Big Utilities Begin to Warm to Rooftop Solar

Power company NRG energy recently announced a major foray into California’s residential solar market, with a goal to have 35,000 to 40,000 home solar installations by the end of 2015. The development is indicative of the seismic changes underway in the utility industry. Once stodgy utilities are slowly beginning to warm up to rooftop solar.

It was only a year ago that Edison Electric Institute, the trade group for investor-owned utilities (IOUs), warned starkly that the industry faces various disruptive challenges to revenues and investor returns. And earlier this year, Barclays downgraded the bond market for the entire electric utility sector due to the dual threat of rooftop solar and energy storage to utility earnings.

IOUs long have made money by investing in centralized power plants and transmission infrastructure and then charging customers enough to earn that money back with a guaranteed return. However, the rise of distributed generation, especially rooftop solar, has poked a hole in the century-old model by shifting the balance of power to residential and commercial utility customers who can generate their own power and connect to the grid only as a convenient backup service. This reduces the returns that utilities collect, raising the specter of a utility death spiral.

A handful of big utilities have responded to the growing threat of rooftop solar by entering the market as a direct provider of rooftop solar systems. The industry’s shifting attitude—that if you can’t beat them, join them—could well make distributed solar and utilities complementary in the long run.

Arizona Public Service has proposed a $70 million plan to put solar panels on 3,000 customers’ homes in exchange for a utility bill rebate. Regulators in New York are considering a plan to allow utilities to own rooftop solar systems as part of the state’s broader plan to move toward a “Utility 2.0” model that will meet the needs of a more distributed, consumer-focused energy system. A few other companies have already started down the path this year. Direct Energy, one of the largest energy service companies, entered the rooftop solar market by acquiring the solar installation company Astrum Solar. NRG Energy embraced solar by acquiring installer Roof Diagnostics Solar.

As utilities push their way into the booming residential solar market they will have to come to some kind of truce with the solar industry which views the utility move as a deliberate effort to kill off the only competition they have ever had. South Carolina recently passed a law allowing utilities to offer solar leases. However, they cannot recover installation costs through rate increases, a condition insisted on by solar installers. 

These developments indicate a broader shift in the industry as utilities continue to explore new ways to provide enhanced services to their customers including providing energy efficient solutions and installing rooftop solar panels. While not every utility has embraced the new opportunity, the ground is already shifting and the industry will have to fully address the threat of distributed generation in the next few years in order to remain viable.