Can We Have Solar Energy and Utilities, Too?

April 26, 2013

I posted part one of this very valuable discussion yesterday.

Dave Roberts in Grist:

Yesterday I wrote that solar PV and other distributed-energy technologies pose a radical threat to U.S. power utilities and the centralized business model they’ve operated under for the last century. This is, I hasten to add, according to the utilities themselves.

So what should be done about it?

It’s complicated. On one hand, more distributed renewable energy is a good thing. It reduces carbon emissions, increases resilience, stimulates the growth of new industries with new jobs, and gives Americans a taste of energy democracy.

On the other hand, it just won’t do to have utilities view the spread of rooftop solar PV as an existential threat. Whatever you think of them, utilities still have tons of political power. If they want to slow the spread of distributed energy, they can. A lot.

So let’s look at their complaint. But one key thing to keep in mind as we do is that the utilities’ primary objective, the impetus behind the recent report from their trade group, Edison Electric Institute, is toprotect their business model and their profits. That’s what business groups do.

Which is fine. EEI’s concern is what it should be: how the industry and regulators can act quickly in the short term to protect utilities, to give them room to develop a long-term strategy for grappling with the rapid spread of distributed energy. However, it’s not clear why protecting utility shareholders ought to outrank other social goals. EEI’s recommendations should be taken with a grain of salt.

Here’s the problem, as EEI sees it: Utility customers are being subsidized in various ways to install solar panels — tax credits, state renewable energy standards, feed-in tariffsnet metering, what have you. Those are the explicit subsidies. But there’s also an implicit subsidy. As solar customers pay less to the utility, they contribute less to the maintenance of the electric grid and other utility “fixed” assets. The utility’s fixed costs (as opposed to the variable costs of fuel and electricity) must be recovered from the other ratepayers. “This type of lost revenue recovery drives up the prices of those non-participating customers,” EEI writes, “and creates the environment for ongoing loss of additional customers as the system cost is transferred to a smaller and smaller base of remaining customers.”

This is always the rap on solar PV programs from critics: They amount to forcing poor ratepayers to subsidize the green indulgences of the more well-to-do.

Now. If it’s true that distributed solar is raising costs for those who don’t have it, as a shrinking class of customers shoulders more and more of the burden, then it’s obviously not sustainable and something will have to change.

However, it’s worth pausing a moment to consider whether it is true. In some ways, EEI’s discussion reflects utilities’ instinctive hostility toward distributed energy. It makes a great deal of the costs of incorporating rooftop solar PV into the system, but says little about the benefits.

And there are benefits. In January, energy analysts at Crossborder Energy did a careful study [PDF] of California’s net-metering policy, tallying up costs and benefits. (The study was commissioned by the Vote Solar Initiative.) The costs are those described above — all utility customers pay for credits to solar customers and for the metering and billing necessary to integrate them in the grid.

But as utilities get power from solar, they don’t have to get it elsewhere. There are “avoided costs,” which benefit all ratepayers, not just the solar few. Here are the benefits Crossborder considered (and the California PUC has considered in rate cases):

• Avoided energy costs
• Avoided capacity costs for generation
• Reduced costs for ancillary services
• Lower line losses on the transmission and distribution system (T&D)
• Reduced investments in T&D facilities
• Lower costs for the utility’s purchase of other renewable generation

Long story short, Crossborder found that a) the costs and benefits alike were relatively small beans, and b) the benefits outweighed the costs by a small margin.

Now, obviously this doesn’t mean distributed solar always and everywhere lowers costs for non-solar utility customers. But it does suggest that utilities shouldn’t assume the inverse either. It’s a case-by-case, location-by-location determination. Midwest Energy News (which you should be reading) did a great piece on this subjectrecently. I thought this bit captured it well:

“This is exactly the same as when a private company, an electric utility, for example, is approved by its regulator to build a conventional power plant ‘in the public interest’,” says [renewable energy analyst Paul] Gipe. The costs and benefits are studied, and if regulators think the plant is in the public’s interest, they will approve it even if it results in new costs for customers.

In other words, programs like net metering and feed-in tariffs aren’t “subsidies,” per se, they are simply different ways to pay a fair price for power generation.

