1 Industry Terrified of Solar Power

For decades, the utility monopoly in the U.S. has been an investor's dream. Companies could generate a guaranteed return on assets, protecting profits year after year with little fear of competition.

But the solar industry has suddenly thrown a wrench in that model. The centralized power model is predicated on having the utility own, or buy, power and then distributing it to customers. Solar allows customers to be the generators and even to sell power to the utility, which is known as distributed solar.

This is an incredibly disruptive model, and now that solar energy is cost-efficient for homeowners, it's spreading across the country like wildfire. SolarCity (NASDAQ: SCTY  ) and SunPower (NASDAQ: SPWR  ) have made $0 down solar leases possible, and solar loans are available for homeowners as well. As costs fall, the solar industry becomes more and more attractive to homeowners, which puts utilities in a terrifying position.

Distributed generation changes everything
From the utility's perspective, the challenge with distributed generation is that the utility doesn't own the generating assets and the distributed power takes stress off the existing infrastructure. Since utilities generate profits from having more assets to generate a return on, that poses a problem. Depending on how a utility is regulated, the problem can be enormous.

Residential rooftop solar installations built by SolarCity. Image: SolarCity.

Utilities that are more heavily regulated and own their own power-generating assets will see the biggest challenge from distributed solar. They'll be required to build fewer power plants, fewer transmission lines, and a less extensive distribution network if a lot of power is generated on-site from rooftop solar.

Even utilities that have been deregulated have incentive to keep growing transmission and distribution assets. That makes solar an enemy, not a friend of utilities around the country.

Utilities start a war against solar
The challenge with rooftop solar is that utilities can't explicitly forbid customers from installing it. The best they can do is make it harder to sell any extra power created on a roof back into the grid. That's exactly what Pinnacle West's (NYSE: PNW  ) main subsidiary, Arizona Public Service, recently tried to do, somewhat successfully. The utility was fighting rooftop solar and wanted to either "pay" less than the retail rate for power sold back to the grid (net metering) or charge a fee for the right to net meter power.

APS recommended charging $8 per kW for customers with solar, which would amount to about $48 per month for the average 6 kW system. That would make solar completely uneconomical and kill the solar market. At the end of the day, regulators agreed to a $0.70-per-kW charge, which is supposed to offset costs other customers pick up for solar system owners. Whether solar shifts costs from one customer to another is still hotly debated in the industry.  

California had a similar debate recently and decided to keep net metering intact, a huge win for the solar industry.

The bottom line here is that utilities are fighting solar, which they wouldn't do if they weren't terrified of the power of solar.  

Can utilities and solar get along?
The old utility business model is going to be disrupted by distributed solar -- that we know. We just don't know exactly how and how utilities will react.

An image of California Valley Solar Ranch, built by SunPower and owned by NRG Energy. Image: SunPower.

What forward-thinking utilities are doing is looking at solar as a way to invest in the future. NRG Energy (NYSE: NRG  ) has purchased the 250 MW California Valley Solar Ranch from SunPower, partnered with Warren Buffett's MidAmerican Energy to buy the 290 MW Agua Caliente  project from First Solar, and is the lead investor on the 392 MW Ivanpah solar project. It has also developed a solar canopy, put solar panels on Mandalay Bay in Las Vegas, and just completed phase one of the solar installations at the San Francisco 49ers' new home, Levi's Stadium, just to name a few projects.

Edison International (NYSE: EIX  ) invested in solar financing firm Clean Power Finance and bought distributed solar developer SoCore Energy earlier this year. The company's utility Southern California Edison also has its own solar leasing program, which owns and operates distributed solar systems like SolarCity and SunPower do.

Not all utilities are fighting solar. Some are seeing it as a new investment opportunity, and I think those forward-looking companies are going to be better off long-term.

Solar power is here to stay
The solar industry isn't going anywhere; it's too economically competitive with the grid at this point. That scares utilities, and they have a choice of fighting or joining the industry's growth. There are investing opportunities to be had, and utilities that take those will outperform long-term.

