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Utilities Are Losing Their Fight Against Solar Power

The next libertarian disruption.
September 17, 2013, 2:50pm
Image: Flickr

The United States is in the midst of a solar energy boom. As the price of solar declines dramatically, shiny panels are proliferating across American rooftops, with one new solar unit installed every four minutes in the US. The country's solar capacity has doubled since 2008, bringing costs down by 40 percent, and analysts predict that the price of solar will reach parity with other power sources within 10 years, even sooner in some markets.

The result is that solar, long viewed as a boutique energy source for rich environmentalists, now poses a mortal threat to the mainline power utilities that have dominated energy distribution in the US since the late 19th century. Now, these powerful companies are waging an escalating war against independent power distributors, and particularly against a new crop of solar technology companies that threaten to disrupt their century-old business model.

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At issue is the policy of net metering, which allows renewable energy consumers to sell their excess power back to the grid at retail prices. With states rolling back subsidies for renewables, net metering has become the lifeblood of the solar energy industry, allowing grid customers to reduce their energy bills with each kilowatt-hour their panels produce.

But as solar becomes accessible to mainstream energy customers, utilities companies fear net metering will lead to a so-called "utility death spiral," in which more and more customers generate their own power, forcing utilities to charge higher rates to maintain infrastructure that was intended for a much larger pool of energy consumers, which will in turn encourage more people to turn to distributed energy options—which in most cases means solar panels.

These new solar firms view government-sanctioned utilities monopolies as outdated and ripe for disruption.

"It is obviously a potential threat to us over the long term," Duke Energy CEO Jim Rogers told Bloomberg earlier this year. "If the cost of solar panels keeps coming down, installation costs come down and if they combine solar with battery technology and a power management system, then we have someone just using [the grid] for backup."

This doomsday forecast gained traction in January with the release of an industry white paper that offered a surprisingly frank assessment of the threat renewables pose to the utility business model. The report, published by the Edison Electric Institute, predicted that, in the absence of immediate industry action, renewables could soon cause "irreparable damages to revenues and growth prospects" of utilities.

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Following EEI's recommendations, utilities have made a concerted push to weaken net metering, claiming that non-renewables customers are unfairly subsidizing solar customers' access to, and ability to sell power to, the grid. Over the last year, utilities have challenged net metering policies in at least 11 states, asking regulators to impose new rate structures that would lower the amount utilities pay to buy back excess power from renewables consumers, and in some cases impose new grid-use fees on solar customers.

Leading the charge against utilities is are solar technology firms like Sungevity, Sunrun, and the Elon Musk-backed SolarCity, which lease commercial and residential solar panels, and which rely on net metering to remain competitive. Acting as third-party owners, these companies install solar panels for minimal upfront cost and then sell the electricity back to the clients, with the cost of the lease offset by savings on the client's utilities bill.

This graphic shows the boom in photovoltaic installation in the US, with more than 1500 MW installed in the first half of this year. Via SEIA

While their primary motivation in fighting utilities is financial, these new firms view government-sanctioned utilities monopolies as outdated and ripe for disruption, ascribing to the techno-libertarian view that regulation is an impediment to innovation and technological progress. In the words of SolarCity CEO Lyndon Rive, who also happens to be Musk's cousin, these firms see themselves as "your next energy company," leading the way into a future in which mainline energy monopolies will be supplanted by distributed power generation, with consumers using the grid primarily as backup to local energy production.

"Having more choice and more competition in the sector benefits pretty much everyone except the monopoly that has enjoyed having a monopoly for the past 100 years," SolarCity spokesperson William Craven told me. "It's not clear that that system benefits anyone else. Generally, greater choice and greater competition drives innovation and drives reduced costs."

"We don't need a big centralized corporate entity to generate electricity. We can do it ourselves."

Interestingly, this pro-innovation, anti-corporate stance has resonated with a broader swath of libertarian conservatives, for whom the fight over renewable energy is not about climate change, but rather an individual's right to produce his or her own energy . While conventional wisdom suggests that conservative opposition to clean-energy subsidies and/or global warming denial will undercut bipartisan support for solar, a growing number of libertarian-minded conservatives — including some hardcore Tea Partiers — have set aside those concerns in order to achieve the long-term goal of getting government out of energy distribution entirely.

"From a conservative, or libertarian, perspective, it raises the question of why are we giving these guys a monopoly when they don't need it anymore?" said John Farrell, a senior researcher with the Minneapolis-based Institute for Local Self-Reliance, which pushes for distributed generation. "We can generate electricity in lots of different ways. We don't need a big centralized corporate entity to generate electricity. We can do it ourselves."

The result has been a strange grassroots coalition that has united technologists, environmentalists, and libertarian activists in favor of solar power. So far, this ragtag group is winning, mounting effective counterattacks against utilities' attempts to weaken net metering.

In Idaho and Louisiana this summer, state regulators responded to populist backlash by voting to uphold net metering, rejecting proposed changes by local utilities companies. In Georgia, a group called the Green Tea Coalition united to force utilities to get more of their power from renewable sources, including individual producers. And in California, solar scored its biggest coup yet last week, with the passage of a state bill that authorizes regulators to raise the cap on net metering and lays the groundwork for a new net metering system that ensures the policy will remain in place for the next decade, at least.

"Utilities have a simple argument that sounds compelling, but time and again, we've seen such strong public outcry against the idea of utilities trying to take away the right to generate power that the decisions have actually come down on the side of solar customers," said Rosalind Jackson, a spokesperson for the climate-change advocacy group Vote Solar.

"This is a regulated industry that has not had to innovate for a century," Jackson added. "But they are faced with a real disruptive technology. There are new entrants for customers who have never had an option before. So that's a very real threat."