If it is true that encouraging rooftop solar does not — or does not necessarily — raise rates for non-solar customers, then part of EEI’s case falls apart. Massive rate increases on non-solar customers are its way of scaring policymakers into action to protect utility profits. If those rate increases don’t manifest, all EEI has is a raw plea to lawmakers to protect shareholder profits. Not quite as compelling!

However, the prospect of a bunch of utilities going bankrupt isn’t exactly attractive. So what does EEI think it needs for utilities to avoid being swept away?

Not surprisingly, the 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 some fancy subsidized rate.

All these measures would have the same effect: reduce the economic incentives for rooftop solar and thus slow its adoption. That seems less than ideal. But there is a need for costs to be more transparent and for all ratepayers to be charged appropriately for the services they receive. And again, the utilities cannot be locked into a death spiral this far in advance. It’s not healthy for them to be in a pitched battle with their customers and the planet. It’s politically untenable.

On energy efficiency, which poses many of the same threats to utilities, the conflict has been somewhat papered over by “decoupling,” whereby a utility’s profits are disassociated from its sales of energy. (If usage declines, rates rise to cover the difference.) In practice, this mostly amounts to paying utilities — or rather, having ratepayers pay utilities — to run energy efficiency programs. One can imagine something similar with distributed energy programs.

But decoupling has always struck me as a classic kludge. It amounts to forcing utilities to slowly dig their own graves, strand their own assets. They’ll do it if forced by law, but they won’t do it enthusiastically. They won’t innovate. They’ll do what they have to and no more.

What’s needed, then, is something deeper, a more fundamental restructuring of the utility model, a way to escape once and for all the cross-incentives that are pitting utilities against energy democracy.

What would that look like? This is where I admit: hell if I know. Making utilities work is so complicated it makes my head hurt. I do know that lots of smart people are working on this problem right now, and the work they’re doing is some of the most interesting and important happening in the energy world. It’s a bit of an anticlimax, but let me … suggest further reading:

  • Over at NDN, Michael Moynihan did a great report called “Electricity 2.0: Unlocking the Power of the Open Energy Network.” It wrestles with exactly these issues in an incisive and comprehensive way.
  • At the Center for American Progress, Bracken Hendricks and Adam James recently put out a report called “The Networked Energy Web” that addresses many of the same questions.
  • The Rocky Mountain Institute has a program called eLab devoted to creating a modern electricity system. Check out this video they made and see if it doesn’t sound familiar!

11 Responses to “Can We Have Solar Energy and Utilities, Too?”

  1. “the impetus behind the recent report from their trade group, Edison Electric Institute, is toprotect their business model and their profits. That’s what business groups do.

    Which is fine.”

    No, it’s not fine. It’s completely counterproductive and is why we would be much better off with public, not private utilities.

    What’s needed, then, is something deeper, a more fundamental restructuring of the utility model, a way to escape once and for all the cross-incentives that are pitting utilities against energy democracy.

    What would that look like? This is where I admit: hell if I know. Making utilities work is so complicated it makes my head hurt.

    You head hurts because it’s so crowded in there, all consumed with the private free-market paradigm – which just doesn’t seem to work for renewable energy. Expand your mind a bit to include spending a few minutes thinking about the public approach, and it will all become clearer.

    Wasn’t that a pretty nice and kind way for me to to put it?

    Now let me be not quite so nice:

    Why do you keep ignoring the public option? It is at least as valid an approach as the private utility system. You continue to publish article after article about the private paradigm , yet steadfastly refuse to mention public large-scale possibilities.

    And every other energy blog seems to do the same thing.

    We know roof top solar is cool, we know it can work, we know detailed specifics about how much it costs to install, buy, run. How to maintain it. Endless articles on how it can be made even the tiniest bit more affordable, public-private partnerships, leasing arrangements.

    What have you, or any other energy blogger, done to tell us about why a public utility model might be superior?

    Have you devoted a single – just one – post to the advantages of large-scale vs rooftop solar?

    Do you know how many large-scale sites would be needed to the U.S. to go 100% green?

    How many panels, wind towers that would take? How much would that cost? How many panels would we need? How quickly can they be manufactured? How quickly can they be erected and put online?

    How much cheaper, per installed watt, is large-scale vs decentralized? Do you have any idea? Do you care?

    Why are you only telling only one side of the storPublic large-scale renewable energy makes sense. It offers us a way to beat AGW now and at the lowest possible price. It is affordable. It is a bargain.

