As utilities fight against net metering policies, they could be missing an opportunity.
When the utility trade organization Edison Electric Institute issued its report titled "Disruptive Challenges: Financial Implications and Strategic Responses to a Changing Retail Energy Business" early in 2013, it formally warned utilities that distributed generation was a threat to the traditional business model for utility companies.
"As the cost curve for these technologies improves, they could directly threaten the centralized utility model," the report reads. "One can imagine a day when battery storage technology or micro turbines could allow customers to be electric grid independent."
Major utility companies are readily and heavily investing in large-scale solar projects of 100 megawatts or more, particularly in states with a lot of sun and good incentives, in an effort to meet state renewable energy portfolio standards. But few are stepping into the distributed generation realm.
One route for utilities is to own distributed solar equipment and sell the power the panels produce to building occupants the same way third-party solar leasing companies like SolarCity (NASDAQ:SCTY) do. That would allow utilities to own the electricity generation and continue collecting revenue from it – eliminating the "threat" of distributed generation.
Some investor-owned utilities are beginning to make strides in that direction.
Direct Energy, an electricity retailer that sells power primarily in deregulated markets, recently announced a partnership with the solar leasing SolarCity. The retailer put up $50 million and SolarCity financed the rest to lure commercial customers with a no-money-down solar option.
The retailer will get a cut of the new distributed solar generation revenue this way, showing a sense of innovation most large utility companies lack.
Other major utilities dipping their toes in the water include Edison International (NYSE:EIX), which bought SoCore Energy, a third-party solar company like SolarCity, earlier this year. Edison, along with Duke Energy (NYSE:DUK), also bought shares of Clean Power Finance, a residential solar financing and design company.
Duke has taken even bigger strides than most, investing directly in 10 megawatts of solar distributed across several North Carolina school and warehouse rooftops in 2009.
NextEra Energy (NYSE:NEE) and George Power also recently bought small solar companies.
Beating distributed generation?
While some utilities are making moves to join the distributed generation revolution, most are still trying to beat it.
Utilities around the country are arguing that net metering means solar customers aren't paying for grid maintenance, forcing non-solar ratepayers to pick up the tab.
That's the crux of the argument Arizona Public Service is making now.
That battle is just the latest and hottest example of a utility embroiled in a newly emerging battle with its own customers over installing rooftop solar arrays. Solar advocacy and industry groups, along with angry homeowners and ratepayers, are calling for the Arizona Corporations Commission to launch an investigation of the utility after it admitted to funding out-of-state nonprofits to pose as grassroots groups of locals opposed to net metering (that's the policy that pays people who produce more solar power than they use for the excess they put back on the grid).
Utilities from Vermont and Georgia to Colorado and California have made dramatic moves to cut or eliminate the net metering benefits that make distributed solar generation attractive to consumers.
How utility evolution is like telecom
Verizon rose to prominence in mobile communications after Bell Atlantic merged with GTE in 2000 and shifted focus form the traditional fixed landline operations of Bell Atlantic to the new cellular communications the company is now known for.
As the solar "threat" grows increasingly ominous, with the Solar Energy Industries Association reporting that installations grew 76% in 2012 and analysts predicting that the U.S. will add 5 gigawatts of solar to its existing 10 this year, why are the headlines about whiny utility companies trying to protect their existing positions instead of investing in an emerging and fast-growing new industry?
Utilities do have more regulatory hurdles to jump through than the telecommunications businesses that were forced to evolve earlier this century. Each state has its own regulatory agencies and laws governing utilities and their operations. Telecommunications are governed nationally under a uniform policy.
But one thing is certain. Utility companies have quite a war to wage if they aim to beat down the rising tide of distributed generation.
Fool contributor Amanda Miller owns shares in SolarCity. The Motley Fool recommends SolarCity. The Motley Fool owns shares of SolarCity. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.