Watch how utilities adopt or fight solar around the country. A long, drawn-out fight could stunt the growth of SolarCity, SunPower, First Solar, and others. Partnering with these companies could help both utilities and the solar industry. 

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  • Report this Comment On December 07, 2013, at 6:01 PM, yahoo123 wrote:

    What happen to RSOL.

  • Report this Comment On December 07, 2013, at 7:33 PM, PanzerWatts wrote:

    This author seems to have not thought this idea through very well. Utilities have no reason to be worried about solar power.

    Solar power is an intermittent power source and there's no cost effective means of storing it. Batteries are much, much more expensive to use than power companies charge for the power off the grid. So a solar powered home owner will still be hooked to the grid and will sell extra power to the utility during sunny hours and buy power from the rest of the day.

    Furthermore, utilities often pay more for peak power during the day than they sell it for. A home owner providing their own power during the utilities peak period probably saves the utility money.

  • Report this Comment On December 07, 2013, at 8:30 PM, toddsumner wrote:

    Solar does little to reduce peak demand. Let's think about it. In the winter, utilities peak between 7:00-9:00 a.m. Please help me understand how solar can help in those states that use electric heating.

  • Report this Comment On December 08, 2013, at 12:56 AM, luckyagain wrote:

    Electricity cannot be stored no matter what produces it. So electricity is made depending upon demand. In order to handle peak energy usage, electric generation is turned on and off; usually gas fired turbines are used because they can be started and stopped quickly. Solar produces electricity during the time of peak usage. What this means is that there will be less wear and tear on the gas fired turbines but the turbines will still be needed.

    Of course no industry wants more competition but solar electricity will not be supplying a large part of electric consumption for many years. The real source of concern for electric power companies is a thing called distributed energy using natural gas. This type of generation can be done day and night. So a factory can buy a unit and used it during the day to power the factory and produce electricity at night to sell back to the power company. It is conceivable that the electric company could end up having to pay the factory instead of the factory paying them. Plus the distributed energy will produce hot water that can be used by the factory in production or air conditioning.

  • Report this Comment On December 08, 2013, at 2:32 AM, BobWallace wrote:

    Solar has eliminated the midday peak on sunny days in Germany. The wholesale price of electricity has fallen to that of late night electricity.

    Solar can be stored and we will store it when there's enough to store. Right now solar produces less than 1% of US electricity. Wind is just now reaching 5%. Wind and solar can produce about 30% of our electricity before we need storage.

    We have both storage (20 GW of pump-up hydro and 1 GW of CAES) and a large amount of dispatchable generation (gas and hydro) to fill in for a large amount of wind and solar. Use wind and solar when they are available, gas and hydro when they aren't.

    Solar is badly damaging the coal industry in Germany and Australia. We're short years away from the same happening in the US.

    We won't see quite the impact because we have 150 coal plants scheduled to close over the next couple of years. Those plants are being replaced with renewables and gas, more gas at first but renewables will push the gas aside over the following years.

    Wind is now cheaper than natural gas generation in the Midwest. Solar is about the same price as natural gas in the Southwest and will drop below the price of NG over the next couple of years.

    Smart investors need to keep up with what's happening and not try to create a unreal reality that matches their political beliefs.

  • Report this Comment On December 08, 2013, at 7:25 AM, FMagyar wrote:

    Mahatma Gandhi — 'First they ignore you, then they ridicule you, then they fight you, and then you win.'

    Those utilities that don't find a way to adapt to a new business model will go they way of the dinosaurs.

    Solar and other forms of alternative energy generation are like the furry little mammals scurrying around underneath the feet of the soon to be extinct dinosaurs who are still stuck in a world where fossil fuel was cheap and it's use on a massive scale did not have consequences for the health of the planet. That world is gone!

