Why electricity utilities are running scared of residential solar
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, Arizona 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 they were providing rebates of $3,000 per kilowatt, but in 2013 those rebates are now down to $100 per kilowatt a 97 percent reduction and a system price increase to the homeowner of over 50 percent even though solar panel costs have dropped significantly. They say solar is now self sustaining and doesn't require rebates, but I don't believe they asked the solar industry or their customers what they think.
They still capture your utility bills "environmental benefits charge" of around $220 million a year, but are using this money to build solar and wind central generating projects and not residential distributed solar resources; however, they still meet government guidelines. This new strategy allows them to keep the same distribution model as they have with current fossil generation models, and satisfy investor and management financial goals. However, the consumer is paying for these changes, but not getting the benefits.
Energy efficiency or green building poses many of the same threats to utilities. If energy use declines, rates rise to cover the difference. Recently APS justified a price increase based on limited solar adoption they claim had reduced energy volume and revenue and they needed a price increase 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 (6c KWh) and selling it to the non-solar user at the premium rate (16c KWh) so they shouldn't complain. Of course, net-metering neutralizes this gain for the solar provider.
Due to the variable nature of renewable distributed energy resources (DER), 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.
The utilities' paranoia associated with using the grid as back-up or not at all based on battery technology is a stretch. Solar deep-cycle batteries are very expensive, need a lot of maintenance and have a short life. As an example: for the average 6 Kilo Watt solar system that supports a home at full power for around five hours a day in Prescott with a 50 percent discharge cycle rate the battery pack would cost around $16,000 and have a life cycle of between three to four years. The new lithium-Ion battery technology being promoted is smaller and lighter and has twice the energy density and cycle life over lead acid deep-cycle batteries, but they are also four to five times the cost. Therefore, I don't believe being connected to the grid would cost anywhere near that sort of money and would therefore not be an attractive financial alternative.
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.
One other issue that needs considering is that the Arizona electrical bill tax revenues approach $450 million a year, and I am sure they don't want that to go down.
For more information contact Paul Scrivens www.greenhomeenergyadvisors.com
The EEI report: http://www.eei.org/ourissues/finance/Documents/disruptivechallenges.pdf