#1 cleantech news, reviews, & analysis site in the world. Subscribe today. The future is now.

Clean Power

Published on August 24th, 2015 | by John Farrell


5 Reasons Utilities Are Hating On Their Solar-Producing Customers

August 24th, 2015 by  

Originally posted at ilsr.org.

electric-company-monopoly-Mike-Fleming-via-FlickrIt seems crazy that electric companies would have anything against customers who spend their own money to reduce their energy use with clean, local solar power. But any number of utilities are slapping excessive fees and charges on customers with solar to slow or stop them. Here’s 5 reasons why…

1. Utilities Don’t View Customer-Owned Solar Power as a Resource

mn value of solar v costMost utilities see a solar array on a customer rooftop the same as they see an energy efficient refrigerator. It means the customer buys less electricity. In some states, policies called “decoupling” tend to hold utilities harmless to these sales losses in order to encourage more investment in cost-effective energy efficiency. But with solar, utilities tend to ignore the benefits that this energy provides to the electricity system unless someone tells them to account for it.

Read a utility integrated resource plan (their 15-year plan for the electric grid), and you can see an electric utility wax eloquent about a shiny new 100 megawatt power plant that could provide energy during peak energy periods with zero fuel cost. But if instead of a big utility-built power plant we’re talking about 10,000 individual solar arrays on customer rooftops, utilities lose all perspective.

In Minnesota, for example, the state legislature passed a “value of solar” program that requires the state’s largest utility, Xcel Energy, to calculate how much solar energy is worth to its grid. In 2014 and 2015, the utility has reported that the value of solar energy is higher than the cost to the utility in buying it from customers via net metering. Other studies have shown similar results, including one in Maine, in Missouri, and in many other states.

Faced with compelling evidence of the value of customer-produced solar power, why haven’t utilities come around?

2. The Utility Business Model Seems Broken

For most investor-owned (for profit) utilities in particular, this new data can’t be squared with their old business model. In a study by the Lawrence Berkeley Laboratory, researchers found that the ratepayer impact of lots of customer-owned solar is quite small, but the larger impact falls on utility shareholders. Solar may mean modest revenue reductions for electric utilities, but by offsetting the need for new, large-scale power plants, solar’s real threat is in choking off the for-profit utility’s source of shareholder returns.

The following graphic (from the report) shows the impact of distributed solar on two hypothetical utilities’ shareholders—return on equity (ROE) and earnings—and also on retail electric rates—ordinary ratepayers.

solar impact on utility ROE earnings rates

In short, a utility that’s spent the past several decades making money by selling more electricity and building new infrastructure doesn’t look favorably on a competitor. Municipal utilities (owned by cities) and rural electric cooperatives (owned by their members) don’t have this dissonance between shareholders and customers, but the notion of customer-provided power as a resource is often just as shocking. There are a few exceptions (noted later) but not many.

3. It Seems Easier to Fight Than Innovate

In a competitive business it would seem mad to fight your own customers, but most utilities aren’t in competition (even in states where there is competition in selling electricity to ultimate customers, the ownership of the distribution grid remains a monopoly). That means there are only a few prominent examples of utilities—such as Green Mountain Power and Farmers Electric Cooperative—working to change yesterday’s business model to accommodate today’s technology.

For the rest of electric utilities, they’ve largely chosen to fight their customers rather than accommodate the rise of distributed, customer-owned renewable energy. But that choice is because while they see distributed renewable energy as an opportunity, most have no idea how to make a business around it.

In Wisconsin, electric utilities have shifted more of the monthly bill onto fixed charges, reducing the incentive for their customers to save energy with solar (or any other manner). In Arizona, utilities are slapping fees on solar energy producers, to recoup their lost revenue. In over half of U.S. states (shown below in red), utilities have introduced legislative or regulatory proceedings to fight their customers over solar energy.

freedom to generate under fire ILSR 2015-0325

The state-by-state battles are part of a coordinated effort by utility executives to address what they see as “a serious, long-term threat to the survival of traditional electricity providers.”

So far, utilities have lost more than they’ve won, but even in winning individual battles utilities may still lose the war because their “victories” in containing customer generated solar power are temporary props to an electricity system that is increasingly archaic.

