Solar could burn utility business model

Exhibit 2 Utilities say that like it’s a bad thing. The same utilities that left millions without power in the U.S. repeatedly last year, and that gouge ratepayers for 10% or more profits. Moore’s Law continues to drive solar costs down and installations up, with increasingly more each like compound interest. Utilties need to adapt or get out of the way.

Last November Moody’s reported that solar and wind were eroding credit for coal and gas power plants, and were already having ‘a profound negative impact’ on the competitiveness of thermal generation companies. That was in Europe. David Roberts wrote for Grist yesterday, Solar panels could destroy U.S. utilities, according to U.S. utilities,

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. In short, all things being equal, utilities want to sell more power. (All things are occasionally not equal, but we’ll leave those complications aside for now.)

And they want to produce that power from big baseload power stations for their economy of scale while the monopoly power utilities get guaranteed profits, not to mention huge ratepayer and loan-guaranteed boondoggles like the new nukes at Plant Vogtle. (Electric Member Cooperatives are somewhat different.)

Now, into this cozy business model enters cheap distributed solar PV, which eats away at it like acid.

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. Not something any business enjoys. (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!)

In Georgia, most excess rooftop power is utility-purchased, since by the antique 1973 Territorial Electric Service Act you can’t legally sell it to anybody else. But first non-excess power usually goes directly to supporting the establishment with the roof.

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.” 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.

So sad! But according to for example Georgia Power’s mission statement, utilities should be glad, not sad:

As a company, we want to be judged not only by the service we provide, but also for what we do to improve the quality of life for all people in the places where we live and work.

As a regulated monopoly, Georgia Power is supposed to be doing that.

Back to the Grist article:

But wait. Renewables are limited by the fact they are intermittent, right? “The sun doesn’t always shine,” etc. Customers will still have to rely on grid power for the most part. Right?

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.)

EEI is Edison Electric Institute, “The Association of Shareholder-Owned Electric Companies”, publisher of the January 2013 report, Disruptive Challenges: Financial Implications and Strategic Responses to a Changing Retail Electric Business, from which the Grist article quotes:

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.]

Indeed! 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.” 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.

How, then, would Alabama Power CEO C.D. McCrary get his 50% raises, currently up to $8 million a year in total compensation? How would Southern Company CEO Thomas A. Fanning get his 62% raises? Shouldn’t you worry about that when you pay your electric bill? Shouldn’t that stop you from installing solar panels on your roof?

I don’t think it should stop you.

The utilities of course think it should. The EEI report claims rooftop solar will require utilties to raise rates, because solar generation at peak load cuts demand for utilties’ most expensive power, causing utilities to have to raise rates. This utility canard is why GaSU’s solar bill HB 657 insists it’s about lowering rates. Here’s a better idea: reduce utilities’ guaranteed profit margins!

Sure, that might make investors less willing to pay for big baseload power plants. Oh, wait! That helps solve the real problem, which is a big baseload model in a distributed rooftop world, much like IBM still pushing mainframes after PCs took off. The EEI report makes a detailed unflattering comparison to the telecommunications industry.

Renewables are winning, nukes are dead, and coal is crashing. If utilities want to survive, they need to get out in front on solar power, generating enough themselves, and providing a smart grid customers want to pay for. Utilities may still have to downsize. And maybe some of those executives getting 50%+ raises will have to get a job.