    Good riddance to them! Disclaimer, I work in the solar industry.

  • Report this Comment On December 08, 2013, at 8:09 AM, toddsumner wrote:

    Solar does not provide peak power support. Yes, it does offset kWh usage (sales) and reduce overall CO2 emissions, but it does very little to displace peak power requirements. It is extremely costly and this is why Germany's electric rates are more than twice the average electric rate in the U.S.

    Again, you live in Florida. Solar does nothing to eliminate your homes winter peak demand requirements. You wake-up at 6:00 a.m. and bump-up your HVAC system; everybody in your neighborhood and all the businesses are doing the same. Guess what? There is no solar. Therefore, your transformer and secondary cable feeding your home; the distribution circuit, the substation transformer, the transmission lines, the autotransformers, the GSU and finally the steam turbines, CT's, and other generation assets all have to be sized for this one event. Let me remind you that a CT (combustion turbine- natural gas fired) is 1/3 the cost of any storage system today and the foreseeable future.

    Unless you agree as a solar customer to get -off the grid during these peak events, then you need to pay for this back-up power that you desperately rely on. The problem is that you are not going to like the bill. If you don't like it, then go buy a back-up generator or add the battery storage that you think is required. You will find out quick, fast and a hurry that the $120,000 cost is not what you expected to be free from your utility.

  • Report this Comment On December 08, 2013, at 8:40 AM, clutch1958 wrote:

    Good luck with that waterwheel thingy, col-enviromnentalists would still find something that might happen,and delay or deny it. Also, you do realize for that to be efficient, you'd have to dig out enough of the riverbed to keep that wheel deep enough to be efficient, right?

  • Report this Comment On December 08, 2013, at 9:23 AM, Chishiki wrote:

    Unless the arthur got new information on solar energy, they should clarify more when they say solar is economical. Last I heard, it is 13.6 Kwh which is not economical.

  • Report this Comment On December 08, 2013, at 9:31 AM, tomt wrote:

    Can you say Koch brother's (owner's of the Tea Party and Chris Christie etc.)! These guys are financing the fight against renewable energy.

    Solar does not produce on a time clock. That's why systems are sized by the year's kWh production. Weather controls are out of our hands (I think) at this time. Most people/businesses use power from 10 am - 5pm when solar is usually producing and if the kWh is not used the power is feed to a neighbor. But the solar producer has a kWh in the bank for when they need it (net metering).

    Of course storage is the one thing that will make all power more efficient but we are not there yet. When we do get it right it will completely disrupt the old energy dinosaurs.

    Competition is good for the USA so let's break the hold these clowns of success have on the enterprising spirit that built this country.

  • Report this Comment On December 08, 2013, at 10:18 AM, 1Aguila1 wrote:

    Strange that someone would say solar power is not storeable. Power companies that have hidro power have a bad habit of generating low cost power and then selling it as high cost power (bunker C fuel for turbines cost more). There expenses are far less than their income or they would not be profitable, matter is, how much of a profit should they be allowed to have after expenses since they are providing a public service. Solar panels today are guaranteed for up to 20 years. The batteries for storing solar energy from the panels are guaranteed for up to 10 years (not talking about car batteries). A lot of attention is focused on generating and selling back to the Power Company. Another way of seeing Solar Panel is how much costs can it reduce and its reliability each month, as compared to paying the electric company for electricity. Thus paying for itself over the long term of the investment. Another issue is it doesn't have to be only solar panels. Winds during cloudy days and in the winter, as well as at night seem to be higher than during regular daylight hours. Again, this isn't everyday but the added power keeps the batteries charged for the times when solar or wind energy is lagging. Experts say there is only a few hours of usable solar energy during the day. Having worked for 30 years with solar powered remote electronic sites, monitoring the voltage at that site as well as other measurements, that assumption is not true. It all depends on the weather and on the location of the solar panels as well as the geographical location. Another factor is that solar strength has increased, not diminished over the past 10 years according to solar radiation sensors data, meaning it is more intense and therefore would produce more electricity for longer periods.