    And you won’t talk about it.


    • Wes Says:

      I suspect that Roberts is focusing on the private power system because that’s what we have, and his aim is to find a way for them to support the changeover rather than use their formidable political power to block it.

      You might want to post your comment over at Grist where Roberts might see it and respond.

      • If we are so afraid of the “formidable political power ” of private utilities that we can’t even talk about the advantages of public ones, we are doomed.

        And very unlike our political opponents, the conservatives, who, after Goldwater lost, had zero political power. But they realized that changing public opinion on any issue was simply a matter of moving the Overton window, which, of course, means that you actually start talking about the issues you want to advance.

        I would also point out that the Overton window shows us that if we are afraid of the “formidable political power” of the private utilities, then they way to get them to acquiesce to sensible reforms is to make outrageous reforms more popular.

        For example – if we want public utilities to embrace renewable energy and not fight it, we also talk about nationalizing the private utility industry. Once 40% of the public thinks that is a pretty nifty idea, watch and see how the private utilities rush to embrace sensible reforms that previously fought against.

        Bloggers have every reason to start talking about large-scale public renewable energy projects, and I would argue that their journalistic integrity is called into question because of their evident refusal to do so.

        • And thanks for the tip re Grist! 🙂

        • Wes Says:

          I’ve read enough of Robert’s writing to know that he’s not afraid to take on anybody. My point, to clarify the issue, was that the theme of his article was looking for ways to make the power industry part of the team, not to claim that we can’t get it done without them. Certainly we can talk about public utilities and that likely would be a good result if we can get it done. But if the utilities put us into a full court press, the progress will be much slower.
          Your suggestion about depicting nationalization as an option is a great way of moving the bar.

  2. twemoran Says:

    Attended a talk about future electric costs in Ontario last year. The presenter covered everything from renewables through nuclear & upgrading coal. Each option included a 13% addition for private over public that was to cover additional costs of borrowing and of course profit. When asked why private would even be considered when the downside was so obvious the reply was that in the present political climate public the public option was simply untenable.

    With the changes that are coming the untenable simply has to be brought back into the realm of the possible. I can see the possibility of someone building a large green subdivision where electrical production & distribution was communally owned and operated. Some of the advantages of scale. None of the maintenance demands for individual owners & lower electric rates going forward than a neighboring, on the grid, subdivision would face.

    If a subdivision like that should prove profitable for the developer, others would emulate the model & at some point communities already built would be rethinking their relationships with Enron’s successors.

    Probably a utopian vision & very hard on the shareholders of existing energy companies, but still a possibility without turning capitalism on it’s head.


  3. Wes Says:

    In line with the discussion above, this article about AZ Public Service pushing back hard on solar is very interesting.

    Hopefully this link will be live when it publishes.

  4. andrewfez Says:

    The biggest energy hog in one’s home is the air conditioner/heater. So if we’d start building our homes a bit smarter, using 1970’s technology (passive solar), that would be a big step in reducing energy usage (and consequentially you could get kitted out with a smaller, cheaper solar system):

    That ZED channel (from which the second video link is derived) is pretty cool.

  5. The biggest energy hog in one’s home is the air conditioner/heater. So if we’d start building our homes a bit smarter, using 1970′s technology (passive solar), that would be a big step in reducing energy usage (and consequentially you could get kitted out with a smaller, cheaper solar system)”

    I’ve got nothing against passive solar, increasing efficiency, etc. That’s all great. But…

    I think your post touches on a couple of issues that illustrate only one way of looking at things, and I think we need to look at energy for a different perspective. I think a good analogy is supply side vs demand side economics.

    You suggestion is to reduce demand for energy, by building smarter. This would then allow you to have a smaller personal solar PV system, which you would want small, because you have to pay out of your pocket for it. Small, small, small.

    Small, small, small makes sense when we have to pay for our heating/cooling fuel, and pay for our rooftop system. Small, small, small makes sense from a demand side perspective, especially when it involves fossil fuels. But is it the best mind set?

    Because small, small, small is a very curious position indeed, from a supply side perspective. We have all the supply we could possibly use at our finger tips. And ten times more than that. And ten times more than that. And ten times more than that. And five times more than that!