4. The Electricity System is Fundamentally Changing

It’s easy to pick on electric companies for overlooking the value of their customer’s energy (and for lashing out with retrograde policies), but it’s not entirely their fault. The 100-year-old rules of the electricity system—written by legislatures and governed by public regulatory commissions—granted most electric companies a monopoly over their area of the electric grid. Even as some states introduced competition in selling power to ultimate customers, utilities maintain over the distribution poles and wires that bring power to homes and businesses (and thus much of the power). This monopoly made sense in the 20th century to raise capital for large-scale, low-cost power generation. It worked, giving us reliable and affordable electricity (at any environmental price). It gave utilities comfortable, reliable returns on their investments from regulators at Public Utilities Commissions.

In an era of incremental change where stability was prized over innovation, this monopoly was largely in the public interest.

No more.

Consider the difference between a 20th century and 21st century electricity system. In the 20th century, power was generated in large-scale power plants at a distance from population centers, sent by large transmission lines to cities, and managed in a centralized, top-down fashion by a monopoly electric company. There was no viable alternative to this model.

Today, we can generate power on rooftops or farm fields, manage it in real-time with smart thermostats or appliances, and control it remotely with smartphone apps and automation software. In this environment, do we need a traditional, top-down electric utility?

Most utilities won’t change by themselves, however. The inertia and cultural stagnation of monopoly make them much better at playing defense than offense. That has regulators in at least one state, New York, saying “no.”

The Reforming the Energy Vision process just released its first orders, and among them the New York regulators are telling utilities that they will no longer own and operate distributed renewable energy resources. It’s the first step toward flattening the electricity system, from a one-way, top-down grid to a massively networked and democratized energy delivery marketplace. Similar processes are underway in Washington, Minnesota, and other states.

5. Electric Utilities Use Enormous Power to Resist

Imagine how typewriter companies felt upon the introduction of personal computers, how landline phone companies felt a decade ago. Electric utility executives are in a similar position, locked in an outdated paradigm and without a strategy for reaching a different future.

The key difference is that electric companies wield enormous market and political power over their system. They have publicly-sanctioned monopolies, and huge streams of monopoly-shielded revenue they use to hire lobbyists and lawyers to dominate state legislatures and utility commissions. Open Secrets tracks electric utility lobbying at the federal level and reports that utilities collectively spent $121 million on lobbying Congress in 2014, and an additional $16.5 million in contributions to legislators. Lobbying is even more intense at the state level, where most regulation takes place. For example, Florida’s four largest utilities collectively employ one lobbyist for every two legislators in that state.

In nearly every fight to align the electricity system with the technological and economic opportunity—energy efficiency, renewable energy, net metering—utilities have pitted their resources squarely against progress.

Get to the Root Cause

The best analog to today’s battle for the electricity system might be the AT&T telephone monopoly. In the early years, users couldn’t even connect third party devices to the telephone network and AT&T could wield its monopoly power to quash market or political competition. In the end, the government rightly recognized that breaking up the monopoly and introducing competition (for long distance service, at least) was the only way to reduce AT&T’s economic and political power.

Electric utilities are right that distributed renewable energy like rooftop solar threatens their business model. But that model is increasingly out of step with the interests of the modern electricity customer, from energy efficiency to clean energy to energy management. States have papered over the inconsistencies with policies mandating renewable energy and energy efficiency—the utility leaders in renewable energy and energy efficiency almost all hail from states with the best policies—but only at great political cost and over the strident objection of utility companies.

The root cause of the battle between utilities and their (captive) customers is the utility monopoly. And the best hope for a democratic energy system may be to smash it.

Top photo credit: Mike Fleming via Flickr (CC BY 2.0 license)

This article was originally posted at ilsr.org. For timely updates, follow John Farrell on Twitter or get the Democratic Energy weekly update.

Tags: , , , , ,

About the Author

directs the Democratic Energy program at ILSR and he focuses on energy policy developments that best expand the benefits of local ownership and dispersed generation of renewable energy. His seminal paper, Democratizing the Electricity System, describes how to blast the roadblocks to distributed renewable energy generation, and how such small-scale renewable energy projects are the key to the biggest strides in renewable energy development.   Farrell also authored the landmark report Energy Self-Reliant States, which serves as the definitive energy atlas for the United States, detailing the state-by-state renewable electricity generation potential. Farrell regularly provides discussion and analysis of distributed renewable energy policy on his blog, Energy Self-Reliant States (energyselfreliantstates.org), and articles are regularly syndicated on Grist and Renewable Energy World.   John Farrell can also be found on Twitter @johnffarrell, or at jfarrell@ilsr.org.

