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When Will Solar Be More Affordable Than Traditional Utilities?

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Grid utilities are VHS tapes. They're Blockbuster. They're newspapers, cassette tapes, and the U.S. Postal Service. They're landline phones.

"New markets have a way of completely outmoding the incumbents," Jamie Mandel, a senior consultant on disruptive technologies for Rocky Mountain Institute, said in a phone interview.

And utilities like Arizona Public Service (NYSE: PNW  ) and Xcel Energy (NYSE: XEL  )  are no different. Rooftop solar panels paired with battery storage are already competing with the Hawaiian Electric Company's grid.

"That's really a postcard from the future," said Jon Creyts, RMI managing director. "We have a lot to learn from Hawaii."

RMI, a research and analysis firm focused on renewable energy and sustainability, partnered with Homer Energy and CohnReznock Think Energy CRTE to study the timeline for rooftop solar panels paired with battery storage.

Creyts said recent discussions about the "threat" solar energy poses to the standard grid utility business model had RMI wondering when it was likely to become economically feasible for the masses to defect from the grid by switching to solar and battery kits at home and in their businesses.

He also said that he and his team were surprised no one beat them to the research. There was only one other study on when solar panels paired with batteries would really begin to threaten the utility model, and that was a regional look at Japan.

The RMI team focused on five states: three with high electric rates and two with some of the lowest rates in the country. They found that the economics already make sense to defect from the grid in Hawaii.

The surprise was that New York utility customers will have financial incentive to abandon the grid in just 11 years, and Californians will have parity in solar and battery kits by 2031.

Kentucky and Texas, which have low utility rates, won't have favorable economics for defection until 2047.

The danger for utilities
"Of course, there are a lot of situations where customers will adopt the new technology even before it's economically viable," Creyts said. "You need look no farther than Sandy to see that happening."

Creyts said that the study used conservative figures, and it's possible solar paired with batteries could be economically viable even sooner. This spells trouble for major utilities.

"The current utility business model is to make investments now in new power generation equipment and pay it off over the next 30 years using customer revenue," Mandel said.

But what if that customer base begins dwindling? Rates will go up more rapidly, creating an even greater incentive for grid defection.

"Once economics are no longer a factor, that's a utility death spiral," Mandel said.

That makes this a particularly relevant issue today when utility companies are trying to decide how they will replace aging and increasingly regulated coal-fired power plants. Should they be investing hundreds of millions of dollars in natural gas plants?

What utilities can do
RMI and its partners are working on a companion report that will examine possible solutions for utility companies.

Hawaii is considering legislation that will force the utility to find a new business model focused more on connection as a service than on selling kilowatt hours.

In the end, recent debates in states like Arizona, California, and Colorado about net metering are shortsighted. The threat solar poses to he utility business model is real and it's time for utilities to start creatively brainstorming ways to adapt. 

How you can profit
One of the most innovative challengers to utilities' dominance has been Solar City (Nasdaq: SCTY), a company that David Gardner recommended to his Rule Breakers members in October. Those who followed his advice have already seen gains near 40% in less than six months. David's proved masterful at finding successful disruptors time and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Read/Post Comments (3) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 06, 2014, at 9:13 AM, LogicalD wrote:

    Before the utilities die off, you will see batteries in this system replaced by home fuel cells. Extra power during the day will be used to separate water into Oxygen and Hydrogen. The Hydrogen will then be stored for use in the fuel cell at night.

    If the sun is covered for too long, the battery systems will go dead, leaving you without power. Fuel cell systems can be topped off with natural gas, which will still be needed for heating in many areas.

  • Report this Comment On March 07, 2014, at 5:32 PM, ardoucette wrote:

    They are NOT competing with Hawaii's grid.

    While residential power on Hawaii is THREE times the national average.

    It is STILL cheaper to get your power from the grid.

    IF you have to get all of it from one source.

    Solar users are getting a 30% subsidy from the Feds on the installed cost and then get to use the Grid when ever the sun doesn't shine and for any PEAK power needs.

    If you compare generating all your power yourself, to the grid, even with subsidies you will never get ahead.

    If you get to CHERRY PICK and generate all the power you want, but still get the GRID power at no extra cost, of course its a good deal.

    In Hawaii.

  • Report this Comment On March 07, 2014, at 6:29 PM, HenryRI wrote:

    This article is hype. First Hawaii has the highest electric rates about 3 times the national average. So yes if your electricity cost 35 cents or so per kWh then solar is great during the day, well during the sunny day. But at night the battery backup istill cost more than from the grid. Thus rooftop solar with the grid is still the best option for now, even in Hawaii. Hydro, nuclear, and onshore wind are the best green sources of energy. Additionally solar is good and with natural gas can provide much of our future needs. Let's not write off the grid so fast.

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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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