Why Solar Power has Utilities Running Scared
February 15, 2016
Running hard to keep up with what’s happening in the solar/distributed energy/renewable/storage space.
Dave Roberts has been cranking out a series of long but invaluable explainers at Vox, one is excerpted here, but google for more.
Rolling Stone just did a nice piece on the pushback from Big Fossil and the Koch Brothers – see below.
Large incumbent industries threatened by new upstart technologies do not always respond to those threats wisely.
Shocking, I know. While this is usually obvious in retrospect, it can often be difficult to see in real time as the struggle is unfolding.
Take power utilities. (Please.)
Currently, utilities are threatened by distributed rooftop solar panels. They are pushing back against rooftop solar in states across the country.
It turns out, though, that by squashing or rolling back current support mechanisms for rooftop solar, utilities are only accelerating the development of a much more serious and enduring threat to their business model.
That threat is solar plus storage: an integrated combination of solar photovoltaic (PV) panels, batteries to store their energy, and power electronics capable of managing the system and, in some cases, communicating with the larger power grid.
Such a system is, to quote the Rocky Mountain Institute, a “utility in a box.” Make it big enough and it can supplant the utility entirely, taking the user entirely off-grid.
Utilities don’t make money on electricity itself — for that, they are only allowed to recover their costs. Instead, they make profit by earning a rate of return on investments in grid infrastructure.
Problem is, charges for infrastructure are typically bundled, on a consumer’s power bill, with charges for electricity. It’s all lumped together into a single per-kWh “volumetric” charge (i.e., consumers who use more pay more).
So when rooftop solar customers buy less utility power, they are also paying the utility less for those sunk investments in infrastructure. In order to get the same rate of return on those investments, utilities then have to raise rates on other customers, which does not make them popular. It also drives more customers to install solar, accelerating the cycle.
So utilities are going after “net metering,” the near-ubiquitous policy (44 states and Washington, DC, have it in some form) that pays solar customers the retail rate for the surplus electricity they produce.
Utilities want to pay solar customers a lower rate for their surplus electricity and charge them separate, extra “fixed charges” to cover grid investments.
There are dozens of these battles ongoing. Utility Dive has a good list of the top 10.
In most cases so far, utilities have lost. But not all. In Nevada, the public utility commission (PUC) just decided in favor of the utility, slashing compensation for, and increasing charges on, rooftop solar customers. Hawaii ended net metering last year.
In California, by contrast, the PUC just decided in favor of rooftop solar customers and installers, preserving the current payment regime.
However these short-term battles play out, conventional wisdom is that net metering can’t survive in its current form. One way or another, solar customers are going to have to pay more.
Higher fixed charges are an incentive for solar customers to install storage
What happens when a rooftop solar customer gets paid less for her electricity and pays more in fixed charges?
A solar customer who’s getting the full retail rate for her surplus power has no financial incentive to store any of her energy. When she sells it, she gets the retail rate; when she buys power, she pays the retail rate. She has no reason to prefer her self-generated electricity to the utility’s. It’s all worth the same.
But if retail rates rise and incentives for solar decline, the game changes.
Under those circumstances, when generating surplus energy the solar customer faces a new choice. She can sell her power to the utility (for below retail rate) or she can store it and use it later, when she would otherwise be paying retail rate.
In other words, the lower net metering rates get, the more solar rooftop customers have incentive to consume as much of their self-generated power as possible. The way to do that is to store the excess generated during the day and consume it at night.
And a fairly modest-size battery can substantially increase a solar customer’s consumption of self-generated energy. A 2015 Australian Climate Council report found that “adding a 4 kWh battery to a 5 kW solar system can increase the amount of self-generated solar electricity a household consumes from 30 to 60%.” (By way of comparison, Tesla’s Powerwall home battery is 7 kWh.)
What happens when solar customers buy even less power from utilities? Do utilities cut net metering rates even further? Raise fixed charges even higher?
If they do that, they just piss more customers off and create even more incentive for larger solar arrays and bigger batteries, accelerating the cycle.
In short, by going after net metering, utilities are merely delaying, not avoiding, the much-discussed “death spiral.” They can delay it for a while, even a decade or two in some places (more on that in the next post), but they cannot forestall it. It’s coming.
The rise of distributed solar power poses a triple threat to these monopoly gains. First: When homeowners install their own solar panels, it means the utilities build fewer power plants, and investors miss out on a chance to profit. Second: Solar homes buy less electricity from the grid; utilities lose out on recurring profits from power sales. Third: Under “net metering” laws, most utilities have to pay rooftop solar producers for the excess power they feed onto the grid. In short, rooftop solar transforms a utility’s traditional consumers into business rivals.
