, which means it is strongest close to the point of highest electricity use — “peak load.”
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Problem is, providing power to meet peak load is where utilities make a huge chunk of their money. Peak power is the most expensive power. So when solar panels provide peak power, they aren’t just reducing demand, they’re reducing demand for the utilities’ most valuable product.
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This is a widely held article of faith, but EEI (of all places!) puts it to rest. (In this and all quotes that follow, “DER” means distributed energy resources, which for the most part means solar PV.) Due to the variable nature of renewable DER, there is a perception that customers will always need to remain on the grid. While we would expect customers to remain on the grid until a fully viable and economic distributed non-variable resource is available, one can imagine a day when battery storage technology or micro turbines could allow customers to be electric grid independent. To put this into perspective, who would have believed 10 years ago that traditional wire line telephone customers could economically “cut the cord?” [Emphasis mine.]
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Just the other day, Duke Energy CEO Jim Rogers said, “If the cost of solar panels keeps coming down, installation costs come down and if they combine solar with battery technology and a power management system, then we have someone just using [the grid] for backup.”
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What happens if a whole bunch of customers start generating their own power and using the grid merely as backup? The EEI report warns of “irreparable damages to revenues and growth prospects” of utilities.
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As ratepayers opt for solar panels (and other distributed energy resources like micro-turbines, batteries, smart appliances, etc.), it raises costs on other ratepayers and hurts the utility’s credit rating. As rates rise on other ratepayers, the attractiveness of solar increases, so more opt for it. Thus costs on remaining ratepayers are even further increased, the utility’s credit even further damaged. It’s a vicious, self-reinforcing cycle:
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One implication of all this — a poorly understood implication — is that rooftop solar fucks up the utility model even at relatively low penetrations, because it goes straight at utilities’ main profit centers.
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(“Despite all the talk about investors assessing the future in their investment evaluations,” the report notes dryly, “it is often not until revenue declines are reported that investors realize that the viability of the business is in question.” In other words, investors aren’t that smart and rational financial markets are a myth.)
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So rates would rise by 20 percent for those without solar panels. Can you imagine the political shitstorm that would create? (There are reasons to think EEI is exaggerating this effect, but we’ll get into that in the next post.)
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The report compares utilities’ possible future to the experience of the airlines during deregulation or to the big monopoly phone companies when faced with upstart cellular technologies.
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In case the point wasn’t made, the report also analogizes utilities to the U.S. Postal Service, Kodak, and RIM, the maker of Blackberry devices. These are not meant to be flattering comparisons.
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Remember, too, that these utilities are not Google or Facebook. They are not accustomed to a state of constant market turmoil and reinvention.
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This is a venerable old boys network, working very comfortably within a business model that has been around, virtually unchanged, for a century.