Depending on where you're looking in the U.S., you may think utilities love or absolutely despise the solar industry. In one moment a utility is touting its green energy production or buying stakes in solar developers, like Edison International (NYSE:EIX) did when it invested part of $37 million in funding for Clean Power Finance in 2013 or Duke Energy (NYSE:DUK) did by buying a majority stake in REC Solar.
The problem is that the next moment you hear about utilities driving states like Wisconsin, Indiana, Florida, and Arizona to fight solar energy. Utilities aren't fighting all solar, they're just fighting solar energy they don't control and can't profit from. New solar installations like residential and commercial solar put power generation in the hands of home and business owners, not the utility, threatening the monopoly they enjoy in energy.
The relationship between utilities and solar is a complex and while they may be partnering on one hand, they're fighting a dirty war against each other on the other that will impact some of the biggest solar companies in the country.
Why utilities love solar energy
Across the country, you see more and more utilities turning to solar energy to fill growing energy needs or replace retiring coal power plants. Xcel Energy (NASDAQ:XEL) in Colorado, Southern Company's (NYSE:SO) Georgia Power in Georgia, and Duke Energy in North Carolina are just a few utilities outside of the solar-friendly Southwestern U.S. that have invested in solar power plants themselves or bought energy from solar power plants.
Many times, these moves are within the utility's own power plant business. They get to own the assets, control how they send power to the grid, and generate a financial return on solar energy. What scares utilities is giving up control to consumers to create energy and use it however they wish.
Why utilities hate solar energy
When you look at utilities fighting solar in Arizona or the recently passed We Energies rate structure in Wisconsin that charges all customers a $16 fixed fee and solar users a $3.80/kW fee on top of electricity consumption costs, they're doing so in an effort to squash distributed solar. This is solar you can put on your roof and generate power for your own house. At times, your solar system may generate more power than you use, and the extra energy is sold back to the utility through what's called net metering.
The reason utilities don't like distributed solar is because it transfers assets away from the utility to consumers. Since utilities generate a return on the equity or assets they own, this is a direct threat to their earnings.
As companies like SolarCity (NASDAQ:SCTY.DL), Vivint Solar (NYSE:VSLR), and SunPower (NASDAQ:SPWR) have grown their distributed energy sales they've run into these roadblocks on a state and even county level. To make their residential or commercial systems economically viable, they have to have a way to offload extra energy generated during the day to the grid, which is why net metering is so important to the solar industry. But as utilities are fighting the solar industry of today, the solar industry is creating innovations that could disrupt the energy world tomorrow.
How energy storage changes the landscape
As this debate over distributed energy has been fought with regulators and within utilities, the energy industry has been developing ways to store energy for future use, effectively working around the utility's biggest problem with solar. SolarCity is partnering with Tesla Motors (NASDAQ:TSLA), which is using some of the production from its Gigafactory to make energy storage units. SunPower is partnering with Sunverge on energy storage, and is hoping to make storage and energy management a differentiator in the future.
In theory, a customer could cut their ties with the grid if they had enough energy storage, and utilities are inadvertently pushing the market in that direction. But the purpose of energy storage in the near term is easing the flow of electricity to the grid and saving it for use later in the day. This could make net metering a moot point in the near future.
The future of this love-hate relationship
In all likelihood, utilities and regulators will continue to love utility scale solar because it provides cheap, clean energy for the grid. But utilities will also try to find ways to subvert residential and commercial solar because it offers little opportunity for them to profit. The current game plan is to do this through rate change plans like minimum bills or changes to net metering. In the short-term, this could slow the growth of solar nationwide.
Keep in mind, though, that the solar industry is innovating much faster than the electrical utility, and soon it may be able to offer ways to store energy on a local level or even in a micro-grid in the near future. Utilities are fighting a difficult battle, but with public sentiment, economics, and innovation on the side of the solar industry. When the old world of energy faces off against the new, it's the disruptive force of solar energy that I think will win -- and it's certainly who I'm putting my money on as an investor.