It Doesn’t Have To Be A Battle Between Utilities & Solar Power Providers
By Ken Munson
Greentech Media ran an intriguing piece a couple of days ago about Warren Buffett’s analysis on the effect of renewables on the utility business, part of the Berkshire Hathaway annual report for last year. What caught my interest was a paragraph that pointed out a common viewpoint that the marketplace is a “battle” between those (like Buffett) who want to see renewables used for large-scale generation plants, and others who believe the solution is rooftop solar.
If you look at this as a zero-sum game, though, you’ll soon see that both approaches have significant problems. In fact, you can only create a true viable and profitable future for renewables by pursuing a cooperative, win-win solution.
Let’s look at the problem from the utility side as Buffett would have it. Large-scale (>100 GW) generation plants of any kind are hugely capital intensive; solar and wind are no exceptions. Most utilities in the current economic environment don’t have, or don’t want to commit, those kind of capital resources to a main generating plant. They’d rather build less expensive peaker plants that produce only when demand drives the price up. That only makes bottom-line sense, unless you’re somehow mandated to scrap and replace existing plants. Independent power producers, by the way, face the same economic constraints and will arrive at the same conclusion.
Even if you could ignore that huge capital drain, there’s another major problem with large-scale solar and wind installations that’s out of the control of the utility: Siting. Renewable plants like solar farms require significant amounts of land. It can’t be just any land, either: The very nature of the facility demands an ideal location (solar, for instance, does a lot better in the desert than anywhere else). Now, as much as environmentally conscious consumers want the power they buy to come from renewable sources, those same customers are among the first to oppose large-scale renewable facilities on the basis of possible damage to the local ecosystem. Good luck building your facility in the same decade you propose it (which adds even more to the cost above).
On the other side, while it would be great if we could meet every household’s energy needs with a self-contained rooftop solar or wind system, that’s never going to happen. Very few individual homes or even small businesses have enough “roofprint” to generate sufficient power to meet total need. Even assuming those installations have the latest high-capacity intelligent storage connected to the PVs, just about every consumer will need to get at least some power from the grid. It may be to provide supplemental power to meet their individual demand at times when they can’t generate enough from the array, or to just to recharge the battery. But they will have to rely on a reliable source somewhere out there on the grid.
So this either/or argument is the wrong way to look at the marketplace. The real solution is to build large-scale capacity at utility grade by aggregating those individual rooftop solar + storage systems. If utilities are able to control a wide range of DERs and manage them as if they were a single point of generation, you change the entire game. You wind up with Virtual Power Plants (VPPs) that can use the combined generation and storage capacities out there to put power on the grid and get it to where it’s needed. Each installation becomes a “nano producer” and participates in the market, while the utility applies its expertise to manage the power in aggregate (something the average consumer isn’t capable of doing, and has no interest in doing either).
So, yes, our energy future depends on installing lots more rooftop renewables in order to replicate the generating capacity of those impractical large-scale renewable plants. At the same time, you have to have utilities or independent producers managing this at scale.
For those who argue that what we really should do is get everyone off the grid – that’s a fantasy. Yes, there are cases where a particular installation has just the right combination of factors that it has the generation and storage capacity to operate entirely off the grid (although I’d still consider a backup generator). But for the vast majority of users, the grid remains essential.
So if you look at the future realistically, you’ll see it won’t be a battle where either utilities or solar providers “prevail.” 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.
Ken Munson is the co-founder and CEO of Sunverge Energy.
Have a tip for CleanTechnica? Want to advertise? Want to suggest a guest for our CleanTech Talk podcast? Contact us here.
CleanTechnica Holiday Wish Book
Our Latest EVObsession Video
CleanTechnica uses affiliate links. See our policy here.
They can both do well, but they need good net metering laws in every state.
I think I’d rather have a feed-in tarrif which properly reflects the full value of solar’s avoided costs to the utility – in many cases that is $0.20 or more per kWh, which pays for a lot of $.03 nighttime wind…
When a modest amount of solar is added to the grid those high avoided costs disappear.
What solar penetration percent are you thinking of when you say modest amount?
Enough so that gas peakers aren’t needed on sunny days.
Germany hit that point a couple years back. The wholesale cost of electricity during sunny periods dropped as low as nighttime costs. Take a look at how the midday price collapsed.
In 2013 Germany obtained about 4% of its electricity from solar. I’d guess than somewhere around 2% to 3% solar was enough to drop prices.
,
thanks!
