Pacific Gas & Electric (PG&E) (NYSE:PCG) has garnered a lot of positive attention lately as it quickly becomes the leading solar-powered electricity purchaser in the U.S. PG&E has not always enjoyed such good press. After all, this is the same company that sprung to notoriety in the wake of Erin Brockovich and the water contamination scandal in Hinkley, Calif. Julia Roberts got an Oscar out of it, but PG&E was synonymous with corporate malfeasance for years.
Sunlight is the best disinfectant
While PG&E is still working to make that situation right, it's buying solar-powered electricity hand over fist. The company needs 33% of its total retail sales to come from a renewable source by 2020 to comply with California's Renewable Portfolio Standards (RPS). As of the end of 2012, PG&E stood at 19%, slightly behind California's other two large, independently owned utilities.
PG&E looks to be catching up fast. The five top solar photovoltaic (PV) installations in the U.S. sell exclusively to PG&E, and most were just recently constructed in 2012.
- Agua Caliente, a 289-megawatt (MW) facility in Yuma, Ariz., belongs to NRG Energy (NYSE:NRG) and MidAmerican Solar.
- Mesquite Solar 1, a 207-MW facility in Arlington, Ariz., belongs to Sempra U.S. Gas & Power, a Sempra Energy (NYSE:SRE) subsidiary.
- Copper Mountain Solar 1 & 2, a 192-MW facility in Boulder City, Nev., also belongs to Sempra U.S. Gas & Power and -- in the case of Copper Mountain Solar 2 -- Consolidated Edison Development, a subsidiary of Consolidated Edison (NYSE: ED), in a joint venture with Sempra.
- California Valley Solar Ranch, a 130-MW facility in San Luis Obispo County, Calif., with still more capacity under construction, belongs to NRG Energy.
- Alpaugh, a 66-MW facility in Alpaugh, Calif., belongs to Consolidated Edison Development.
Consider that all this in the context of a study published last month in the journal Environmental Science and Technology, which found that solar power could supply one-third of the power requirements of the western U.S. by 2050 if federal cost-reduction targets are met and the region adopts certain carbon policies that appear to enjoy broad support. While not a foregone conclusion, this scenario is also not far-fetched, especially in tandem with the rapidly declining cost of solar in the face of its proliferation.
Jenny Chase, head of solar analysis at Bloomberg New Energy Finance (BNEF), is upbeat: "There is strong global demand for the PV products of the largest manufacturers, despite uncertainty and the flow of bad news from the global solar market. Consolidation continues, but 2013 will still be a year of growth for the industry as a whole."
BNEF expects the global PV market to hit 37 gigawatts (GW) in 2013, compared to 30.5 GW in 2012. It's hardly surprising then that SunPower (NASDAQ:SPWR), the second-largest U.S. solar manufacturer, reported a profit for its most recent quarter, the company's first since Q4 2010.
Is this really good for PG&E?
On its website, the company says, "PG&E has helped our customers connect more than 60,000 solar photovoltaic (PV) systems to the electric grid -- more systems than any other utility in the country. In fact, this represents about 30 percent of the PV systems installed throughout the United States." This sounds like an enthusiastic endorsement. But not everyone thinks the solar bonanza is good for PG&E.
A recent report from industry think-tank The Energy Collective asks if PG&E will be the first electric utility to fall to solar. This has to do with California's requirement for net metering, wherein utilities must buy back excess energy from customers with rooftop solar generation. The challenge for PG&E is that its own rates can't compete with rooftop solar.
In its most recent quarterly earnings report, PG&E identified "the development of alternative energy technologies including self-generation and distributed generation technologies" among the factors that could cause its future results to differ materially from forward-looking statements. In a recent interview, David Rubin -- who works on net metering at PG&E -- acknowledged that concern. He also made the rather stagnant argument that customers with self-generation capability aren't "paying their fair share" because they use the electric grid without paying for its maintenance through power bills. PG&E is bringing its petulant complaint to California's authorities.
We're an energy company. We install solar systems for free, and we sell the electricity at a lower rate than you can buy it from the utility. So given the option of paying more for dirty power or paying less for clean power, what would you take?
PG&E looks especially recalcitrant next to NRG, which sees developments such as rooftop solar as the wave of the future and is pushing actively into that space, partnering with the likes of SunPower. NRG CEO David Crane is willing to reconsider and rework the company's entire business model to adapt to a changing environment. That strikes me as far more visionary than trying to fight to defend a dying paradigm.
Don't forget Hinkley
Circle back to where we started: Erin Brockovich. While PG&E has made a lot of progress on restoring health to Hinkley's drinking water, it is now facing a second lawsuit from the same incident, as the contamination appears to have spread. The suit was only just filed on July 19, so its implications remain unclear, but it certainly can't be good.
Foolish bottom line
While it's impressive that PG&E is responding so aggressively to California's RPS, the company needs to do a lot more to be prepared for our rapidly changing energy landscape. As it also continues to deal with the fallout from Hinkley's contamination, PG&E looks to me like a company looking resolutely backward.