It wasn’t that long ago when making a phone call required a massive network of copper wire. But advances in wireless technology and a torrent of new competitors allowed customers to “cut the cord” affordably.
A similar transformation of America’s century-old business model for electric utilities may be on the horizon.
The rapid growth of distributed generation – power from rooftop solar panels, micro wind turbines, geothermal systems, and energy storage technology – is a “disruptive challenge” that poses an imminent threat to the regulatory model that has long been used by utilities to generate a return on their investments, according to a report from the Edison Electric Institute (EEI).
“The threat to the utility model from disruptive forces is now increasingly viable,” the report stated.
The growth of distributed solar photovoltaic (PV) capacity, in particular, has led utilities across the nation to reexamine policies, incentives and net metering programs as more homes and businesses produce their own power. The growing use of distributed generation is cutting into utilities’ profits and their ability to pay for the up-keep of power lines, substations and generation equipment.
Earlier this year, David Crane, chief executive officer of NRG Energy, described the shift to distributed generation as a “mortal threat” to utilities. “They can’t cut costs, so they will try to distribute costs over fewer and fewer customers,” Crane said. As a result, electric bills will rise, which will drive more customers to invest in distributed generation at their homes and businesses, he said.
In what is expected to be a record year for new solar installations in the U.S., an estimated 4,400 MW of solar PV capacity will be installed this year, up 30 percent compared with 2012, according to the Solar Energy Industries Association. Meanwhile, advances in battery storage and micro wind turbines are expected to lower the costs of those technologies.
“As the cost curve for these technologies improves, they could directly threaten the centralized utility model,” the EEI report stated. “While we would expect customers to remain on the grid until a fully viable and economic distributed non-variable resource is available, one can imagine a day when battery storage technology or micro turbines could allow customers to be electric grid independent.”
That day is far away, but it may be closer than most people think.
Most utilities are fighting the shift to distributed solar with campaigns to end or slash net metering programs that pay homeowners for the power they produce. In addition to lost revenue, utilities are concerned a high penetration of intermittent distributed solar will create voltage and reliability problems.
Other utilities are getting in front of this change, embracing distributed generation by building solar panels on top of buildings and enacting feed-in tariffs, which guarantee stable prices for the developers of renewable projects. By buying rooftop solar arrays and other sources of distributed generation, utilities can avoid costly investments in new power lines and power purchase contracts.
So which way should the industry go? Should it embrace distributed generation? Or, should it fight to preserve a long-standing business model that fosters financial health for investor-owned utilities?
The rules for net metering programs and solar incentives should be revisited and reassessed due to vastly different circumstances caused by the solar revolution. Net metering programs were never meant to be permanent. Regulators have a responsibility to consider the rapid growth of distributed generation and the subsequent cost to utilities and their customers.
But stopping the transition to distributed generation won’t be possible, because it is a lifestyle change that resonates with consumers. At some level, utilities must adapt their business model to account for rooftop solar panels, efficient appliances, better battery storage and residential wind power.
Right now, the industry isn’t sure how it should react to these “disruptive technologies” that are threatening its long-standing business traditions. The industry is at a crossroads. The question is which way will it go?
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