Do you know of those savings get passed onto consumers or if the utilities eat it all up?
So far the advantage has gone to the utility.
It’s going to depend on how rates are set. If there’s a well functioning regulatory agency, for example, rates will be adjusted downward. If the utility is operating in a competitive market then they will likely adjust down if it makes them more competitive.
I’m more and more ambivalent about net metering. Sure, when avoided cost is considered, net metering is probably a fair deal for everyone, at least right now. But the economics of solar are already locked in. Over the next couple of decades, solar is going to end up on practically any roof where there’s sunshine, regardless of subsidies and net metering policies. (In 20 years, the roofing company’s pitch could be – Would you like the architectural shingle upgrade for 15% more? How about the solar option for an extra 20%?)
OTOH, the economics of distributed storage are very much up in the air. Curtailment of net metering will mean higher investment in distributed storage r&d. That might cause the breakthrough that puts batteries in everyone’s basements. Ironically, that will mean less overall load on the grid, less need for utilities to invest in new transmission and distribution, and much lower profits for utilities.
I agree that ‘pure’ net metering for solar PV is a blunt tool that does not follow the economics at scale. Storage to avoid peak and demand charges can make sense. Smart rates need to be created to provide the signals for rational markets.
I agree on smart rates for better signaling.
Flat kWh pricing that doesn’t consider actual cost is a busted relic from 100 years ago.
At the retail level, mandating time of use metering for everyone would be the most impactful change regulators could make right now. Comparatively, everything else is noise.
My issue with time-of-use is that while it may be better than a flat rate, there is no further sensitivity for large swings in temperature or changes in the wholesale rates. We need to eventually get those price signals out where they can be ‘acted’ on.
How about net value metering, where you still do the net thing, but you are netting the money based on TOU pricing. That way everything adjusts, and if a homeowner buys high cycle batteries for backup they might want to make a little money with it.
Yes. This too. Regulators will have to experiment to find a model that balances complexity with good-enough price signaling. IMO, everything should be on the table and pilot programs can help regulators figure this out.
Unfortunately, the politics are tricky for regulators. When the changeover happens, people who were getting subsidized under flat rate tell compelling sob stories that the media loves to run (eg grandma’s electric bill doubled because of evil regulators). Reporters covering the issue usually don’t understand the economics and don’t explain that grandma was getting a subsidy before and now is paying her fair share.
Perhaps the right transition model should include low-income and/or elderly relief to ease the pain during the transition. That’s the stuff regulators need to explore to get this to work both from an incentives standpoint and a political standpoint.
The very best solution would be to finally put a proper price on CO2 emissions. Not a fraud and manipulation sensitive cap and trade system, just a straightforward carbon tax. Feed in tariffs could than be based on the power spot market price.
Second best would be some form of a time-of-day feed-in-tariff, which would stimulate a sensible and efficient use of storage.
By the way, did I already mention that utilities should be split up, and there should be competition for production and retail?
Please don’t use the phrase CARBON TAX. Maybe carbon surcharge. Here is my reasoning. Any additional tax is one too many for many Americans. If broad action is to be taken and ground gained it will take a large collection of actors from all segments of the nation – many who won’t see past the phrase Carbon Tax. Just a view from a southern greenie. Lou Gage
It’s all too easy to gut net metering laws, even in the unfair way the utility tried to do it in Nevada recently. Meanwhile, feed-in tariffs are easily ridiculed by clean energy opponents as wasteful subsidies (while they completely ignore the direct and indirect subsidies that fossil fuels and nuclear power receive). The time horizons required for rooftop solar to pay back its initial investment are sadly a little too long for the political winds to keep blowing in the right direction, in some states at least.
Maybe this can change as the numbers and relative political power of the “solar coalition” (solar companies, local governments and home / business owners who own solar systems) increases. And if the true results of cost / benefit analyses of distributed solar become common knowledge, then that coalition would grow even larger.
It sounds like electric utilities need execs used to aggregating large populations of small producers, then brokering right back to similar populations of customers. Banks, insurance companies and other finance companies often do this; Google and other search engines too; agricultural grain and produce brokers are in this business; even Ebay and Amazon for 3rd party sales. It’s using network management to provide the dual service of matching goods-producer to goods-customer. There really ought to be some opportunities for execs from these industries to re-imagine the landscape and business model for the current (no pun intended) grid-infrastructure owners, if they can’t learn it quickly enough for themselves.
I’m sure Google will get involved in this at some point. Do you think that utilities will be capable of such a shift in attitude?
