Are U.S. electric utility companies destined to follow the same cycle of decline that the airlines and telephone companies experienced in the late 1970s? A report by Edison Electric Institute (EEI), the trade group of U.S. investor-owned utilities, makes an eerie comparison between the three industries. Like its predecessors experienced, electric utilities have become vulnerable to changes in consumer behaviors, new technology and competitive threats—in this case from distributed solar photovoltaics (PV).
“Consumers want choice,” says renewable energy strategist Carl Siegrist. “Customer-owned distributed solar is one that will change the utility model.”
Some utility companies, like the municipally-owned CPS Energy in San Antonio, are taking a defensive stand to protect profits. The Texas energy company plans to raise rates for all consumers or reduce the credits allotted for rooftop solar. With 30-year recovery costs for their capital investments, utility companies argue that they need to maintain their infrastructure as more people are installing solar and decreasing the demand for traditional electricity.
“Competing demands from consumers is exactly why a one-size-fits-all approach won’t work anymore for utilities,” says Dr. Julie Albright, managing director at the USC Energy Institute.
Although utilities can restructure their fees to cover lost revenue, “the longer-term threat of fully exiting from the grid (or customers solely using the electric grid for backup purposes) raises the potential for irreparable damages to revenue and growth,” the EEI report states.
This certainly isn’t the first time utility companies have felt threatened by distributed solar. But the report that predicts the demise of utility companies—issued by the utilities themselves—has fostered headlines with words like “destroy” and “smackdown.” It appears the battle is becoming more heated.
But does it have to be ‘us versus them?’ Can utilities and renewables coexist?
Duke Energy seems to think so.
The company’s non-regulated unit, Duke Energy Renewables, will more than double its production from solar, wind and biomass by 2020, according to its most recent sustainability report. This would total about 6,000 megawatts of power derived from renewable sources. Motivated by federal tax credits, the Charlotte, N.C.-based utility company added nearly 650 megawatts of clean energy just last year.
“If utilities don’t adopt solar business models, stockholders will lose significant value—and if given a choice [they’ll lose] customers too,” Siegrist says.
Sixteen states in the U.S. currently require utility companies to generate more of their power from the sun. Minnesota may be next, as the state House passed a bill on May 7, requiring investor-owned utilities to obtain 4 percent of their power from solar energy by 2025.
Incorporating clean energy into their mix can help electric utility companies secure premium rates for solar power—since solar peaks at midday with a higher demand for air conditioning. Utility companies can also purchase excess energy from residential and commercial solar systems, and then sell the energy at peak prices. Profit opportunities also exist in energy storage to ensure grid stability—a relatively untapped market.
Mike Taylor, Director of Research at the Solar Power Electric Association, says there is a large retirement turnover taking place among electric utility companies. This may be the perfect opportunity to revise the traditional business model.
“Utilities need motivated, educated, vibrant staff to effect change,” Taylor says. “Clearly, utilities play a role and provide a need in managing and maintaining the grid. How that role evolves remains to be seen.”