During the recent Renewable Energy Finance Forum (REFF) conference in New York, panelists marveled at the growth and potential of distributed solar generation, which has surged during the past year. However, the utilities industry stands to lose ground if solar grows, and has been advancing the narrative that distributed solar allows users to reap the benefits of paying lower bills to utilities, while maintaining the ability to access power from the utility whenever they choose. Eventually, panelists said, tariff policy will have to address the matter.
“Right now, there’s a huge battle and it’s only going to get worse,” said Federal Energy Regulatory Commission Chairman Jon Wellinghoff during the REFF conference. “[The utilities industry] is fighting back, and they are fighting back very hard on net metering.”
Wellinghoff explained that there have been articles in every major newspaper in the country, including The New York Times and the Washington Post as well as large regional papers, that describe distributed solar as a subsidy whose costs will have to be absorbed by those without solar panels. Such articles, said Wellinghoff, are the utilities’ response to the threat of the growing solar industry.
The utilities’ main goal is to alter rate structures, he explained, so they no longer recover a portion of their fixed costs from a variable rate. Traditionally, utilities have primarily recovered their costs through such a variable rate, but now that some residents are using distributed solar power, they’re not contributing as much via the variable rate. There is “no question” that the utilities are now losing money because of distributed generation, he said.
“What they want to do is go to a straight, fixed variable rate where they’re getting all their fixed costs from a fixed rate – a fixed charge of some kind, but they want to impose that charge just on the solar people,” said Wellinghoff. “Well, there’s no reason it should just be imposed upon … people that have solar in the house. That should be imposed on everyone, but that’s going to be a huge battle.”
In response to the utilities’ onslaught, the solar industry in May organized and created the Alliance for Solar Choice, which consists of representatives from SolarCity, Sungevity, SunRun and Verengo.
While the utilities are formidable, solar companies banded together will be worthy opponents.
During the second quarter of 2013, solar companies drew venture investment as well as big project funds, reported Cleantech Group during a media briefing in July. Companies such as SunRun, SolarCity, SolarReserve and SunEdison in California and SolaireDirect in France received project funds from such companies as BlackRock, Goldman Sachs Group, Google, JPMorgan Chase & Co., North American Development Bank and Wells Fargo. New project funding by big corporates and financial institutions will be a key driver for downstream solar going forward, not only in the U.S. but also in India and other emerging markets, said Cleantech Group’s CEO Sheeraz Haji.
Lyndon Rive, CEO at SolarCity, pointed out during his remarks on a different REFF conference panel that distributed generation is becoming commoditized. The process and installation of solar panels are standardized with very few differences between various companies. Indeed, Rive said he was in the process of working with ratings agencies to get distributed solar generation rated as an asset class.
“This will be the first time in U.S. history this asset class has been rated,” said Rive.
Yet, the good news for distributed generation companies isn’t viewed as positive by everyone.
In Wellinghoff’s view, solar isn’t a subsidy, as the utilities have described it, because that viewpoint doesn’t take into account the benefits of distributed generation, which includes a reduction in line losses and transmission and distribution, and avoidance of peak generation.
“Ultimately, you have to look at the costs and benefits of these systems to fairly cost them out,” said Wellinghoff.
He pointed to Austin Energy in Austin, Texas, which in 2004 began offering rebates to customers with qualifying solar panels. Under the rebate program, Austin Energy pays residential users $1.50 per watt.
“Ultimately, we need to get there, to some type of tariff that straightens up the rate structure in a way that it’s fair to everybody.”
Wellinghoff also said that he believes we are close to seeing breakthroughs in energy storage technologies, such as in compressed air and new chemicals, which will make distributed generation cost effective, thereby giving customers more control over their energy systems and effectively disrupting the traditional utility model in just a few years.
And major innovation in energy storage is not only reserved for distributed generation, as John Woolard, former CEO of Brightsource, pointed out during a different REFF panel. He explained that Brightsource is now incorporating new types of storage into their future solar thermal power projects, helping to solve the intermittency issues that has held back the growth of renewable energy. Storage also eliminates the need to incorporate backup natural gas based power plants, which makes the new solar projects cleaner and increases their value to utilities.