WSJ: Solar a “Mortal Threat” to Utilities

Three weeks ago, I had my 5 minutes at a local “listening session” on energy, put on by the Governor of my fair state.

My main message was that a technological sea change is coming in energy production – and if regulatory and utility policy do not anticipate the further build out of wind, solar, and distributed energy, the transition is going to be ugly.  Traditional energy producers who think they can hold back the tide will be like typewriter makers trying to bad-mouth word processors. They are going to go away.

I had coffee last week with a well-informed friend, who agreed with me that this is an oncoming freight train. He pointed me to some new survey results from Ernst & Young.

Renewable Energy World:

We conducted a telephone survey of executives involved in corporate energy strategy at 100 companies with revenues of US$1 billion or more. Questions focused on energy spend, types of energy used, energy strategy, and outlook.

The companies were those in energy-intensive sectors with a balanced global distribution. 72% have revenues exceeding US$1 billion, and 28% revenues of US$10 billion or more.
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41% of respondents report generating some form of renewable energy with company-owned or controlled resources. Most of these generate power with photovoltaic solar (25%), followed by biomass/biogas generation (20%) and the use of biofuels in company-owned fleets (19%). Wind and geothermal have 7% uptake.

Renewable energy still makes up a relatively small proportion of company generation though. Only 11% of respondents say it accounts for more than 5% of their total energy production.

This looks set to change though:

• 51% of respondents say company-owned renewable generation would increase over the next five years
• 16% expect it to increase significantly

As photovoltaic solar hits grid parity at more and more regions of the country, big customers are going to make investments in producing their own power. Many of them will still be connected to the grid as a back-up, but will expect to be able to sell their excess power generation onto the grid. They will make those desires known to their political allies.

Electric utilities will see their revenues drop, and will be forced to raise rates on remaining customers, further encouraging those customers to explore their own generation options as technology improves.

This is the making of a classic utility death spiral – and it is coming on like a tidal wave that will be as irresistible as  the internet, and just as disruptive.

Today, more confirmation from Wall Street Journal:

Traditional transmission and distribution utilities will have to deal with distributed solar power, and it won’t be a pretty fight, according to David Crane, president and chief executive of NRG Energy, a large independent power producer.

Utilities “do realize that distributed solar is a mortal threat to their business,” said Mr. Crane, speaking at The Wall Street Journal’s ECO:nomics conference on Thursday in Santa Barbara, Calif.

“They can’t cut costs, so they will try to distribute costs over fewer and fewer customers.” This, he said, will increase costs for the customers, and will drive more of them toward distributed solar.

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Lyndon Rive, co-founder and chief executive of SolarCity, said that “a super-majority of utilities will do whatever they can” to stop companies like his from increasing their market share. “They will create fear tactics,” he said.

Look for stories about “Solar Cell Syndrome” to hit the denial circuit.