Utilities May Lose More Grid-Connected Customers, And Billions of Dollars

Source: By Ken Silverstein, Forbes • Posted: Thursday, April 9, 2015

A rebounding economy will lead to greater demand, rising electricity rates and falling costs tied to technology — especially energy storage devices that could facilitate the use of rooftop solar panels. For utilities, that means fewer grid connected customers and possible declines in revenue of $35 billion a year.

That’s according to a study by Snowmass, Colo.-based Rocky Mountain Institute, which concludes solar-plus-battery systems will escalate, albeit the pace of that rise is contingent on the regulatory framework that states establish. It’s a follow up to an examination released a year ago in which the institute concluded that the trend toward more rooftop solar electricity, or distributed generation, is conditioned on more affordable and reliable battery technologies.

Now it is saying that the widespread application of solar panels in combination with battery storage is perhaps a decade away in many geographies. “No matter how expensive retail electricity gets in the future, customers that invest in these grid-connected systems can obtain their electricity costs at or below ‘peak prices,’ yielding significant savings on their monthly bill,” says author James Mandel.

The ultimate outcome will largely depend on how state regulators configure their so-called net metering laws, which try to apportion all the costs and subsequent payments for use of the wires and the re-selling of electricity.

 State commissions are thus challenged to find the sweet spot whereby utilities can afford to maintain their systems and homeowners are motivated to go green. The early indicators are that the residential users who unhook from the grid are having to pay up, although not nearly as much as what the utilities had wanted. That’s been the case in California and in Arizona, and it’s the current debate in Colorado. Then it heads to Georgia, Louisiana and Texas.

For its part, the Rocky Mountain Institute is focused on regulatory reform in such places as New York, which is seeking to rollout more and more rooftop solar panels and other forms of distributed energy. New York, for instance, has an initiative that was generated in response to Superstorm Sandy when grid-connected electricity sent the masses got knocked out for long periods.

In the words of the New York Power Authority, the aim is to “fundamentally transform” how energy is generated and distributed in the state. Utilities will be rewarded for demonstrating energy storage while customers will be motivated to save energy.

“Moreover, the initiative’s incentives could be a magnet that attracts alternate energy providers and emerging and experimental energy storage technology companies, which would enable the Empire State to become a hub of energy-saving technologies,” adds Andrew Kaplan , an energy lawyer at Pierce Atwood in Boston, in an upcoming edition of Public Utilities Fortnightly.

Beyond New York, the Rocky Mountain Institute gives plaudits to California, where the state’s public utility commission now requires PG&E PCG +0.24% Corp., Sempra Energy SRE -1.09% and Edison International to collectively buy 1,325 megawatts of energy by 2020. California’s focus is on reducing harmful air emissions and on increasing the state’s use of green energy. An application could be anything from cutting energy use to storing and injecting electrons onto the grid.

The changing paradigm is challenging utilities to rethink their business models. While their centralized delivery system will remain intact, utilities will still need to modernize their networks as well as invest in distributed, or onsite, generation as a way to maintain revenues and market position.

The shift is not just happening in the sunny southwestern region of the United States. It’s also being discussed in coal-dependent states like Michigan, which is retiring 10 coal plants and setting a goal of generating 30 percent of the state’s energy from sustainable fuels and energy efficiency in the next 10 years.

The Edison Electric Institute, which represents investor-owned utilities, says that its members will continue to prosper in this changing environment. “Utilities will be full service providers,” says David Owens, senior vice president.

Indeed, utilities may be the kind of partners whom the innovators are seeking. The technology pioneers have critical expertise while the utilities have access to capital. Consider that the tax credit provided to solar developers will decline from 30 percent today to 10 percent at the end of 2016. It’s unlikely that such a plan will change, given the look of today’s Congress. Strong and supple utilities with an eye toward advancing into the new energy world see this as their time.

“Forward-thinking utilities are wanting to get closer to their customers and serve them more satisfactorily to create that customer stickiness and retention,” says Ken Munson, chief executive of California-based Sunverge Energy. “Utilities are proactively looking to storage technology and analytics to enable them to manage their grids more safely, reliably, and cost-effectively in the face of ever-increasing penetration of renewables.”

To this end, Sunverge is working with such publicly owned utilities as the Salt River Project and the Sacramento Municipal Utility District. Other utilities are also taking a proactive position and relying on partners: NextEra Energy Inc., NRG Energy Inc. and Green Mountain Power, to name three.

Utilities are being forced to reconsider their business propositions – to think forward and beyond 2050. Some are treading lightly. Others are more aggressive. Either way, the most recent studies are showing that the trend toward more distributed generation is undeniable and that utilities could play a key role.