The surge of solar competition has caught the nation’s dirty-power generators flat-footed: The utility trade group Edison Electric Institute (EEI) warns that rooftop solar could do to the utility industry what digital photography did to Kodak, bringing potentially “irreparable damages to revenues and growth prospects.”
Few industries are worse equipped to deal with disruption than power utilities. Their profits depend on infrastructure investments that pay off over a generation or more. “Utilities are structured to be in stasis,” says Zach Lyman, partner at Reluminati, an energy consultancy in Washington, D.C. “When you get fully disrupted, you’ve got to find a new model. But utilities are not designed to move to new models; they never were. So they play an obstructionist role.”
The Sunshine State is a gold mine for its monopoly IOUs. Air conditioning drives the second-highest electrical consumption in the nation; the average Florida household spends $1,900 a year on power – 40 percent more than the national average. Fossil fuel dominates electricity generation: Florida is 61 percent dependent on natural gas, followed by coal at 23 percent. Solar makes up less than one percent of the state’s energy mix.
Key policies that have spurred a rooftop solar revolution elsewhere in America are absent or actually illegal in Florida. Unlike the majority of states, even Texas, Florida has no mandate to generate any portion of its electricity from renewable power. Worse, the state’s restrictive monopoly utility law forbids anyone but the power companies from buying and selling electricity. Landlords cannot sell power from solar panels to tenants. Popular solar leasing programs like those offered by SolarCity and Sunrun are outlawed. Rooftop solar is limited to those who can afford the upfront expense; as a result, fewer than 9,000 Florida homes have panels installed.
Florida’s anti-solar policies are zealously defended in Tallahassee. “It’s no secret we play an active role in public policy,” says Mark Bubriski, spokesman for Florida Power & Light (FPL), the largest IOU in the state. FPL is the monopoly power provider for 4.8 million customers, whose electric bills generated $1.65 billion in profit for the company last year.
The utilities are top political donors in Florida. Since 2004, the state’s four largest IOUs contributed at least $18 million to state politicians and political committees – a preponderance to Republicans, who now control state government. In addition, since 2007, the companies spent at least $12 million on lobbying, employing an average of one lobbyist for every two legislators in Tallahassee. “They’ve got a pretty good harness on the whole deal up there,” says Crist.—Major utilities across the nation are seeking to undermine competition from rooftop solar by hiking its cost. “The utilities have realized they’re completely up a creek without a paddle,” says Shah, who sees the utilities lashing out at solar not from a position of strength but of desperation. “They can certainly fight it. But they’re going to lose.”
The utilities are working from a playbook developed by ALEC – the Koch-funded group that promotes “model” bills, often adopted virtually wholesale by Republican legislatures – and the Edison Electric Institute, the utility trade group.
The political argument advanced by ALEC and EEI is that rooftop solar generators are freeloaders on the traditional grid infrastructure: They rely on conventional power when the sun isn’t shining, but because they sell power back to the grid, they don’t pay much on net. An ALEC report on rooftop solar implausibly holds up utilities as champions of the economically vulnerable, arguing that net metering creates a “regressive tax, subsidizing the rich by picking the pockets of the poor.”
Such arguments ignore the clear value rooftop solar producers create for other customers on the grid – including producing power at times of peak demand and adding resiliency against outages. Most obvious: Rooftop solar producers pay for their own equipment and volunteer their real estate – avoiding expenditures by utilities that would otherwise get passed along to ratepayers. A 2013 study for Arizona’s largest utility found the benefits of rooftop solar “exceed the costs by more than 50 percent.”
After some initial legislative setbacks, the utilities and their allies are now working in the shadows – seeking to persuade utility regulators to put the brakes on solar by, in essence, taxing rooftop producers.
Arizona – a state that spends up to 85 percent of the year in sunshine, and stands second in the nation with a solar capacity of 1,800 megawatts – was ground zero for this approach. Last winter, the Salt River Project (SRP), the utility that serves Phoenix, hiked fees for rooftop solar customers and tacked on a murky “demand charge.” The effect was to increase bills for customers with solar panels by a whopping $50 per month.
SRP touts itself as a “community-based nonprofit.” But in an internal e-mail, an SRP director condemned solar advocates as “the enemy.” (SRP would disavow the comment as a joke.) The utility’s price hike puts into action policies long promoted by ALEC, which endorses “a fixed grid charge” for solar customers. SRP’s new fees have throttled the local rooftop market: Solar lease applications are down as much as 96 percent, according to SolarCity. In a scathing open letter, CEO Lyndon Rive blasted SRP for working to “entrench” its monopoly by “shuttering the solar industry in one of the sunniest places in the United States.” SolarCity is now suing SRP, alleging violation of federal antitrust laws.