Getting the utilities to change will be difficult, but even VW and other car makers can be shamed into changing eventually.
The inheritors of their assets will, if necessary.
“So this either/or argument is the wrong way to look at the marketplace.
The real solution is to build large-scale capacity at utility grade by
aggregating those individual rooftop solar + storage systems. If
utilities are able to control a wide range of DERs and manage them as if
they were a single point of generation, you change the entire game. You
wind up with Virtual Power Plants (VPPs) that can use the combined
generation and storage capacities out there to put power on the grid and
get it to where it’s needed”
We have to combine a massive amount of solar from large and small decentralized solar power plants, and wind farms, as well as solar on homes buildings, vacant lots, brownfields, or closed landfills. It’s true we can’t put solar on many homes due to insufficient sun exposure, but we can put it on as many homes as we can. Germany gets less sun than every state in the USA, and yet they have many times more residential solar. Clearly we can do much better, but we have to start voting these greedy republican scumbags out of office, like the ones in Nevada, who forced all their solar power companies out of state, and sided with the greedy electric utilities, and imposed unfair fines or taxes on those who choose to go solar. We also need to create a national feed and Tariff law like the one that jump started Germany’s world solar dominance.
Seems to me the author fell for the either/or problem. Brian is right, that we need all scales contributing. Clearly rooftops are not going to get us much past 10% renewables, so we have to include serious in front of the meter generation as well. The size of the individual units of these plants then becomes a different issue. I suspect there will be a spectrum of front-of-the-meter generation facilities. One key is reducing the necessary paperwork for the small plants. If there is too much of it, then small (<3MW) plants may be discouraged.
Physically small rooftop is expensive per watt, so it isn't a very efficient choice.
Small rooftop is only expensive in the US due to the regulations and fees. In Germany and Australia the cost is close to half of what we pay here in the USA.
It’s not regulations and fees. It’s mostly customer acquisition cost and installer inefficiencies.
Overall, demand is too low. That means that installation companies have to go looking for customers and they can’t be efficient because they have to move their crews from one part of the city to another rather than just moving down the block.
My guess is that the issues are intertwined. The amount of red tape and long waiting times for the required paperwork will deter a lot of potential costumers, which results in a small market and thus high acquisition costs.
Minor typo, surely “Large-scale” means (>100 MW) and not (>100 GW).
Well, you’re right, of course. The trouble is convincing utility company management that they shouldn’t be *idiots*.
In New York, the Public Utility Commission ordered a complete separation of generation from transmission, which has caused the utilities to have a much better attitude.
I hope this rosy picture becomes reality in my lifetime, but I’m not holding my breath
I am skeptical of his statement that self contained roof mounted solar will NEVER happen because of the solar footprint of the home. Given the rate of change, never is a pretty strong word. It may never happen, but I don’t think it is because of lack of footprint. In our case we have 34 panels on our 2,000 sq. ft. home. They generate 15 mWh/yr. and are only 14.4% efficient and we only use about half of what we generate. We do have room to double that in terms of footprint. Also, there are some solar cells out there that now can produce at 25% efficiency. Doing the math results in an annual output of 52 mWh/yr. A home taking advantage of insulation and high efficiency appliances and low cost (if and when it comes) batteries would be able to be independent of the electric utility in a climate that only has about 20% of the sunlight that we have in the mountains of AZ. IMHO all this depends on the costs, not the technology.
Not to single your post out – but I just can’t understand this compulsion that people have to justify going off-grid. Our electrical sector was 50% publicly-owned. It is much less now that roof-top is driving privatization. If it was 100% we would not need all these maddening schemes to get fossil fuels out of our lives and to get utilities to work for the common good.
Why are people so charged up about being self-sufficient (ie, taking care of #1) when we could all be pulling together, making our renewable energy future owned equally by all, and thereby ensuring that costs will be as low as possible for everyone?
How many times need it be repeated – roof-top will, even under the best conditions, represent only a small percentage of our total generation capacity in the future? We need to be building HUGE amounts of infrastructure that is much larger-scale than rooftops. If utilities or regulations are hindering this, we simply need to change the regulations and the ownership/mission of utilities. Focusing so much on roof-top solar is distracting us – and distorting the market dynamics – from what must be our real objective: building and deploying huge amounts of renewable infrastructure at the lowest possible cost.
Roger,
I agree that centralized generation is likely to play a large role for the foreseeable future. However, we’re on the cusp of a revolution and everything is in flux. We don’t know how it ends, but the grid in 25 years will be unrecognizable from today’s grid.
