If you ask the people who run America’s electric utilities what keeps them up at night, a surprising number will say solar power. Specifically, rooftop solar.
MORE AMERICANS ARE INSTALLING ROOFTOP SOLAR AND BUYING LESS ELECTRICITY FROM THEIR UTILITIES
That seems bizarre at first. Solar power provides just 0.4 percent of electricity in the United States — a minuscule amount. Why would anyone care?
But many utilities don’t see it that way. As solar technology gets dramatically cheaper, tens of thousands of Americans are putting photovoltaic panels on their roofs, generating their own power. On top of that, 43 states and Washington DC have “net metering” laws that allow solar-powered households to sell their excess power back to the grid at a fixed price.
That’s a major threat to traditional utilities. They still have to maintain the grid, but there are fewer and fewer customers buying electricity. Indeed, a new study fromLawrence Berkeley National Laboratory confirms utilities’ worst fears. If rooftop solar were to grab just 10 percent of the market over the next decade, utility earnings in some areas could fall by up to 41 percent.
To avoid that fate, many utilities are fighting back, pushing for policies that could slow the growth of solar — by increasing fees for solar households or scaling back those “net metering” laws. They’re getting support from conservative groups like the American Legislative Exchange Council (ALEC). But on the flip side, utilities are alsofacing surprising resistance from various Tea Party groups that have started championing solar energy.
The battle over solar is now raging in more than a dozen states — from Arizona toUtah to Wisconsin to Georgia. (It’s also flaring up abroad, in countries like Germany and Australia). Here’s a broad overview of what’s happening:
How cheap solar could lead to a utility “death spiral”
Solar panels are still very much a niche product. But the cost of solar rooftop systems has been plummeting in recent years (see chart). Firms like SolarCity will now install solar systems at no upfront cost to customers, who can then make monthly payments. On top of that, there’s a 30 percent federal tax credit for all residential solar systems until the end of 2016.
IF ROOFTOP SOLAR REACHED 10% OF THE MARKET, UTILITY EARNINGS COULD FALL BY 8% TO 41%
So even though solar provides just 0.4 percent of America’s electricity, it’s growing at a tremendous rate. Rooftop solar generation has roughly tripled since 2010. By some estimates, a new solar system is installed every four minutes in the United States.
To older electric utilities, this is a big potential problem. As rooftop solar becomes more popular, people will buy less and less electricity from their local power company. But utilities still have fixed costs for things like repairing the grid. So, in response, they’ll have to raise rates on everyone else. Yet those higher electricity rates will just spur even more people to install their own solar rooftop panels to save money. Cue the death spiral.
Sound far-fetched? This was the doomsday scenario laid out by the Edison Electric Institute, an industry trade group, back in January 2013. Even a relatively modest increase in rooftop solar power could cause havoc. David Crane, CEO of NRG Energy, has called these trends “a mortal threat to the existing utility system.”
And a recent study from Lawrence Berkeley National Laboratory noted that utilities could face serious financial trouble within a decade. Distributed solar now makes up nearly 2 percent of retail sales in some areas. If solar penetration reaches just 2.5 percent by 2022, shareholder earnings for some utilities could fall an estimated 4 percent. (Electricity prices, meanwhile, would rise 0.1 to 0.2 percent.)
That’s just the beginning. If the penetration of distributed solar reached as high as 10 percent — an aggressive but not impossible goal — some utilities in the Northeast could see their earnings drop as much as 41 percent. (Utilities in other regions, like the Southwest, would take a smaller hit.) This is similar to what’s already happened in Germany, where distributed solar has halved the market value of some utilities.
The study did note that there are a variety of policies that might help utilities recoup their lost revenues. Many states, for instance, are trying to modify regulations so that utility profits are no longer wholly dependent on how much electricity is sold — a process known as “decoupling.” But how much this softens the blow really depends on the fine details.
Utilities are now trying to slow solar down
The fact that solar power could prove so disruptive has triggered a number of fierce policy battles at the state level.
THERE ARE NOW PROPOSALS IN 20 STATES TO SCALE BACK NET METERING LAWS
One big issue is the “net metering” policiesin 43 states and DC that essentially require utilities to buy excess rooftop solar power from homes and businesses at retail prices.
Electric utilities argue that these policies have become unfair and unwieldy. All those new solar-powered homes and businesses are still connected to the grid — a grid that the utility now has pay to maintain and repair out of its own pocket. As such, utilities argue that they should be allowed to charge rooftop solar owners an extra maintenance or connection fee of some sort.
