US electricity utilities see distributed energy as their killer

Solar panels could destroy U.S. utilities, according to U.S. utilities Grist By David Roberts
 Solar power and other distributed renewable energy technologies could lay waste to U.S. power utilities and burn the utility business model, which has remained virtually unchanged for a century, to the ground That is not wild-eyed hippie talk. It is the assessment of the utilities themselves.

Back in January, the Edison Electric Institute — the (typically stodgy and backward-looking) trade group of U.S. investor-owned utilities — released a report [PDF] that, as far as I can tell, went almost entirely without notice in the press. That’s a shame. It is one of the most prescient and brutally frank things I’ve ever read about the power sector. It is a rare thing to hear an industry tell the tale of its own incipient obsolescence.

I’ve been thinking about how to convey to you, normal people with healthy social lives and no time to ponder the byzantine nature of the power industry, just what a big deal the coming changes are. They are nothing short of revolutionary … but rather difficult to explain without jargon.

So, just a bit of background. You probably know that electricity is provided by utilities. Some utilities both generate electricity at power plants and provide it to customers over power lines. They are “regulated monopolies,” which means they have sole responsibility for providing power in their service areas. Some utilities have gone through deregulation; in that case, power generation is split off into its own business, while the utility’s job is to purchase power on competitive markets and provide it to customers over the grid it manages.

This complexity makes it difficult to generalize about utilities … or to discuss them without putting people to sleep. But the main thing to know is that the utility business model relies on selling power. That’s how they make their money.  Here’s how it works: A utility makes a case to a public utility commission (PUC), saying “we will need to satisfy this level of demand from consumers, which means we’ll need to generate (or purchase) this much power, which means we’ll need to charge these rates.” If the PUC finds the case persuasive, it approves the rates and guarantees the utility a reasonable return on its investments in power and grid upkeep.

Thrilling, I know. The thing to remember is that it is in a utility’s financial interest to generate (or buy) and deliver as much power as possible. The higher the demand, the higher the investments, the higher the utility shareholder profits. In short, all things being equal, utilities want to sell more power. (All things are occasionally not equal, but we’ll leave those complications aside for now.)

Now, into this cozy business model enters cheap distributed solar PV, which eats away at it like acid.

First, the power generated by solar panels on residential or commercial roofs is not utility-owned or utility-purchased. From the utility’s point of view, every kilowatt-hour of rooftop solar looks like a kilowatt-hour of reduced demand for the utility’s product. Not something any business enjoys. (This is the same reason utilities are instinctively hostile to energy efficiency and demand response programs, and why they must be compelled by regulations or subsidies to create them. Utilities don’t like reduced demand!)

It’s worse than that, though. Solar power peaks at midday, which means it is strongest close to the point of highest electricity use — “peak load.” Problem is, providing power to meet peak load is where utilities make a huge chunk of their money. Peak power is the most expensive power. So when solar panels provide peak power, they aren’t just reducing demand, they’re reducing demand for the utilities’ most valuable product.

But wait. Renewables are limited by the fact they are intermittent, right? “The sun doesn’t always shine,” etc. Customers will still have to rely on grid power for the most part. Right?

This is a widely held article of faith, but EEI (of all places!) puts it to rest. (In this and all quotes that follow, “DER” means distributed energy resources, which for the most part means solar PV.)

Due to the variable nature of renewable DER, there is a perception that customers will always need to remain on the grid. 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.To put this into perspective, who would have believed 10 years ago that traditional wire line telephone customers could economically “cut the cord?” [Emphasis mine.]

Indeed! Just the other day, Duke Energy CEO Jim Rogers said, “If the cost of solar panels keeps coming down, installation costs come down and if they combine solar with battery technology and a power management system, then we have someone just using [the grid] for backup.” What happens if a whole bunch of customers start generating their own power and using the grid merely as backup? The EEI report warns of “irreparable damages to revenues and growth prospects” of utilities.

Utility investors are accustomed to large, long-term, reliable investments with a 30-year cost recovery — fossil fuel plants, basically. The cost of those investments, along with investments in grid maintenance and reliability, are spread by utilities across all ratepayers in a service area. What happens if a bunch of those ratepayers start reducing their demand or opting out of the grid entirely? Well, the same investments must now be spread over a smaller group of ratepayers. In other words: higher rates for those who haven’t switched to solar.

That’s how it starts. These two paragraphs from the EEI report are a remarkable description of the path to obsolescence faced by the industry:…….

Remember, too, that these utilities are not Google or Facebook. They are not accustomed to a state of constant market turmoil and reinvention. This is a venerable old boys network, working very comfortably within a business model that has been around, virtually unchanged, for a century. A friggin’ century, more or less without innovation, and now they’re supposed to scramble and be all hip and new-age? Unlikely.

So what’s to be done? You won’t be surprised to hear that EEI’s prescription is mainly focused on preserving utilities and their familiar business model. But is that the best thing for electricity consumers? Is that the best thing for the climate?

We’ll dig into those questions in my next post. Next article in the series:

How can we boost distributed solar and save utilities at the same time? »

http://grist.org/climate-energy/solar-panels-could-destroy-u-s-utilities-according-to-u-s-utilities/

June 24, 2013 - Posted by Christina Macpherson | decentralised, USA