Analyst: Utilities Challenged By Spread Of Solar
Twenty-nine states, plus the District of Columbia, require utilities to source a certain percentage of their electricity from renewable energy sources, such as wind and solar.
Publicly, critics of solar and wind have discounted the notion that renewable energy could gain a foothold in the energy industry.
But there are reports that behind closed doors, the electric industry is talking about getting out in front of this disruption.
- GreenTech Media: Behind Closed Doors, Utilities Grapple With New Strategies
- Forbes: Relentless and Disruptive Innovation Will Shortly Affect U.S. Electric Utilities
- Edison Electric Institute (report): Disruptive Challenges: Financial Implications and Strategic Responses to a Changing Retail Electric Business
- Chris Nelder, energy analyst and author of “Profit from the Peak” and “Investing in Renewable Energy.” He tweets @nelderini.
ROBIN YOUNG, HOST:
It's HERE AND NOW, and we're taking a look at the battle in the energy industry, fossil fuel utilities saying that at stake nothing less than the future of their industry. Before the break we heard about Colorado energy provider Xcel's efforts to reduce the payments that company makes to solar users who feed their extra power into Xcel's grid.
Xcel and other utilities across the country say they're paying too much to buy that solar power, but 29 states plus the District of Columbia have renewable energy standards that require utilities to have a certain percentage of their electricity from renewable sources like solar. Many utilities are angry about that and about government subsidies to renewable users.
In the past year, legislation backed by the fossil fuel industry was introduced in more than a dozen states to weaken or repeal renewable standards. All those measures failed. Let's bring in Chris Nelder. He's an energy analyst based in California. And Chris, this is so interesting because publicly industry critics of solar and wind have been pooh-poohing this notion that renewables could take hold.
They're only less than one percent of energy, but we're reading reports, here's one in the New York Times, that they are scared. The Annual Power Company Convention last month, a lobbyist from the Electric Power Research Institute said renewables were threatening the industry and if we don't get in front of this disruption, it may be too late. Your thoughts.
CHRIS NELDER: Well, one percent of the total nation's energy or electricity production is not really the problem. The problem is at a specific utility they might have a significantly higher percentage of their total power generation coming from rooftop solar and things like it.
And so what's happening as that progression continues is that more and more customers are generating their own power instead of buying it from the grid, from the utility. At the same time, the utility is required to maintain its lines, to maintain the associated infrastructure, and so they have to now distribute those maintenance costs over essentially a declining base of rate payers who are actually giving them revenue by buying power from them.
And so this is creating a situation that a recent paper from the Edison Electric Institute, which is an association of the shareholder-owned or private utilities in the country, what they call disruptive challenges. And one of them is this notion of a so-called death spiral, where you have more and more customers generating their own power, the utilities are losing the revenue from those customers, and yet they still have to pay for the associated infrastructure and so on.
And so as time goes on and that progression continues while the cost of solar itself is falling, it just continues to put the economics in the direction where it's more advantageous for more customers to put solar on their roof.
YOUNG: Well, weigh in on the debate over how much, as we just heard in Colorado, how much the utilities should pay solar users for that extra energy that they store up and how much the government should subsidize the solar industry. Solar backers say they can't survive right now unless they have these subsidies. But as you just explained, the industry is saying wait a second, we're picking up a lot of the maintenance costs, and we're not getting - you know, we're having fewer customers. What is true?
NELDER: Well, all of those things are true. It's really a question of how are they going to adapt to this dynamic, which seems firmly in place. I mean I think it's helpful to kind of step back from the question and say what's best from a public policy perspective.
You know, most people favor renewable energy. Most people want to see more solar and wind on the grid. Most people are in favor of allowing there to be more and more rooftop generation. And so it makes sense for there to be incentives, subsidies and favorable policies that would continue to support the deployment of more solar, and really there's bipartisan support amongst most, you know, citizens for that kind of a policy.
On the other hand, regulators have been slow to give the utilities the latitude they need to accommodate that, and utilities are really struggling to sort of adapt their business models. And some of them have just been basically trying to dig their feet in and say no, we're not going to do this, we're going to try to do everything we can to stymie the increase in distributed solar power.
YOUNG: Well, but the question that comes, and it did for me, is, well, why don't these companies do - you know, take the time-honored path of other industry and just co-opt the new industry since they think that it's going to grow so big that it's going to disrupt their own. And you write that there are, there are a lot of utilities not just digging in their heels against change but going with it.
NELDER: That's absolutely right. For the most part, it's been the municipally owned utilities, the publicly owned utilities that have been most accommodative to distributed energy because ultimately they're answerable to their taxpayers and their rate payers. It's mainly the investor-owned utilities who have to be answerable to their shareholders, who have put up the most resistance to this sort of thing.
But it seems to me that we do need to maintain policies that continue to support solar, and we need to allow the utilities to have a certain amount of latitude to adjust.
YOUNG: Well, you write about the San Antonio-based CPS Energy, which is the largest municipally owned electric and gas utility in the U.S. and also the solar leader in Texas. And part of their, you know, being in this field is that they have a really good rebate program there in Texas. So they figured out it's beneficial to them.
Where do you think this is going? Because you talked about how the utility companies are complaining about how they have to maintain the grid. There's been talk for so long about redoing the grid, especially after Hurricane Sandy, but also dating back to the blackout in the Northeast in 2003. Is this a time to sit all the players down and say we have to do this, and as we do this somehow the utility companies have to be nudged into more renewables?
NELDER: You know, there's no doubt in my mind that the economics are going to continue to tilt in favor of renewables and distributed generation. There's no doubt in my mind that that kind of energy generation is going to continue to grab a larger market share on the grid.
So it's really just sort of a question of when, how are we going to make sure that everyone is made whole during that transition, not only consumers and owners of solar systems but shareholders and utility companies and so on. And they're simply going to have to do it.
I think that if the utilities - especially if the investor-owned utilities continue to sleep on this transition, they're going to wind up simply being converted to municipally owned utilities. You know, they're going to move from private to public, sort of whether they like it or not, and a lot of that is being driven by rate payers and citizens in their service areas.
YOUNG: Well, but the biggest takeaway here seems to be the biggest secret in the industry is that solar works.
NELDER: Oh, it absolutely works. And as economics continue to improve - that is, as the cost of solar continues to fall, it's just going to become even more so. You know, there's been a lot of interesting forecasts made lately, particularly by analysts at investment banks who are saying, you know what, by the end of this decade, wind and solar are going to be the cheapest way to generate power in about 75 percent of the world, and that includes us. That includes the developed world.
They are simply going to undercut fossil fuels on economics alone, without subsidies. So when that's the trend, when this stuff is going to become cheaper than traditional conventional fossil fuel and nuclear power just on economics, well, you can argue about the incentives, you can argue about the regulatory environment and the laws and so on, but at that point they're simply going to win the day.
YOUNG: Energy analyst Chris Nelder. By the way, he's also author of "Profit from the Peak" and "Investing in Renewable Energy." Chris, thank you.
NELDER: You're very welcome.
YOUNG: And your thoughts are welcome at hereandnow.org. News is next. Transcript provided by NPR, Copyright NPR.