Facing disruption from the increasing use of distributed solar power, the utility industry is trying to fight back with a plan to maintain utilities’ dominance as the main power supplier in the U.S.
In meetings with state commissions, representatives from utility companies have proposed larger fixed prices, larger upfront prices and connection charges as a way to address the looming shortfall on the horizon when more customers switch to using solar power and fewer customers purchase expensive peak power.
Jon Wellinghoff, chairman of the Federal Energy Regulation Commission, spoke at the Bloomberg New Energy Finance summit last month in New York and said increasing use of distributed solar was one of the major – and most disruptive – trends he had seen during the past few years. Wellinghoff recently announced that he was stepping down as FERC Chairman.
“They’re going to be in a lot of trouble,” said Wellinghoff. “Utilities are starting to recognize this and they’re starting to try to address it by going into state commissions and seeing what they can do to change around rate designs.”
In January, the Edison Electric Institute, an industry association for electric companies, published a scathing report laying out the problems the electricity industry faces in coming decades. As distributed solar captures market share, there will be fewer customers to pay the fixed costs charged by utilities, which means higher rates for customers. However, as electricity rates climb, states are likely to intervene and pressure utility companies to absorb the costs themselves.
The EEI compares the industry shift to those facing the telecommunications industry after cellular phones and the airline industry after deregulation.
“Left unaddressed, these financial pressures could have a major impact on realized equity returns, required investor returns, and credit quality,” the EEI report states. “As a result, the future cost and availability of capital for the electric utility industry would be adversely impacted.”
To be sure, some utilities are positioning themselves to take advantage of the transformational shift on the cusp of breaking over the utility industry, and the advancements and receding costs in the solar PV industry.
David Crane, CEO of NRG, has been extremely vocal during the past year about the future of distributed solar at the energy giant. Other renewable energy executives were hesitant to go as far as Crane has in denouncing the future of the utilities industry, but some say solar will become a formidable opponent to utilities.
“It’s quite clear what solar represents is a new and potentially disruptive way for consumers to power their house,” said Arno Harris, chairman and CEO at Recurrent Energy, during recent remarks at a Wall Street Journal conference in Santa Barbara, California. “But I think the reality is that we have a system that in the long run is going to be with us for a very long time.”
On the other hand, Lyndon Rive, CEO at SolarCity, said that the utilities won’t like any technology that could potentially take away part of their business, and won’t be doing the burgeoning solar PV industry any favors.
“A supermajority of utilities are going to do everything they possibly can to slow that down,” said Rive, speaking at the same conference. “Once you lose that customer, it’s really hard to get that customer back; but it is really hard to compete against something that is cheaper and cleaner.”