  • Report this Comment On December 08, 2013, at 11:31 AM, BobWallace wrote:

    "(Solar) is extremely costly and this is why Germany's electric rates are more than twice the average electric rate in the U.S"

    No, electricity prices in Germany are high because of taxes.

    In 2013 the average household electricity rate is about 29 € cents / kWh according to the BDEW (Energy industry association).

    The composition:

    8.0 cent - Power Generation & Sales

    6.5 cent - Grid Service Surcharge

    5.3 cent - Renewable Energy Surcharge

    0.7 cent - Other Surcharges (CHP-Promotion, Offshore liability,...)

    In addition there are some taxes & fees that go straight into the governments budget:

    2.1 cent - EcoTax (federal government)

    1.8 cent - Concession fees (local governments)

    4.6 cent - Value added tax (19% on all of the above) - (federal, state & local governments)

    So 8 + 6.5 or 14.5 euro cents go to electricity purchase and delivery. About 20 US cents. That's higher than the US 12.5 cent average, but less than a penny higher than New York state.

    Solar on the grid reduced the wholesale price of electricity in Germany by €6.145 billion in 2012.


  • Report this Comment On December 08, 2013, at 11:33 AM, BobWallace wrote:

    "they should clarify more when they say solar is economical. Last I heard, it is 13.6 Kwh which is not economical."

    "The cost of large-scale solar projects has fallen by one third in the last five years and big solar now competes with wind energy in the solar-rich south-west of the United States, according to new research.

    The study by the Lawrence Berkeley National Laboratory entitled “Utility-Scale Solar 2012: An Empirical Analysis of Project Cost, Performance, and Pricing Trends in the United States” – says the cost of solar is still falling and contracts for some solar projects are being struck as low as $50/MWh (including a 30 percent federal tax credit)."

    "Another interesting observation from LBNL is that most of the contracts written in recent years do not escalate in nominal dollars over the life of the contract. This means that in real dollar terms, the pricing of the contract actually declines.

    This means that towards the end of their contracts, the solar plants (including PV, CSP and CPV) contracted in 2013 will on average will be delivering electricity at less than $40/MWh. This is likely to be considerably less than fossil fuel plants at the same time, given the expected cost of fuels and any environmental regulations."


    $40/MWh is 4 cents per kWh.

  • Report this Comment On December 08, 2013, at 12:11 PM, Riggerwo wrote:

    The big power generators have been milking the general public for every dime they can get for decades with no competition....SOLAR will be the leveler...sure they will fight it for a while..but you can not stop progress..they need to jump on the band wagon now and get involved from the ground up....the USA is miles behind Europe when it comes to solar power and solar hot water heating...SOLAR is the future....the clock is ticking for fossil fuels....

  • Report this Comment On December 08, 2013, at 1:40 PM, rodgerolsen wrote:

    Sorry, I must have missed something. The author of of this misleading article refers to the competitive cost of solar. Here's a hint for the uninitiated. No system that requires massive government subsidies is competitive with anything. When it has to be treated as a rational business, solar costs way to much to survive.

    Solar's day may come someday, but as for today, it is just an aberration supported by spending your tax dollars to support your neighbors' expensive hobby.

  • Report this Comment On December 08, 2013, at 2:25 PM, gawiz wrote:

    This article is obviously biased against any arguments made by the utilities. But just to be fair, why should I (who can't have rooftop solar panels) have to subsidize, by higher rates, my neighbors who do have solar? Furthermore, isn't it only fair that the utilities, who have made huge investments to provide the delivery infrastructure available and stand ready at a second's notice to provide power when the sun goes behind a cloud, be paid for this in some way?

    Solar users have the option of providing their own backup storage facility, but it's pretty costly. Why should they get one provided by the utility and expect to pay nothing?