For solar, every structure needs a roof and in the not too distant future, it will make economic and environmental sense to put solar on most roofs as a matter of course as part of any roof replacement job. I expect in a couple of decades, the roofing and solar industries will be one in the same and new roofs that don’t generate at least some electricity will be the exception.
So distributed generation is guaranteed to make up a sizable share of total consumption going forward. The only unknowns are what that share will be, what will make up the rest, and whether distributed storage will also play a role.
In most parts of the country, transmission and distribution costs make up 50% or more of a typical electric bill. The most efficient model probably still needs plenty of centralized generation, transmission, and distribution. But it will use distributed generation and distributed storage to keep the load on the high-cost infrastructure near 90-100% most the time. That’s much better than today’s model where we have to build lots of infrastructure to handle demand peaks that last for a few dozen hours each year, but then sit idle most of the time.
Personally, I’m expecting distributed generation and distributed storage to play a big role once this all shakes out. But the goal isn’t for each home to be an electricity island. Rather, power generation and distribution will involve all of us interchangeably delivering and receiving power to and from our neighbors.
My point was not the economics nor the political ramifications, it was mere taking exception to the statement that it was never, from a technology standpoint, going to happen. My point is the technology is here, and your point is that it may be socially unacceptable now given the reliance by many of the centralized generation.
Because greedy electric utilities have always raised prices and maintained their monopoly. Do you want to be a slave to the ever rising electricity rates these greedy electric utilities have, or do you want to save money, and produce your own power? People hate electric utility companies and if they can go off grid, save money, and produce their power, they will.
We have to focus on both. We don’t have enough land to accommodate only large solar power plants, so we must decentralize solar, and put it on every home, business, commercial building, vacant lot, brownfield, or former landfill that we can. Germany has many times more residential rooftop solar as us, even though we get much better sun exposure. We need to change this, and greatly expand solar on rooftops as well as building a massive amount of large and smaller decentralized solar power plants to feed the grid.
“We don’t have enough land to accommodate only large solar power plants”
Who is this “we” you speak of?
Roger, I agree that roof-top solar will not be the power source for heavy industry. On the other end of the spectrum, for my house, there is enough room on the roof to cover my electric usage. Perhaps 10% of the homes in the USA have similar roof-top conditions. If the installation costs for solar PV continue to decline along with storage, why would I want to continue to pay someone else if I can do it myself for less?
Going off grid is a bad fantasy. As energy becomes an information technology, offering your local resources when idle for other grid users will be invaluable. Going off grid will be as silly as saying, “I’m going off-internet, and my local computer will have all the info, capability I need.”
Tony, I have other sources for ‘information’. I scrapped my landline which was getting more fees added each month, and could do the same for the electric utility in the future. Right now, I have three sources of power available to my house: grid electric, natural gas, and solar. When one of them becomes a big enough annoyance, I will disconnect from that source. So far my solar panels have not bothered me at all, so I might increase my payment (investment) there.
I did ‘go off’ the ‘wired’ internet at home, as I get my network connection over the wireless phone. Getting off the wire does not mean you become a hermit.
With zero net energy building standards being phased in in places like CA and the EU, rooftop solar, distributed, local energy production and storage becomes much more attractive.
Here is why there is a battle over rooftop solar:
Its about capital. When a rooftop solar is installed, that is homeowner capital providing energy to the owner and the neighbors. The utility capital investment in central power generation is a stranded assets capital that is lost.
By utility reasoning, the rooftop solar owner is no longer paying their fair share, for the capital expense the utility has made. From their point of view, monopoly means they are guaranteed to be the only one investing capital.
But that is no longer true. That sets the stage for the battle. And the clash of ideas that the utility tries to turn into old think. The old think that their capital is guaranteed a rate of return. Regardless of bad investment, and regardless of competition. And that competition is not allowed.
All the talk about whether the solar investment is a good idea or lowers rates is a screen hiding these basic concepts. Solar can lower costs, but at the utility’s expense in lost profits. And stranded assets. Which the utility neatly decides should be dumped on the ratepayers instead of them and their investors. Thats where the real battle should be. The Nevada homeowners need to take their battle to Warren Buffets investor meetings. The PUC is too crony oriented.
This concept of utility hegemony is so anathema to the idea of choice and competition in America that all sides of the political spectrum can recognize it. The only ones that don’t are the ones with a vested (capital) interest in the status quo.