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More Onsite Power Means Less Revenues for Utilities. What’s Next?

With an increasing number of both business and residential customers expected to generate their power using rooftop solar panels, the renewable revolution could cost utilities big dollars. The extent of that dynamic is still to be figured. But some of the latest numbers show billions are at stake. What now?

That’s, of course, is the $64,000 question — or as much as the $35 billion question, which is the lost revenues to utilities, in the minds of some. The forward thinking utilities want a piece of the action — to use their leverage in electricity markets in combination with the technology providers to help them better manage their grids.

“So if you look at the future realistically, you’ll see it won’t be a battle where either utilities or solar providers ‘prevail,’” writes Ken Munson, chief executive of Sunverge, in a LinkedIn post. “Instead, it is a future where both the solar providers and the utilities have important and complementary roles to play.

“In this energy future, everybody wins: Solar providers through a booming business; utilities through new and profitable service-oriented business models; customers through lower costs and increased reliability; and the environment through greatly reduced emissions,” Munson continues.

To this end, Sunverge is working with such publicly-owned utilities as the Salt River Project and the Sacramento Municipal Utility District. Among the proactive utilities that are relying on partners: NextEra Energy Inc., NRG Energy Inc. and Green Mountain Power.

It’s all in the context of an ICF International study, which says that more than 1 million locations will have rooftop panels by April 2016. That’s according to a BloombergBusinessweek report, which adds that grid operators in the eastern United States will cut their purchases of conventional generation from such things as coal and natural gas by about 1,400 megawatts starting in 2019. Altogether, utilities in the East could lose as much as $2 billion in 2019.

It’s a concept in which the Rocky Mountain Institute generally agrees. Last year, it released a report that said the rollout of energy storage devices could mean fewer grid connected customers and possible declines in revenues of $35 billion every year. Solar-plus-batter systems could escalate, it adds, all contingent on the regulatory framework that the states establish.

The widespread application of solar panels in combination with battery storage is perhaps a decade away. “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 Rocky Mountain Institute 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.

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 on the East Coast. Most notably, it is really occurring in the sunny southwestern region of the United States. And, 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. Utilities have access to capital while the technology providers have critical expertise.

So, how are the grid operators responding to all this — the folks who order up generation and schedule its delivery across the transmission lines? They are not just trying to accommodate the solar crush but also new wind energy resources.

The PJM Interconnection that manages the transmission grid over 13-states in the Mid-Atlantic and Midwest regions says that it has approved hundreds of upgrades and additions that will entail $24 billion of new capital in the coming years. Specifically, 10 of its 13 states have renewable portfolio standards that will require more green energy. With that, it sees 19,700 megawatts of wind going up before 2020 that will also demand investments in energy storage that can harness the power and then inject it later on to the grid.

A bigger and better network is therefore needed, irrespective of the growth in distributed onsite energy. Grid upgrades and expansions will not just facilitate new green energy resources that are centrally generated but it will also keep the utilities active. But is that practical and who will pay for it?

After all, green energy is comprised of much more than homeowners with solar panels on their roofs. It is also made up of utility-scale wind farms and concentrated solar power complexes that are located on large plots of land in remote areas. They need the transmission system to be widened so that they can hook up and send electricity to where it would be consumed.

For now, upgrades and modifications to the existing network will accommodate the added green energy. But after the Clean Power Plan is full gear in 2030, more transmission will also be required.

“The grid should be treated as a public good, like buses or subways,” says Mandel, with the Rocky Mountain Institute. “We as a society think that these are important assets even if we don’t all use them. Its cost should not be borne entirely by those who remain dependent on it.”

Nevertheless, the buses and trains have left the station, meaning that more and more businesses will start using onsite generation in combination with energy storage and localized microgrids. That means lost sales for utilities — unless they reconfigure their operations and partner with technology providers.

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3 thoughts on “More Onsite Power Means Less Revenues for Utilities. What’s Next?

  1. It’s utterly amazing that more utilities don’t take an active role in the installation and maintenance of both PV solar commercial wind turbines as a way of increasing revenues. Here in North Carolina, our main utility (Duke Energy) is considering doing just that, although nothing has been determined at this point in that regard.

  2. There is the an inevitable shift to using renewable resources – biogas, solar, wind – as base-load power, and it will be interesting over the next few years to see how and which utilities adapt their business model to embrace this change.

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