Solar advocates counter that solar power provides a wide variety of ancillary benefits — it doesn’t pollute, it helps address global warming, and it provides a handy source of peak power on hot days when A/C use surges. As such, they should get some sort of subsidy for this, and net metering makes sense.
SOME TEA PARTY GROUPS OPPOSE EFFORTS TO LIMIT SOLAR POWER
The first big battle over net metering came back in 2013, when Arizona Public Service proposed a new $50 monthly feefor all households with rooftop solar. That sparked a huge backlash from solar advocates, and eventually regulators eventually scaled the fee back to $5 per month.
Similar fights are spreading to more and more states. As Zack Colman recently reported in the Washington Examiner, measures have now been filed in 20 states to either scale back or eliminate net metering laws. In Wisconsin, for instance, the largest utility in the state, We Energies, has proposed reducing the price paid to rooftop solar owners for their electricity, as well as charging all homeowners a higher price for connecting to the grid.
Many of these rollback efforts have been backed by the American Legislative Exchange Council (ALEC), a conservative group that has drafted “model legislation” to weaken net metering. Their argument? The growth of rooftop solar could force utilities to raise rates on the rest of us in order to maintain the grid.
But policies to control the growth of solar can take a variety of forms. On Hawaii’s Oahu island, for instance, anyone who wants to install solar panels on their roofs now has to get permission from the local utility, which argues that the current grid can’t handle the strain. In Pennsylvania, utilities want to limit how much solar power a homeowner can install on his or her roof to 110 percent of what the house needs in a year.
But other Tea Party groups have taken a pro-solar stance
The debate over solar has also created some surprising tensions among conservatives. On the one hand, many right-wing groups are opposed to the heavy subsidies given to solar power by Congress and states. But another subset of conservatives view solar power more favorably — and oppose efforts by states to restrict it or impose new fees.
A SURCHARGE ON SOLAR POWER IN OKLAHOMA DIED AFTER CONSERVATIVE OPPOSITION
Case in point: Earlier this year in Oklahoma, electric utilities and conservative politicians tried to push a bill that would have charged rooftop solar owners more for the electricity they sell back to the grid. But that proposal was staunchly opposed by the conservative group TUSK, which stands for “Tell Utilities Solar Won’t Be Killed” and is led by Barry Goldwater, Jr. — son of the conservative icon. The bill eventually died.(See Slate‘s Josh Voorhees for the full Oklahoma story.)
TUSK, for its part, has argued that rooftop solar offers homeowners greater energy choice and should be valued by conservatives. “Monopoly utilities want to extinguish the independent rooftop solar market in America to protect their socialist control of how we get our electricity,” its website notes. “They have engaged in class warfare and tried to sabotage net metering, a billing method that gives individual homeowners fair credit for power produced on their own rooftops.”
Similar conservative splits are now showing up elsewhere. In Georgia, the Green Tea Coalition — a Tea Party offshoot — is pushing for policies that would allow homeowners to buy solar systems from third parties (something that Georgia restricts). “Solar empowers the consumer and the individual,” Debbie Dooley of the Green Tea Coalition explained to Midwest Energy News. “These giant monopolies want to take away that consumer choice unless they can control it.”
Is there a possible compromise on solar power?
In the meantime, some states are trying to find a balance here, mulling over policies that both promote solar power but don’t leave utilities struggling to maintain the grid.
Minnesota, for one, has outlined a “value of solar” policy, in which regulators determine a fair value for electricity generated by rooftop solar panels — taking into account both their environmental benefits and the costs they imposes on the grid — and then letting utilities buy up that electricity at that price (rather than at the retail electricity rate, which can fluctuate).
Still, even this policy has created rifts among solar advocates, with some arguing that current net metering policies work just fine. (One contentious difference? Under net metering, homes only sell the electricity they don’t need back to the grid, whereas under “value of solar” policies, they have to sell all of it to the utility.)
The issue’s likely to become more contentious if solar power keeps growing — and, eventually, many utilities may be forced to make more drastic changes to their business model. See, for instance, this recent post by Matt Lehrman and Peter Bronski of the Rocky Mountain Institute on how radical changes to the old electricity-pricing model could be the best way to resolve this debate.
Note that the fight over solar isn’t just taking place in the United States. Reuters’ Tracy Rucinski and Byron Kaye have a great piece on similar fights in Germany, Spain, and Australia.
This series by David Roberts of Grist, written last year, is an excellent deep dive into the traditional utility business model — and the threat posed by solar
Americans keep buying less electricity. That’s another big problem for utilities.