  • NRG4All

    It seems to me that there is another problem to overcome. True, PV is great for reducing peak loads. However, PV fades before the peak demand is over. Offices are still using power when homeowners are cranking up the A/C. If utilities were smart they could make a few corrections. First, offer some small subsidy (instead of a charge) for panels that would be put in a westerly direction to take more advantage of the setting sun. And second, maybe have a “super peak” rate that would run from roughly 5 PM until 7 or 8 PM. Then all users that are consuming electricity would be treated the same without penalizing PV. This perhaps would also spur some homeowners to invest in Tesla’s Powerwall to supply some additional power during those super peak time. And, perhaps even non PV owners would just get the Powerwall for the super peak and recharge it at the lower night time rates.

  • AOK

    John this is insightful, well articulated, and includes documented sources. Thanks!

  • GDR

    Utilities will embrace solar and solar + storage when PUC’s allow the innovation and to move from a revenue model from only KWh to a KWh + KW revenue model. That means not only paying for the energy customers use, but also for the grid investment made and being paid for. If “greens” want to go off the grid, fine, a utility can pull the meter and off they go. But if customers still want access to the grid and net metering benefits, they will pay a “demand charge” to pay for the overall grid. You cannot receive $ via net metering into the system while at the same time trying to say you do not need to assist paying for the system. That is called discriminating against those that cannot net meter, like apartments, high rises, etc. Fairness is innovation – but the utilities will have to have regulator approval, that will be the problem.

  • rlhailssrpe

    While there are valid points in this article, and discussion, I do not accept it as truthful. The author is the head of an organization, ILSR, which promotes distributed solar vs utility supplied power. Thus I take “hate those central utilities”, with a grain of salt. I engineered a score of nukes and two score fossil fueled power plants and pieces of the grid. I accept that some utilities, due to their monopoly acted as tyrants. Unbridled power does that to humans.

    However, from purely a technical view point, I do not believe, on a level field that solar can compete with carbon or uranium central generation and if it is attempted, we will lose the grid.

    Some basics. A man who buys a new Ford is not a customer of Chevy. And a homeowner who makes his own juice is a competitor with the utility who paid for the wire attached to his house, all the way back to the generator. He is not a customer. The “net metering” concept is nonsense. No retailer sells his wares at the same price he buys them. If he did, by definition his profit is zero and he will go out of business. That means no grid or a nationalized grid. In every society that did this, the system quickly shrank to juice only within gated communities. Saddam Hussein was typical. He had AC. No one else had anything..

    Alternate energy will work if it is isolated from the grid, not interconnected. When your generator breaks, that is your problem, call a repairman and pay what he demands. You are a technical dummy; he is not. When it breaks, you may not have water, sewer, light or AC. When you sell your house, your degraded solar installation will be a barrier to those who are not DIY types. Your insurance company will evaluate the potential of an energy mis-op and burning it down. One huge unknown are taxes. Governments lay heavy taxes on energy and let the utility take the heat. They need the money and WILL come after homeowners. Do you trust your politicians?

    On a macro level, the grid will shrink and unit costs will change, either up or down. In time, ti will be impossible for homeowners to reconsider and reconnect. The needed infrastructure, which took generations to install, will not exist.

    Texas is attempting to make it work with utilities. Vast solar farms in the west will feed urban loads in the middle of this massive state. I can not comprehend distributed solar in large cities to supply base loaded power. Isolated generation will find niche applications.

    If I were king, I would drop libraries of costly regulations and stick with central generation as the broadest, cheapest, most equitable, most democratic electrical system. This would require moving major societal science conflicts our of politics.

    The US grid is the greatest contribution to human health and well being ever developed Since our political system is incapable of continuing it, I predict the end of our national grid. God help America.

    • Bob_Wallace

      God help us with thinking like that.

      We need the grid. Assuming that 100% of all houses and businesses will become energy independent, including storage and deep backup is just not credulous.

      Obviously wind, solar and other “alternatives” work just fine on the grid. It’s happening all over the US and all over the world.

      Utility companies are going to have to change. Not go out of business, but change.

      End-user solar is going to cut sunny day demand, even feed power back into grids. Utilities are going to have to rethink how they plan for midday demand, it’s going to drop.

      One new role for utilities is likely to be supplying lower priced power for the non-sunny hours than what end-users can provide for themselves.

      That means that utilities will need a lot of wind and as much hydro as they can get. They’ll need to try to get the cost of wind + stored-wind below the cost of end-user solar + storage.

