Rooftop Solar’s Threat to Utilities by the Numbers

A Berkeley Labs study finds that just a little distributed solar eats a lot of utilities' earnings. Is this what the "utility death spiral" looks like?

3 min read
Rooftop Solar’s Threat to Utilities by the Numbers
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The rise of rooftop solar has resulted in a catchy phrase—the “utility death spiral”. It's the idea that utilities will be put out of business by distributed energy. A Lawrence Berkeley National Laboratory study confirms utilities in the United States do have reason to worry but finds that changes to regulations could make solar and utilities friends, rather than foes.

If 10 percent of generation came from rooftop solar, shareholder earnings could fall more than 40 percent.

Right now, it's hard to imagine why utility executives worry at all about distributed solar. Even with a rapid spread over the past five years, distributed photovoltaic generation is only about 0.2 percent of U.S. electricity supply and is only one or two percent in states with solar-friendly policies.

Yet the rise of distributed solar has kicked off fierce debates and utility-backed efforts to dismantle net energy metering, which allows consumers to gain credit for excess solar power they generate. One often-quoted utility industry white paper called distributed energy “disruptive” to the industry’s business models.

Intuitively, that makes sense: if consumers offset their electricity bills with rooftop solar, they pay less to utilities, particularly during peak hours when power can be more expensive. Taken to its extreme, it's conceivable for people to rely on solar energy and, perhaps with the aid of batteries or natural gas generators, to cut their ties from electric utilities altogether.

Yet even a modest penetration of distributed solar bites into the earnings of utilities, the Berkeley Lab study found. If distributed solar photovoltaic adoption rose to the equivalent of 2.5 percent of utilities’ retail sales, it would cut shareholder earnings by 4 percent. Meanwhile, the impact on electricity rates for consumers was minimal—only 0.1 or 0.2 percent increase. As solar penetration goes higher, the economic impact rises along with it. In a scenario in which 10 percent of generation came from rooftop solar, the reduction in shareholder earnings ranged from five to more than 40 percent.

How much solar affects earnings depends on the type of utility, according to the Berkeley Lab study. In its analysis, it created two models for utilities. One is a vertically integrated utility in the Southwest United States that owns power generation and the physical network. The other is a "wires-only" utility in a deregulated market in the Northeast United States.

Solar reduces the amount of money utilities need to pay for fuel to generate power, but those savings are offset by “revenue erosion” from lower sales and from deferring investment in poles, wires, and other infrastructure. Wires-only utilities, many of which are in solar-friendly states in the Northeast, are more financially vulnerable because they have fewer opportunities to invest in power generation and transmission to earn revenue, the study's author's said.

The Berkeley Labs authors concluded that incremental changes to the regulations that govern utilities could address the economic dislocation caused by distributed energy. For example, utilities could charge higher fixed monthly fees and rely less on kilowatt-hour sales. Utilities could also own distributed PV systems or have customer solar count toward state renewable portfolio standards, which mandate that a portion of their energy come from renewables.

“One important contribution of this work is to highlight the degree to which the impacts of distributed PV on utility shareholders and ratepayers can depend on particular details of the utility’s operating and regulatory environment,” co-author Andrew Satchwell said in a statement.

The Berkeley Lab study is important because it tries to find solutions to how utilities can earn money in a world with more distributed solar. Some people may want to completely disconnect from the grid but it’s worth noting that utilities provide a good deal of benefit to solar owners. Grid-connected solar PV systems effectively use the grid as a big battery, absorbing excess power without having to purchase actual batteries or back-up generation. At the same time, it seems fair to recognize the value of solar to the grid as a whole, such as reducing peak demand and lower fuel costs.

It's unlikely that this debate will cool off anytime soon. Another Berkeley Labs study published this month found the price of residential solar continues to drop and, as installation costs come down, solar is poised to continue growing in the years ahead.

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Smokey the AI

Smart image analysis algorithms, fed by cameras carried by drones and ground vehicles, can help power companies prevent forest fires

7 min read
Smokey the AI

The 2021 Dixie Fire in northern California is suspected of being caused by Pacific Gas & Electric's equipment. The fire is the second-largest in California history.

Robyn Beck/AFP/Getty Images

The 2020 fire season in the United States was the worst in at least 70 years, with some 4 million hectares burned on the west coast alone. These West Coast fires killed at least 37 people, destroyed hundreds of structures, caused nearly US $20 billion in damage, and filled the air with smoke that threatened the health of millions of people. And this was on top of a 2018 fire season that burned more than 700,000 hectares of land in California, and a 2019-to-2020 wildfire season in Australia that torched nearly 18 million hectares.

While some of these fires started from human carelessness—or arson—far too many were sparked and spread by the electrical power infrastructure and power lines. The California Department of Forestry and Fire Protection (Cal Fire) calculates that nearly 100,000 burned hectares of those 2018 California fires were the fault of the electric power infrastructure, including the devastating Camp Fire, which wiped out most of the town of Paradise. And in July of this year, Pacific Gas & Electric indicated that blown fuses on one of its utility poles may have sparked the Dixie Fire, which burned nearly 400,000 hectares.

Until these recent disasters, most people, even those living in vulnerable areas, didn't give much thought to the fire risk from the electrical infrastructure. Power companies trim trees and inspect lines on a regular—if not particularly frequent—basis.

However, the frequency of these inspections has changed little over the years, even though climate change is causing drier and hotter weather conditions that lead up to more intense wildfires. In addition, many key electrical components are beyond their shelf lives, including insulators, transformers, arrestors, and splices that are more than 40 years old. Many transmission towers, most built for a 40-year lifespan, are entering their final decade.

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