Emboldened, for-profit utilities went for the jugular in America’s solar giant, California. Other states measure solar output in megawatts; California produces more than 10 gigawatts – nearly half the nation’s total. Rooftop solar has exploded thanks to bountiful sunshine and a generous net-metering law. Today, nearly five percent of California’s power is generated by rooftop solar. But this success also triggered a state review of the payments to rooftop producers – opening the door for utility monkey-wrenching.
The state’s biggest utilities lobbied the California Public Utility Commission (PUC) last year to hit rooftop producers with Arizona-style fees. Southern California Edison sought increases averaging $800 a year for its rooftop solar customers. But in the Golden State, solar producers are now a formidable political constituency all their own. In November, advocates of preserving the state’s net-metering program delivered 130,000 signatures to the PUC in wheelbarrows.
In December, the head of the PUC declared the utilities had failed to provide “a real basis” or “evidence” to justify the massive rate hikes on solar customers. In January, the PUC adopted only minor changes; the ruling was hailed as a huge win by the solar industry.
Nevada has some of the greatest solar potential in America; Senate Minority Leader Harry Reid touts his home state as the “Saudi Arabia of solar energy.” But where California rejected the Arizona model, Nevada is taking it to the next level.
In late December, the state’s PUC commissioners – all appointed by Republican Gov. Brian Sandoval – announced huge price hikes for rooftop solar customers. The changes will add nearly $40 a month to solar homeowner electric bills – wiping out the $15 a month in typical solar savings. The Nevada charges were put into effect despite the PUC’s own admission, reported by Forbes, that rooftop solar customers “do not impose any significant additional costs” on other ratepayers. In an unprecedented move, the new charges were also made retroactive, punishing the state’s 17,000 existing solar customers.
Until recently, Nevada was one of the fastest-growing solar markets, but providers are now fleeing the state: SolarCity, Sunrun and Vivint are winding down their operations. “This is the first state to close up a solar market, eliminating thousands of jobs as we speak,” says Bryan Miller, vice president of public policy for Sunrun. His company is suing the state, promising to expose cronyism between Sandoval and the state’s biggest utility, Nevada Energy. Noting that the governor’s top two political advisers are lobbyists for the utility, Miller insists, “This is a story of political corruption.” (“Of course, we reject this latest spurious and reckless charge against Nevada’s state government,” Sandoval spokeswoman Mari St. Martin tells Rolling Stone.)
Roiling the economy of an early-voting state in an election year, Nevada’s solar politics have already become a growing issue in the presidential campaign. At a Las Vegas rally just before New Year’s, Bernie Sanders called the PUC decision “just about the dumbest thing I have ever heard.”
Even as the solar industry faces unprecedented regulatory obstruction at the state level, its future on the federal stage has rarely been brighter. In mid-December, Congress stunned activists, solar-industry executives and investors by cutting a deal to renew billions in federal support for solar power that had been slated to expire at the end of 2016 – avoiding a “solar cliff” that could have staggered the industry.
Signed into law with the $1.8 trillion year-end budget, the solar accord extends a tax credit that offsets up to 30 percent of solar project costs – even as those costs continue to plummet. The impact is projected to be massive: 20 gigawatts of new solar power added over the next five years, nearly doubling the nation’s output.
But this freakish fit of solar bipartisanship is fragile. In no uncertain terms, the American solar industry will be on the 2016 ballot. Last year, the Obama Environmental Protection Agency finally unveiled its mechanism to curb the power sector’s carbon emissions. By 2030, the Clean Power Plan would reduce national electricity sector emissions by one-third. Under the plan, the administration projects renewables like solar will rise to 28 percent of U.S. power generation.
Clean Power will be implemented – or not – depending on the will of Obama’s successor. Republicans have made clear their ambition to dismantle the work of the current EPA. Donald Trump calls global warming “bullshit” and a “hoax.” Ted Cruz calls the Clean Power plan a “radical attempt to destabilize the nation’s energy system.”
Hillary Clinton, by contrast, has promised to build on Obama’s plan, vowing to treat it as the “floor, not the ceiling.” Clinton has an ambitious plan for solar energy. She calls for the installation of half a billion solar panels in her first term – a move that she says would drive a sevenfold increase in U.S. solar-power production. For his part, Sanders has not detailed a specific solar policy, but has promised “massive” investments in clean power to drive an 80 percent reduction in emissions by 2050.
Over time, Dooley believes, solar power will win out, not only on the economics, but because there’s nothing partisan about it. In fact, she says, solar power is one of the few things on which Democrats, Republicans and independents can find common ground. “Who doesn’t want to be able to have solar panels on their rooftops?” Dooley asks. “Who doesn’t want to become an entrepreneur – selling energy generated on their private property to their neighbors, and make a profit off of it?”
Other than the monopoly utilities and the Koch brothers, who have their backs, she asks, “Who doesn’t want energy freedom?”