    And all that supply – a minimum of 5000 times more than what we could ever need – doesn’t need to be extracted out of the ground, transported, purified, transported. It falls on the earth from the sky every day completely for free. A huge excess of free energy, and all we have to do is harvest it and share it around.

    Imagine you have a huge woodlot and a woodstove and tons of dried firewood. You can enjoy a nice comfortable winter. If, by chance, your stove heats up a bit too much, you open your windows to let out the excess heat, and you don’t feel particularly guilty about it.

    Solar (and wind) are our enormous woodlot, a woodlot so large and healthy that every day they produce tens of thousands of times more wood than we could possibly burn, whether we keep our windows open or closed, whether our house is efficiently insulated or not, whether we wear two sweaters or walk around naked. We could do all these wasteful things, and live in a house a thousand times larger than the one we are in right now and still not even come close to to running out of firewood. Indeed, we would still be up to our eyes in firewood.

    You want to minimize your demand, minimize your personal investment because that makes sense in a fossil fuel/free market demand side paradigm. But I don’t see the point of a demand side paradigm, when there is so much free supply of clean energy, only wanting us to harvest it. When supply is many orders of magnitude greater than demand could ever be.

    This is the beauty of large-scale solar/wind projects to my mind. Build for the supply side, not the demand side. The cost of the infrastructure itself is tiny relative to the benefit (no AGW) , so why not build enough so we are up to our eyes with energy? Imagine how that could impact our civilization for the better!

    • andrewfez Says:

      I just want an indoor greenhouse, and a room with a view!

      If someone would do some serious research on how to securitize community solar projects out here in CA, where I live, they’d probably make a lot of money because we have a brand new feed in tariff happening. Just copy the German model.

      Imagine if all you had to do was throw in $1,000 or $3,000, or whatever you want, into a security that administered community solar fields which sold expensive peak time energy to the local utility, and you got a monthly dividend for your investment, Californians would eat that up.

      The downside is that the housing bubble has made everything land-wise around Los Angeles, San Fransisco, etc. super expensive.

    • andrewfez Says:

      Also a little solar trivia i found interesting (from wikipedia). Apparently Exxon had a hand in lowering the cost of solar 90%, back in the late 1960’s. If only they’d apply some of their recent enormous profits to completely disrupt the industry with something like your scenario:


      In the late 1960s, Elliot Berman was investigating a new method for producing the silicon feedstock in a ribbon process. However, he found little interest in the project and was unable to gain the funding needed to develop it. In a chance encounter, he was later introduced to a team at Exxon who were looking for projects 30 years in the future. The group had concluded that electrical power would be much more expensive by 2000, and felt that this increase in price would make new alternative energy sources more attractive, and solar was the most interesting among these. In 1969, Berman joined the Linden, New Jersey Exxon lab, Solar Power Corporation (SPC).[8]

      His first major effort was to canvas the potential market to see what possible uses for a new product were, and they quickly found that if the price per watt were reduced from then-current $100/watt to about $20/watt there would be significant demand. Knowing that his ribbon concept would take years to develop, the team started looking for ways to hit the $20 price point using existing materials.[8] The first improvement was the realization that the existing cells were based on standard semiconductor manufacturing process, even though that was not ideal. This started with the boule, cutting it into disks called wafers, polishing the wafers, and then, for cell use, coating them with an anti-reflective layer. Berman noted that the rough-sawn wafers already had a perfectly suitable anti-reflective front surface, and by printing the electrodes directly on this surface, two major steps in the cell processing were eliminated. The team also explored ways to improve the mounting of the cells into arrays, eliminating the expensive materials and hand wiring used in space applications. Their solution was to use a printed circuit board on the back, acrylic plastic on the front, and silicone glue between the two, potting the cells. The largest improvement in price point was Berman’s realization that existing silicon was effectively “too good” for solar cell use; the minor imperfections that would ruin a boule (or individual wafer) for electronics would have little effect in the solar application.[9] Solar cells could be made using cast-off material from the electronics market.

      Putting all of these changes into practice, the company started buying up “reject” silicon from existing manufacturers at very low cost. By using the largest wafers available, thereby reducing the amount of wiring for a given panel area, and packaging them into panels using their new methods, by 1973 SPC was producing panels at $10 per watt and selling them at $20 per watt, a fivefold decrease in prices in two years.

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