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

Posted By Lowell F. on 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.
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GTM Research Explains “The Complex, Evolving Solar-Utility Nexus”

Posted By MarkS on 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.

Posted in Grid, solar energy
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Is Your State Benefiting From, or Missing Out on, the U.S. Solar Power Boom?

Posted By Lowell F. on October 15th, 2014

Is your state benefiting from, or missing out on, the national solar power boom that’s well underway (note: click on the map to enlarge). That question is at least partly answered by the new Solar Means Business Report, released this morning by the Solar Energy Industries Association (SEIA). Among other things, the report finds that the “average price of a completed commercial [solar] PV project in Q2 2014 has dropped by 14 percent year over year and by more than 45 percent since 2012.” That’s great news, of course, and a continuation of the long-term trend which has seen solar power costs fall by 99% since 1977 – a trend that’s continuing.

Here are a few more factoids from the SEIA report:

  • “Since 2010, U.S. businesses have installed solar systems at their facilities more than 32,000 times.”
  • “For the second straight year, U.S. businesses, non-profits and government organizations added more than 1,000 MW of new PV solar installations. As of mid-2014, there were 4,531 MW of commercial solar PV installed on 41,803 business, non-profit and government locations throughout the U.S.”
  • “American businesses are turning to solar because it’s good for their bottom line. For many companies, electricity costs represent a significant operating expense, and solar provides the means to reduce costs and hedge against electricity price increases.”
  • “While retailers have installed the most capacity, auto manufacturers, pharmaceuticals and food servicers, as well as companies in many other industries, have all looked to solar to lower operating costs.”
  • “The rest of the U.S. is catching up to the likes of California and New Jersey, the first and second largest state markets for commercial solar. Leaders in those states and others like them have put in place smart, effective policies that have enabled businesses to invest in solar.” Has your state put into place “smart, effective policies that have enabled businesses to invest in solar?”
  • “In total, 129 million people in 33 states and Puerto Rico live within 20 miles of at least one of the 1,110 commercial solar installations that were analyzed in this report.”

If that’s not enough to make you wonder why your state has not seized this tremendous opportunity, see an article which just came out this morning, Georgia Is the Latest State to Procure Dirt-Cheap Solar Power, by Greentech Media.  According to this article: “After a second round of bidding from developers seeking to build hundreds of megawatts’ worth of solar plants in the state, Georgia Power reported that the average price of electricity came in at 6.5 cents per kilowatt-hour. That’s 2 cents cheaper than last year’s bids.

How cheap is 6.5 cents per kilowatt-hour? To put it in perspective, the U.S. Energy Information Administration reports that the Average Retail Price of Electricity to U.S. residential users as of July 2014 was 13.05 cents per kilowatt-hour, while the average cost to all U.S. power users was 11.01 cents per kilowatt-hour. Again, the new solar power bidding in Georgia came in at 6.5 cents per kilowatt-hour — far lower than the national average retail price of electricity.  So, if your state isn’t going solar big-time, you probably should ask your state legislators and utilities why that’s the case. The answer, or lack thereof, could be a real eye opener.

Posted in solar energy
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Three Graphics from Lazard Study Show How Competitive Clean Energy’s Gotten

Posted By Lowell F. on September 30th, 2014

The following three graphics (click on the images to enlarge) are from a recent “Levelized Cost of Energy” (LCOE) study by Lazard – one of the world’s leading financial advisory and asset management firms. I’m posting the graphics here because they demonstrate how competitive clean energy’s become (even with massive implicit and explicit subsidies to fossil fuels), and also how much cheaper renewable power is going to get over the next few years.  No wonder why the International Energy Agency just explained how solar “could be the world’s largest source of electricity by 2050,” with coal just about extinct (see the slide “Solar’s share varies significantly by region”). Great stuff; now let’s get on with the transition from dirty, dangerous, fossil-fuel-based energy to clean, renewable power.



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Five Energy Stories Worth Reading Today (9/30/14)

Posted By Lowell F. on September 30th, 2014

Here are five recommended reads for today (9/30/14).

  1. Reuters reports, “Solar energy could be the top source of electricity by 2050, aided by plummeting costs of the equipment to generate it, a report from the International Energy Agency (IEA), the West’s energy watchdog, said on Monday.”
  2. According to Vox, “Solar power is growing so fast that older energy companies are trying to stop it.”
  3. RenewEconomy reports, “The highly conservative International Energy Agency predicts the cost of solar energy will fall to around 4c/kWh in coming decades as the sun becomes the dominant source of power generation across the world.”
  4. According to Greentech Media, “A groundbreaking agreement between Arizona Public Service (APS) and Arizona’s ratepayer advocate could create a surge of new storage deployment in the state over the next seven years.”
  5. The Guardian asks, “Can Narendra Modi bring the solar power revolution to India?”
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