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Solar Power a Threat to US Electric Utilities?


Self-generating homes are on the rise, but who pays for and protects the electrical grid remain key issues.

A persistent warning light is flashing for US electric utilities. The utilities -- big and small, for- and not-for-profit -- are facing serious disruptive technology. The old business models are in danger.

The unlikely disruptive technology that's causing the trouble is rooftop solar power.

Back in the energy-turbulent 1970s, solar power was a gleam in the eye of environmentalists who dared to dream of renewable energy. It looked like a pipe dream. Very simple solar had been deployed to heat water in desert homes since indoor plumbing became the norm, but makinf electricity from the sun was many orders of magnitude more complex, and it was very expensive.

The technology of photovoltaic cells, which make electricity directly from the sun, also needed work, including research and mass manufacturing. Hundreds of millions of dollars later in research and subsidies, the cost of solar cells has fallen and continues to go down.

Today, solar certainly isn't a pipe dream: It's looking like a mature industry. It's also a big employer in the installation industry. It is a player, a force in the market.

But solar has created a crisis for the utilities.

To incubate solar, and to satisfy solar advocates, Congress said that  "qualifying facilities" should be able not only to generate electricity for homes when the sun is shining, but also to sell back the excess electricity to the local utility. This is called "net metering," and it's at the center of the crisis today -- particularly across the Southwest, where solar installations have multiplied and are being added at a feverish rate.

Doyle Beneby, CEO of San Antonio, Texas-based CPS Energy, the largest municipal electric and gas utility in the nation, said, "The homes that are installing solar quickly are the more affluent ones." The problem here, he explained, is that the utility has to maintain the entire infrastructure of wires and poles and buy back electricity generated by solar in these homes at the highest prevailing rate -- often for more than power could be bought on the market or generated by the utility.

Steve Mitnik, a utility industry consultant, said that 47 percent of the nation's electric market is residential, and the larger, affluent homes -- the ones that use a lot of electricity and generally pay more as consumption rises -- are a critically important part of it. Yet these are the ones that are turning to solar generation and that expect to make a profit selling excess production to the grid.

But who pays for the grid? According to CPS Energy's Beneby and others in the industry, the burden of keeping the system up and running then falls on those who can least afford it.

Self-generating homes still need the grid not only to sell back to but, more importantly, to buy from when the sun isn't shining and at night.

For some in the utility industry, net metering is just the beginning of a series of emerging problems, including:

  • Big investments are needed in physical security after the sniper attack last October at PG&E Corp.'s (NYSE:PCG) Metcalf transmission substation, which took out 17 huge transformers that provide power to California's Silicon Valley.
  • New investment is needed in cybersecurity.
  • Improved response to bad weather is a critical issue, especially in some mid-Atlantic states.
Beneby believes the solar incursion into the traditional marketplace -- such as home-based, microgas turbines -- might be the beginning of more self-generation, and that utilities will and must adjust. He is something of a futurist and points out that with telephones, once a purely utility service, disruption has been hugely creative.

Environmentalists are as disturbed as the utilities. Some are calling the imposition of a surcharge on rooftop generators -- like the fee imposed in Arizona recently -- an attempt by the greedy utilities to stamp out competition. But many are seeking alternative solutions without a war over generating, and without punishing those unable to afford their own generation.

Brian Keane, president of SmartPower, a green-marketing group with solar purchase programs in Arizona and many other states, is hoping for cooler heads to prevail on both sides of the issue. "I don't have an answer," he said, calling for dialogue. The Edison Electric Institute, a trade group, has been talking with the National Resources Defense Council.

It isn't your father's electric utility anymore -- or your hippie's solar power.

This article was written by Llewellyn King of
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