      If utilities can sell to end users for less than what end-users can generate with solar and store, then end-users will not bother with storage.
      And utilities can almost certainly beat the cost of end-user deep backup. It’s expensive to run a generator when you’ve used up the electricity you have stored in batteries.

      Add in EVs. Probably more than 50% of all EV drivers are going to charge at home and that means a lot of late night electricity that utilities can sell.

      My guess is that the demand curve is going to flip. Rather than selling lots of electricity that they generate or contract for during the day, utilities are likely to be doing a lot of distribution work from one end-user to another. Utilities are going to really go to work after the Sun goes down.

    • John Ihle

      Far too many reasons we’re on the cusp and it’s not sad… you must be old school utility guy that is pretty much stuck… I don’t think the national grid is going away anytime soon. However, I do believe eventually it will be phased out. It may take 50 or 100 years but it’s going to be gone… The reason; it’s cheaper and cleaner. It will lead to many many jobs, it will minimize massive exportation of dollars out of our communities. And the utilities at some point will embrace all this. They’ll have to if they want to survive but they’ll fight it all the way.

      • rlhailssrpe

        (I am in travel with limited time and computer access>)

        Thank you. I am an old energy engineer who has sat at many chairs at the table. My sole interest is the survival of my nation.

        With current policy, that is at risk.

  • John Ihle

    Some of these points don’t seem to be “reasons” why utilities hate customer owned solar and hate is a pretty strong word. Return on equity is a problem underscoring the big investment model which very much changes traditional finance… blah blah blah.

    We’re not that close to democratically owned energy system. Tip of the iceberg. Once finance is figured out coupled with ratepayer/customers realizing solar is reliable long term and that it is cheaper to own than it is to purchase from their utilities it’ll be a big time game changer. That will happen eventually and that’s why utilities should explore other business models probably more rapidly than they seem to be doing for dg. Having said that I like PACE but you don’t seem to see much happening with that.

    There are other things which need to or could happen, too… such as communities/big loads working with utilities on some sort of quasi virtual net metering on the transmission system. Maybe not net metering but some sort of process for very large loads like city governments and big business to build RE off site and to utilize the transmission system and network transmission system agreements, etc. and to work with the utilities that are in control.

    More big businesses and communities and utilities need to step up on creating and facilitating finance models and business structures which can and should be democratic in nature. ie sharing revenue with those hosting the project and those consuming the energy. It’s not rocket science. There’s just a fundamental disconnect between the esoteric utility industry, lack of finance and not all that much leadership with respect to democratically owned energy. IMO. And action, all things considered, is moving at a snail’s pace probably because many “leaders” don’t seem to really understand what they’re dealing with or perhaps there are too many leaders overly complicating things. That obviously includes the utility industry who is/are slowly losing control and that’s the root cause of utility dislike..

    But the problem is or may be that communicating with the ratepayer/customers, the marketing effort as to the reasons why RE is such a good deal has been lacking. The utilities are in control, backed by most politicians.. You can rail on the system all you want but it isn’t going away anytime soon… Marketing to the ratepayer/customers is key. Convince them. They’re not being effectively.

    Anyway, it’s frustrating/disappointing to watch the train wreck and relative inaction on climate and emissions (I know; I’ll likely get blasted by that statement, idgaf). Rooftop solar isn’t going to save the planet and we’re way behind the eight ball.

  • John Hughes

    This blog is “the #1 cleantech-focused news & analysis site in the world” and it has published an article about hate. Hate is a strong word. Hate is the force that drives a young man to shoot down 9 people in a church.

    What is the source of the hate that this article describes? A utility cannot hate because it is not human and does not have emotions. There may be hate in the minds of the people that work for the utility, or, more likely the hate came from the author.

    • “hate on” is a phrasal verb, informal. perhaps missed by non-native speakers or those quite disconnected from pop culture.

      • wattleberry

        I’m in the latter group. Thanks for the info.

  • JamesWimberley

    “The root cause of the battle between utilities and their (captive) customers is the utility monopoly. And the best hope for a democratic energy system may be to smash it.” But that’s exactly what unbundling generation from transmission does! The unbundled grid. pioneered by Margaret Thatcher in Britain, is a still a monopoly, sure – but it is either in public ownership (Texas) or tightly regulated (UK), and above all its incentive is not to maximise sales but to provide a reliable service to both generators and consumers. There is a very real difference between US states with unbundled, competitive electricity markets (Texas, California, and I think New York) and silo states like Arizona,

    Unbundling is not a panacea, In the UK, National Grid has been accused by solar developers of dragging its feet and overcharging on connections. But it’s the first big step towards a 21st-century system. In the UK, consumers can easily switch to an all-renewable startup supplier like Ecotricity if they want to.

