“Solar PV is mostly a threat to utility investors and shareholders, not ratepayers”

October 22nd, 2014

The headline of this post is quite possibly the energy-related quote of the day, maybe the week or even month. It’s courtesy of David Roberts of Grist, back to providing us with consistently incisive analysis after a year-long sabbatical. Today, Roberts has a must-read post (in his case, maybe we should call it an “even-more-must-read-than-usual-for-David-Roberts” post) entitled, “Rooftop solar is just the beginning; utilities must innovate or go extinct.” It’s really worth your time to read the whole thing, and we strongly recommend you do that if you’re interested in the future evolution of clean energy (which of course you are if you’re reading this blog!). For now, here are the key points, including Roberts’ awesome quote.

  • Distributed solar power poses a serious threat to power utilities, and “utilities are fighting back, attempting to impose additional fees and restrictions on solar customers.”
  • The problem is, the way the utilities are fighting back – “cling[ing] to their familiar business model” while trying to recoup lost revenues through “rate-tweaking” – is not going to save them. Instead, they need to undertake “a wholesale rethinking of the utility business model” — “sooner” rather than later if they’re smart.
  • Two new analyses — “Financial Impacts of Net-Metered PV on Utilities and Ratepayers” by Lawrence Berkeley National Laboratory (LBNL) and “Does Disruptive Competition Mean a Death Spiral for Electric Utilities?” by Elisabeth Graffy and Steven Kihm — zero in on the core problem(s) facing utilities faced with the “disruptive threat” of rapidly growing distributed solar power. For instance, what happens “if solar PV penetration rose to between 2.5 and 10 percent of total retail sales by 2022?” The answer: utilities equity and earnings fall a lot, while rates go up only a little.  Which leads us right to Roberts’ superb quote: “Solar PV is mostly a threat to utility investors and shareholders, not ratepayers.”
  • The problem for utilities is that their whole business model is based on building “more power plants and power lines,” which as Roberts points out is both “insane” (in that it’s not just diametrically opposed to “our social and environmental goals”), but also the polar opposite of where power markets are headed — towards more distributed power and more consumer autonomy.
  • Does all this mean an inevitable “death spiral” for investor-owned utilities?  Not necessarily, according to the Graffy and Kihm analysis, as long as utilities are willing and able to muster “the organizational foresight and habits needed to respond proactively to disruptive threats.” The problem, in Roberts’ view, is that after “a century of enjoying regulated-monopoly status, with returns guaranteed by law and expansion as far as the eye could see, utilities have virtually none of [that].”
  • Another, short-term option for utilities is to try to recover their costs by raising rates, fees, etc. to consumers. The problem with this approach, of course, is that it only leads to “a bunch of dissatisfied customers seeking non-grid alternatives,” and “a growing market that will attract more and more entrepreneurial attention, thus accelerating customer defections.” In short, “The longer utilities try to hold back the wave with legal or regulatory roadblocks, the harder it will hit them when it finally comes.”
  • The bottom line is that utilities need to adapt to the distributed solar power revolution, and fast. If they try to resist this revolution, their demise – the “death spiral” – will only be more assured (and probably more sudden). The alternative: “Instead of viewing ratepayers as passive sources of cost recovery, utilities ought to view them as, y’know, customers. Offer them products and services that satisfy their evolving preferences.” We’ll see if they’re smart enough to do that, but as Roberts points out, “regulated-monopoly” utilities are simply “not prepared for this sh*t.”  In other words, the next few years will be crucial – not to mention fascinating to observe as this process plays out.

Five Energy Stories Worth Reading Today (10/21/14)

October 21st, 2014

Here are five recommended reads for today (10/21/14).

  1. Bloomberg reports, “Acquisitions in the solar industry will take off as manufacturers and developers prepare for the expiration of a tax credit that’s helping drive a U.S. installation boom.”
  2. Brentin Mock of Grist argues, “Clean energy advocates need to speak up if they want black lawmakers to hear them.”
  3. Bloomberg reports, “TransCanada Corp. (TRP) will have to spend $1 billion more than planned on an oil pipeline to Canada’s Atlantic Coast if natural gas customers get their way, a move it says would threaten the viability of the project.”
  4. According to Gigaom: “The solar industry is no longer dominated by the solar module price crash. Now it’s looking to innovations in energy storage and soft costs, including financing.”
  5. Climate Progress reports, “Pipeline workers discovered a 4,000-barrel crude oil spill in Louisiana last week, and say that mopping up the spill will likely keep cleanup crews and regulatory agencies in the sparsely-populated area for months.”

GTM Research Explains “The Complex, Evolving Solar-Utility Nexus”

October 21st, 2014

by Mark Sokolove, Executive Vice President of Tigercomm

As you may have seen, GTM Research has been doing superb work covering the intersection of growing distributed, residential solar on the one hand, and the evolving utility business model on the other (what it calls the “Grid Edge”).  Their work is extremely valuable, as this is a critical, rapidly changing and complex space. Which is why we always look forward to webinars like the one presented by GTM Research Senior Vice President Shayle Kann on September 25, covering “The Complex, Evolving Solar-Utility Nexus.”  The entire webinar is well worth listening to, but for now, here are a few key points to highlight.