    Another comment in reply to a couple of posts here. Utilities have not been making enormous profits without being regulated - they've always been tightly regulated and granted rates that guarantee certain legal rates of return on investment and costs. They have always been subjected to significant public oversight because they are a utility. They have been required to run power lines down deserted dirt roads to provide service to that one little bungalow at the end - something no business would do if cost and profit were the sole consideration.

    Another comment suggested that the utilities "should not be allowed" to make the profits they do. They are mandated by the utility commission to make exactly the profits they make. If this regulation scheme were changed to allow more competition then the free market would see to it that no one company make excessive profits - they would be competed out of existence and a normal equilibrium would settle in. To do this, the power lines and distribution facilities would need to be placed into a neutral company and use of them be provided at market rates to any power generator who wanted to tap in.

  • Report this Comment On December 08, 2013, at 2:26 PM, AnthonyAmerica wrote:

    Again; The battle goes on;

    Point in fact; I'm totally off the grid other than the electrical meter, for power not used.

    Geothermal system installed $ 23,600;

    For hot water, and radiant floor system

    Changed from LP just over 600 gallons a year.

    Still use it for cooking, my choice.

    Solar panel system installed for electric also assists hot water; $ 29,800.

    I could have refinanced to add this in my mortgage, choose not to;

    If I did at the mortgage rate of that time .0345%

    It would have cost me an additional $ 227 a month.

    My original costs electric and gas was avg. $ 289.00, savings of $62. a month.

    It's the home owners, next to nothing in maintenance;

    If you think your cost are going down; you need help; My savings will increase every year and no fear of rate changes only meter rent;

    If you listen to NA SAYERS your economic future will get bleaker every year;

    I don't care what they say; I did it so can you and like me you will be smile, 1) your not giving your blood to the 1%, 2) When you get your bill like I and many others, They owe me almost enough to cover the meter charge

  • Report this Comment On December 08, 2013, at 2:33 PM, gawiz wrote:

    To tomt: take a chill pill dude! Nobody owns the Tea Party and I'll guarantee you that nobody owns Chris Cristie. Get off your partisan talking points and make some arguments based on the facts.

    If solar power were not being subsidized by the government it would still be just a hobby.

  • Report this Comment On December 08, 2013, at 3:14 PM, BobWallace wrote:

    Solar in the US Southwest is now cheaper than new CCNG, new coal, old coal if it had to pay for its external costs, and new nuclear.

    Solar in all the US is now cheaper than new coal, old coal if it had to pay for its external costs, and new nuclear.

    Cheaper with no subsidies included.

    Wise investors learn the facts and make their decisions based on facts.

  • Report this Comment On December 08, 2013, at 3:54 PM, toddsumner wrote:

    In Florida, 600 LP gallons would cost $2130/year (600 LP Gallon/year x $3.55/LP Gallon).

    I am not sure how AnthonyAmerica is saving money. I don't think he is including his $2130/year LP bill.

    Next, solar in the US southwest is not cheaper than new CCNG. I don't know where this is coming from, but I guarantee you it is not accurate.

    Again, if you think solar is so great than by all means get off the grid. Just don't expect me to subsidize you as a ratepayer or as a taxpayer.

    Lastly, I am not a global warming denier. With that, President Obama has little understanding on how to effectively reduce CO2 emissions. First, generating power is three times more costly than designing LEED building or improving the efficiency of existing buildings. Energy conservation is the only sustainable solution which eliminates the need for future generation requirements.

    Next, the President continues to minimize or identify the true CO2 emitting source. Where do you think that 55% of all global CO2 emissions comes from? Your automobiles.... another 10% comes from industry that use natural gas and heating oils to manufacture products (fertilizer, steel, chemical production and any industry using steam boilers). Therefore, if the President is so concerned with global warming, why doesn't he immediate enact higher CAFE standards or place a carbon tax on gasoline and diesel? The truth is that he know this is going to be unpopular and the money, unions, military contractors (see below) and politics keep him from going after the true source of the CO2 problem.