  • Kyle Field

    These are all true, but VERY biased towards solar producers. There are legitimate business costs on the grid side of things. Just because I produced enough power during the day (yes, during peak) to offset my nighttime usage, I’m still feeding power in when I want and taking it back out when I want. Basically – using the grid as a battery. And that’s worth something. How much? dunno…but I think it’s fair to charge feed in and take back tariffs. That makes sense to me. Are utilities the bad guy? Not necessarily. Are many resisting? Yup. Could they profit from this instead of fighting it? Yup. The market will sort things out but the regional, modular, regulated nature of the beast will slow that…unless something is done federally in which case, that could blow the lid off solar and encourage widespread adoption 😀

    Source: Solar system owner in cali (and yes, I love that I own a solar system…just no pluto in mine 🙁 ).

    • Frank

      I agree that homeowners with rooftop solar are using the grid as a 100% efficient battery for free. However, free pollution by fossil generators is VERY biased against renewables. Homeowners tend to produce in the middle of a bunch of other homes which reduces transmission costs. They tend to produce at peak AC load. To the extent that other power plants don’t need to be built they save money, and sometimes they produce during a long drought *wink*. So it’s complicated, and changes over time. In some places where the sun is strong, and prices are high, local circuits get overloaded, it’s value can drop. I think in the end, TOU pricing, where the grid is in constant communication with everything connected to it, is the best answer.

      • Kyle Field

        Agree. Based on your comments, it feels like the correct lever to pull is to put a price on carbon (the invisible negative externality that’s really throwing the equation off) vs pushing on solar (in the long run). This lends more weight to the argument to subsidize solar through no cost net metering programs and other incentives.

        Don’t get me wrong – I’m a HUGE fan of solar but we need to continue to work towards solutions that create wins for everyone to ensure the solutions are sustainable from a business standpoint as well.

        • Guest2

          Sorry to say your electric bill would multiple times higher without the 13 fossil fuel/utility level subsidies they currently enjoy. Multiple times. However, solar will keep getting cheaper with just one tax investment credit. If the playing field were equal, home solar would be near a magnitude cheaper then your local utility. Second, monopoly utitlies have an absolute wall against competition. Why would anyone invest in or go into a career as a competitor to utilities under these conditions? If there wasn’t a incentive to do so, we would never…. Never… See rooftop solar or any competitive tech in the electricity industry. Just look at the past 100 years. Distributed generation is hands down the best thing to happen for the electricity industry since the beginning of the grid system. All of us will benefit from its proliferation in multiple ways not to say the least the bottom line costs to all retail consumers.

          • Frank

            Temporarily, maybe. Wind power and solar are getting into the 4’s and 5’s, so if fossil becomes much more expensive, it will be replaced. Sure it takes some time to replace it, but increasing the price, will just speed up the inevitable.

          • Bob_Wallace

            Fossil fuel plants have to be replaced as they age out.

            There’s no contest between the cost of electricity from a new wind/solar farm and a new coal plant. I just makes no financial sense to build new coal.

            The average age of a US coal plant is 40 years. We’ve got an aging coal (and nuclear) fleet.

          • Kyle Field

            No need to be sorry – I believe people should pay for what they consume – both the cost of the product and the cost of any impact they have on others. So…I’m an advocate of removing subsidies and implementing a carbon tax. That will drive the right corrective behaviors which is the whole point. …then we can remove the subsidies for solar etc because it will just make sense – financially and for the environment.

            I agree – I can’t wait for distributed generation to blow the socks of the incumbent utilities 🙂

  • John Moore

    What is the over / under on how many years utilities will, in aggregate, delay full implementation of the new paradigm? My guess is 7-8 years.

    • Michael G

      Battery prices go down, PV prices go down, electricity prices go up – where they cross will depend on the state – electricity prices and sunshine. Nobel Laureate Dr. Stephen Chu, former Dept of Energy head said he thought it would happen in NY first (2025) because of high electricity prices, then CA a few years later. So 10-12 years.

  • Frank

    Yes, the problem is structural. The best first step, is to not allow a company to own both distribution and generation.

Back to Top ↑