If you're residential solar installers SolarCity (NASDAQ:SCTY.DL) or Vivint Solar (NYSE:VSLR), you've built a business being the utility alternative for customers interested in going solar. That's why this week's ruling that two utilities in Arizona can build and own their own residential solar installations has to be concerning.
Arizona was the country's second largest solar market at 421 MW last year and even though it's slowed in 2014 it was still the second largest residential market at 22 MW last quarter. This is even with utilities fighting tooth and nail to keep solar installers out. If utilities are now allowed into the market it could eat into residential solar installers' market and potentially undercut them on price and convenience. It's an area investors need to keep a close eye on because Arizona should be one of the top solar states in the country.
Arizona allows utilities into residential solar
What Arizona's regulators allowed over the past week was Arizona Public Service, or APS, and Tucson Electric Power's ownership of 10 megawatts and 3.5 megawatts of residential solar systems, respectively.
APS will build the solar systems, estimated to cost $28.5 million, on residential rooftops and offer customers a $30 credit each month for up to 20 years. In total, that would be a savings of $7,200, in the same ballpark with what many customers could save by leasing a system from SolarCity, Vivint Solar, or SunPower (NASDAQ:SPWR).
Tucson Electric Power will put solar panels on consumers' rooftops, charge them $250, and then lock them into a set electricity rate for 25 years based on their historic electricity usage. If the customer's consumption changes by more than 15% the rate can be changed. This is also a recurring program, although it's limited to 600 customers for now.
The real news here is that utilities are becoming competitors in the residential solar market. Until now, SolarCity, Vivint Solar, and SunPower have been selling solar systems to customers as an alternative to the utility, now the utility can offer similar advantages from within their utility bill. This could save hassle for consumers, although it's unknown if they'll want to go solar through a utility en mass.
Will customers really want utility owned solar?
What remains to be seen is if consumers will see utility owned residential solar as an advantage. Solar is, in some ways, a way to rid yourself of the utility and have some energy independence. That concept is largely lost if APS or Tucson Electric Power owns the panels on your roof.
It's also key to point out that solar companies are moving toward complete energy control for consumers with energy storage, monitoring, and even integrated home controls. That's not what utilities will be offering, so the innovation advantage goes to solar companies.
Long-term, I think it's efforts from SolarCity and SunPower, in particular, to make energy independence a reality that will keep utilities from moving into the residential solar market in a big way. But it's something for the industry to watch.
Changing dynamics between utilities and solar
APS has been one of the most aggressive utilities fighting residential solar installations in its territory and it's creating a playbook for the rest of the country. If they're successful in selling and owning residential solar, other utilities could follow.
It's worth monitoring for investors with money in residential solar because competition is now closing in from all sides. If utilities are getting into the mix there's another big player solar companies need to worry about.