    So what the President has decided is to go after the least effective and smaller CO2 emitters... the utility industry. So now we have Captain Planet and his planeteers running around trying to save the world by promoting renewable energy. Guess what? This is going to be very ineffective.

    Now, if you go after the real CO2 emitters, then you need to start charging for the true cost of oil. The true cost is protecting our oil interests (Afghanistan, Iran, Iraq, Egypt, Saudi Arabia, and the rest of the middle east) with our defense department. By the way, we generate a small amount of electricity from oil... 99% of our power comes from nuclear, coal, natural gas, hydro, wind and solar.

    If you are serious about global CO2 emissions, then start supporting higher efficiency standards for buildings and vehicles. If you want to really really get serious about global CO2 then you will need to tax gasoline and diesel by $2.00/gallon (incremental over 5-10 years). As you know, this is never going to happen. First reason is that Congress will say that this would put the brakes on our economy. Like the President, Congress is equally inept. They don't understand that when you stop consuming oil, the market price of oil will actually go down. Also, we would eliminate $50 billion/month in our trade deficit and we could reduce defense spending. Drill baby drill is not the long term answer, but it can be effective if it is done with a carbon/defense tax. The increase cost of gasoline (market price of oil, refining cost and taxes) will need to be gradual but aggressive.

    Solution to reducing CO2 emission: conserve, promote higher CAFE standards, support higher building efficiency codes, support higher appliance efficiency standards and support a carbon/military tax for gasoline.

  • Report this Comment On December 08, 2013, at 6:01 PM, doublheader wrote:

    the bottom line is that the sun is not a controllable fuel source and, just like wind,cannot be relied on to be there when the load is. Utilities are required to provide power to the customer whether the wind is blowing or the sun is shining. You can't shut down power plants because people are installing solar and wind turbines. People are not willing to turn off their loads if there is no wind or sun at the moment and rely on the grid to provide the power at all times. In the northeast during the winter months the peak load is experienced when the sun goes down. No sun and maybe little wind at that time so the fossil fuel generators are cranking trying to keep up with ever rising demand. take away the load and then get rid of the generators

  • Report this Comment On December 08, 2013, at 8:03 PM, badkat7 wrote:

    Funny reading all the utility stooges posting here. The simple truth is that we need to conserve oil for the uses where it is near to irreplaceable. This includes aircraft aviation fuel, plastics and even medicines.

    As for solar being "not controllable", that is the answer is "so what?". Due to the war waged by the utilities against solar I am using a Leaf battery and a load controller to replace my "net metering". With no direct connect to the grid they have lost the battle before they start and I will be retailing this system in 2015.

    Long term I hope to design a solar to hydrogen converter which works by electrolysis of steam (also generated by solar). This would create approx 5kg of hydrogen per day (15kW system) which could then be run through a fuel cell to create household electricity at night. Utility companies? You lose.

  • Report this Comment On December 09, 2013, at 7:54 AM, RogierFvV wrote:

    Who should really worry about the solar insanity of the moment are consumers, who are being fleeced of equity in their homes with "zero down" solar ppas and solar leases, and investors who are gobbling this stuff ups. See here: http://seekingalpha.com/article/1816492-potential-valuation-...

    The solar ppa model is out of control, and in large numbers of cases produces a very suboptimal financial and environmental choice for home owners lured in by the "zero down" nonsense. It's the old problem of happy shiny sales people making you believe that their "self-liquidating" proposition is "free," when the truth is that borrowed money is also capital at risk, and in most cases there are many options with far higher returns and less technology risk for home owners. Sooner or later that truth will dawn and this particular "irrational exuberance" will cool off significantly.

    As to the utilities, deregulation implies that regulators need to ensure that the grid can be maintained, and they cannot remove revenue from the grid forever. The vast majority of properties will not come off the grid completely.

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