Solar customers costing us, utilities say
Alarmed by what they say has become an existential threat to their business, utility companies are moving to roll back government incentives aimed at promoting solar energy and other renewable sources of power.
The New York Times
For years, power companies have watched warily as solar panels have proliferated across the nation’s rooftops. Now, in almost panicked tones, they are fighting hard to slow the spread.
Alarmed by what they say has become an existential threat to their business, utility companies are moving to roll back government incentives aimed at promoting solar energy and other renewable sources of power. At stake, the companies say, is nothing less than the future of the U.S. power industry.
According to the Energy Information Administration, rooftop solar electricity — the economics of which often depend on government incentives and mandates — accounts for less than a quarter of 1 percent of the nation’s power generation. And yet, to hear executives tell it, such power sources could ultimately threaten traditional utilities’ ability to maintain the nation’s grid.
“We did not get in front of this disruption,” Clark Gellings, a fellow at the Electric Power Research Institute, a nonprofit arm of the industry, said during a panel discussion at the annual utility convention last month. “It may be too late.”
Advocates of renewable energy — not least solar-industry executives who stand to get rich from the transformation — say such statements are wildly overblown. For now, they say, the government needs to help make the economics of renewable power work for ordinary Americans. Without incentives, the young industry might wither — and with it, their own potential profits.
At the heart of the fight is a credit system called net metering, which pays residential and commercial customers for excess renewable energy they sell back to utilities. Currently, 43 states, the District of Columbia and four territories offer a form of the incentive, according to the Energy Department.
Some keep the credit in line with the wholesale prices that utilities pay large power producers, which can be a few cents a kilowatt-hour. But in California, those payments are among the most generous because they are tied to the daytime retail rates customers pay for electricity, which include utility costs for maintaining the grid.
California’s three major utilities estimate that by the time the subsidy program fills up under its current limits, they will have to make up almost $1.4 billion a year in revenue lost to solar customers, and shift that burden to nonsolar customers. Some studies cited by solar advocates have shown, though, that the credit system can result in a net savings for the utilities.
The struggle over the California incentives is only the most recent and visible dust-up as many utilities cling to their established business, and its centralized distribution of energy, until they can figure out a new way to make money. It is a question the Obama administration is grappling with as well as it promotes the integration of more renewable energy into the grid.
Utility executives have watched disruptive technologies cause businesses in other industries to founder — just as cellphones upended the traditional land-based telephone business, producing many a management shake-up — and they want to stay ahead of a fundamental shift in the way electricity is bought, sold and delivered.
“I see an opportunity for us to recreate ourselves, just like the telecommunications industry did,” Michael Yackira, chief executive of NV Energy, a Nevada utility, and chairman of the industry group the Edison Electric Institute, said at the institute’s convention.
The fight in California has become increasingly public, with the two sides releasing reports and counter-reports. A group of fast-growing young companies that install rooftop systems, including SolarCity, Sungevity, Sunrun and Verengo, recently formed their own lobbying group, the Alliance for Solar Choice, to battle efforts to weaken the subsidies and credit systems.
They have good reason. In California, as intended, net metering has proved a strong draw for customers. From 2010 to 2012, the amount of solar installed each year has increased 160 percent, almost doubling the amount of electricity rooftop systems can make, according to the Solar Energy Industries Association. With federal tax credits and a rebate program for installation costs under the California Solar Initiative phasing out, determining how much to pay customers has become even more critical.
“Net metering right now is the only way for customers to get value for their rooftop solar systems,” said Adam Browning, executive director of the advocacy group Vote Solar.
Browning and other proponents say solar customers deserve fair payment not only for the electricity they transmit but for the value that smaller, more dispersed power generators give to utilities. Making more power closer to where it is used, advocates say, can reduce stress on the grid and make it more reliable, as well as save utilities from having to build and maintain more infrastructure and large, centralized generators.
But utility executives say that when solar customers no longer pay for electricity, they also stop paying for the grid, shifting those costs to other customers. Utilities generally make their profits by making investments in infrastructure and designing customer rates to earn that money back with a guaranteed return, set on average by regulators at about 10 percent.
“If the costs to maintain the grid are not being borne by some customers, then other customers have to bear a bigger and bigger portion,” said Steve Malnight, a vice president at Pacific Gas and Electric. “As those costs get shifted, that leads to higher and higher rates for customers who don’t take advantage of solar.”