Did Utilities Realize Too Late That Solar Net Metering Is a Threat?

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When utility companies agreed in the early 2000s to let meters run backwards for solar customers who produced more energy than they used during a day, it seemed as harmless an investment as buying a house might have at the time.

But utility companies are finding out, as homebuyers already did, that there's no such thing as a harmless investment.

Solar panels were expensive in the early 2000s and the companies making and installing them were scarce. Solar was such an insignificant fraction of a utility's generation capacity that it only accounted for a small portion of most companies' tiny "other generation" sliver of the pie chart.

Agreeing to pay retail rate for excess electric generation was good PR that would ultimately cost utilities almost nothing – they thought.

But that's all changed now.

The Edison Electric Institute, a trade group representing investor-owned utility companies, published a document last year saying distributed solar generation "could directly threaten the centralized utility model."

Since the "Disruptive Challenges" document was published, utility companies in at least half a dozen states have attempted to change or eliminate net metering benefits for solar.

It's a monster of the utilities' own making that could very well rise up and swallow the traditional utility model.

"One can imagine a day when battery storage technology or micro turbines could allow customers to be electric grid independent," the EEI report reads.

How the sun became a threat

Since solar was out of reach for most Americans at the beginning of the millennium, utilities figured net metering for solar was a safe bet. But the cost of solar panels plummeted more than 70% between 2007 and today, according to reports from the Solar Energy Industries Association. And installations are climbing.

National Geographic reported that there's a new rooftop solar installation in the United States every four minutes and that the U.S., with 35% more solar installed in 2013 than in 2012, topped Germany for the first time in 15 years.

It's not just that solar panels became more affordable; it's also that new financing mechanisms made it easier for more people to install solar.

Companies like SunPower (NASDAQ: SPWR  ) provide no-money down and low-interest financing options.

SolarCity  (NASDAQ: SCTY  ) and other solar leasing companies like Sunrun and Sungevity have enabled people to install solar without any upfront cost. Since the companies can take advantage of tax rebates, homeowners are typically able to sign a contract to buy power from the solar installer at a discounted rate for at least 20 years. Sunrun has published research indicating that two-thirds of today's solar customers are solidly in the middle class.

In some markets, the solar proposition is even more enticing. In Hawaii, for example, electricity is so expensive that solar is a particularly attractive alternative. There are some regions of Hawaiian Electric's service territory where 10% of home and business owners have installed solar.

What utilities are doing

In Hawaii, the utility wrote a limit on net metering into the policy. Once a region hits 10%, the utility won't accept any other net metering applications.

But utilities in other regions want to avoid a point when solar makes up that much of their generation supply. They're trying to reduce or eliminate net metering benefits.

The Colorado Public Utilities Commission will begin hearing arguments from Xcel Energy (NYSE: XEL  ) , the state's largest utility, on Feb. 3 about a proposal to cut net metering credits from the 10.5-cent retail rate to 4.6 cents per kilowatt hour.

Too late?

Solar advocates argue that rate undervalues the electricity solar provides and would demolish what has become a robust and fast-growing industry in Colorado. The solar industry is one of the fastest job creators in the state, according to reports from the state's economic development office.

And "jobs" is a magic word these days. Regulators are not just making decisions about incentives, subsidies, and regional energy generation. They're also deciding the fate of two competing industries.

And solar has been winning in other states. The California legislature made some concessions to utilities in recent legislation there, but ultimately guaranteed the long-term viability of the state's net metering program.

The Arizona State Corporation Commission just imposed a $5 per month fee on solar customers at the request of utility Arizona Public Service. That was far short of the $50 to $100 the utility wanted and the solar industry declared the result a victory.

There might already be enough momentum behind the solar industry to threaten the centralized utility model.

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  • Report this Comment On January 22, 2014, at 5:18 PM, alcorenilth wrote:

    Battery storage is coming... Once it starts becoming cheaper like the solar panels themselves have, the need for net metering will drop, and the utilities will be in real trouble.

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Amanda Miller

Amanda Miller Luciano is a professional business writer, freelancer and real estate agent based in Colorado Springs, Colo.

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