THE LAY OF THE LAND

  • It makes little sense to “silo” coverage of distributed solar PV on the one hand, and the future of the utility business model (including the smart grid, demand response, energy storage, etc.) on the other, as these two areas increasingly are increasingly converging.
  • The U.S. solar market is growing, but not uniformly across the country or in terms of the specific sub-segment (residential, non-residential, utility) of that market.
  • Growth was down a bit in the first two quarters of 2014 compared to the final quarter of 2013, but Shayle Kann advises that we not draw too much from that, as the U.S. solar market – particularly utility – is “lumpy.” If you take out the variability of the utility projects, trend lines for distributed solar are steadily increasing, with around 6.5 GW expected to be installed in the US in 2014, up about 35% from 2013, and about 17 times what it was 5 years ago.
  • Why are utilities so worried about solar now, even though solar generally doesn’t comprises a huge portion of their energy mix as of now? In short, it has to do with the impact of distributed solar installations on utility demand growth.  With US electric demand growth having slowed sharply, from about 10% per year back in the 1950s to just 1% per year now, large proportions of increased load growth could easily be taken up by distributed, solar PV (GTM estimates 50% or more of load growth could get eaten up by solar installations in the top 5 states).

POLICY BATTLES:  THE SOLAR INDUSTRY SHOULDN’T LET DOWN ITS GUARD

  • The result has been net energy metering (NEM) battles — some legislative, some regulatory, some both — in more than 20 states.  What’s fascinating, and also encouraging, is that so far at least, the solar industry has been faring impressively well in these battles, especially for being a relatively small industry going up powerful, incumbent industry. Part of the reason for this success has been that rooftop solar has strong public appeal. Of course, this could change, as solar penetration increases and has more meaningful ratepayer impacts, so the solar industry should certainly not let its guard down.
  • A likely outcome to utilities’ concerns about the economics of increased distributed solar penetration could very well include imposing a minimum monthly bill on consumers for use of the grid. The impact of this could be substantially less than imposing a fixed charge, which the solar industry has been fighting against, and could be part of a NEM compromise in numerous states.
  • One option for utilities might be to “steer into the skid,” so to speak, by getting into the distributed solar game themselves. The question is whether regulated utilities will ultimately play a significant role in the distributed solar market, or remain outside it as grid operators?

DISTRIBUTED ENERGY MANAGEMENT SYSTEMS (DERMS) ARE A MAJOR GROWTH AREA

  • There are also questions about utility interaction with distributed PV from a technical perspective, which is why every utility will need some version of capabilities that Distributed Energy Management Resource Systems (DERMS) provides. That includes reconfiguration of grid equipment, consumer-sited solutions such as smart inverters), network management such as market-based demand response, etc.  This will undoubtedly be a major growth area in coming years, and something we all will be paying a great deal of attention to.

All in all, it’s a fascinating, dynamic time to be a participant in the evolving U.S. solar-utility nexus. With the help of analysts like the ones at GTM (and also smart grid experts like Paul De Martini, who I interviewed last spring), we look forward to continuing to track it, and also to help our clients navigate their way through it effectively, in years to come.

Five Energy Stories Worth Reading Today (10/20/14)

October 20th, 2014

Here are five recommended reads for today (10/20/14). The poll results graphic is from this Environmental and Energy Study Institute fact sheet and is well worth highlighting, even though the poll is from June 2014.

  1. Anastasia Pantsios writes at EcoWatch that the proposed Energy East Pipeline is “TransCanada’s Keyston XL on Steroids.”
  2. The BBC reports, “Cheap African solar energy could power UK homes in 2018.”
  3. According to Bloomberg New Energy Finance: “China is the world’s largest wind market with more than 100GW of wind capacity, equivalent to about 65,000 turbines, and is currently adding more than 30 new turbines per day. Operating and maintaining these turbines costs $500m per year, but this will increase to $3bn per year by 2022…”
  4. DeSmogBlog reports, “Fossil fuel industries spent an estimated $213 million lobbying U.S. and European Union decision makers last year, according to a new report published by Oxfam International on Friday.”
  5. Greentech Media asks, “Is the EPA Too Conservative in Its Clean Energy Projections Under New Carbon Rules?”

Five Energy Stories Worth Reading Today (10/17/14)

October 17th, 2014

Here are five recommended reads for today (10/17/14).

  1. The Guardian reports: “Political inertia, financial short-termism and vested fossil fuel interests have formed a ‘toxic triangle’ that threatens to push up global temperatures, putting 400 million people at risk of hunger and drought by 2060, Oxfam said on Friday, a week before a European Union summit to finalise a new climate and energy policy framework.”
  2. According to Grist: The Energy East pipeline “will be 2,858-miles long, putting it right up there with some of the longest pipelines in the world. It would pump about a third more crude than Keystone XL was intended to. It’ll be bigger than the Druzhba pipeline, which carries oil 2,500 miles from Southeast Russia to the rest of Europe.”
  3. RenewEconomy reports, “The NSW government will have to write down the value of its electricity networks by nearly half if the soon-to-be privatized poles and wires business is to compete with rooftop solar and other distributed technologies such as battery storage.”
  4. DeSmogBlog “has obtained a copy of a sample hydraulic fracturing (“fracking”) lease distributed to Ohio landowners by embattled former CEO and founder of Chesapeake EnergyAubrey McClendon, now CEO of American Energy Partners.”
  5. A resident of the Marshall Islands writes in The Guardian, “We won’t stand by while coal companies destroy our Marshall Islands homes.”