Four Ways The Solar Boom Has Rattled Utilities

The U.S. boom in solar installations has disrupted revenue, workflow, and forecasting at large utilities, according to utility consultants, partners and affiliates who gathered this morning in Chicago.

Solar power installations grew by 76 percent in 2012, according to the Solar Energy Industries Association, and the U.S. is expected to add as much as 5 gigawatts to its 10 GW of solar capacity this year.

"The solar market is growing year over year at a pretty incredible clip," said Bradley Klein, an attorney with the Environmental Law and Policy Center in Chicago. "At the same time the cost of solar—both panels and installations—is falling rapidly."

Solar power is becoming much more cost effective because of technology improvements, growth in manufacturing capacity, greater experience in the industry, and more competition, Klein told about 60 people gathered at the Illinois Institute of Technology for the Great Lakes Symposium on Smart Grid and the New Energy Economy.

"This represents kind of a game changing scenario from the utilities' perspective," added Jeff Smith of West Monroe Partners, a consulting firm that serves utilities.

Utilites are grappling with the following major disruptions, according to the symposium panelists:

1. Lost revenue: "Large utilites are seeing erosion in their revenues due to a couple of things: distributed generation (in which) customers have decided to put in generation at their own locations; and also in deregulated markets, a lot of their revenues are flowing out the door to retail energy suppliers," said Jeremy Jones, the chief technology officer for SoCore, a commercial solar installation company.

Utilities have responded largely in two ways, Jones said: by beginning to shift from variable electricity rates to fixed rates that will cover their cost for delivering electricity. And by buying up the solar companies that are eating into their revenues. For example, Edison International purchased SoCore this year, and NextEra and George Power have recently purchased solar companies.

2. Increased Paperwork: "Another factor is the sheer volume of applications for solar that arrive at the front door of both cities and utilities as demand ramps up for these kinds of technologies," said Jeff Smith of West Monroe Partners. When residents install solar panels at home, they typically have to submit applications to the local utility and the local government. Residential systems represent 20 percent of the nation's solar capacity, Smith said, but well over 90 percent of the applications that cities and utilities see.

So solar application processing has become a significant new business at large utilities, which must process them within a regulated time frame.

"This is also not just a capacity problem, it's a volume, pain point for them at the front door."

3. Forecasting: "Distributed generation, whether it's wind or solar, has a high real-time variability based on weather conditions," Smith said, yet utilities have to be able to forecast supply and demand when they make financial decisions. "So this is a real challenge that the utility audience is thinking about as solar energy deployment scales."

"From the forecasting perspective it's an economic issue, each utility has to have accurate customer-load forecasts, whether they're a power trading desk ... or they're actually trying to avoid a penalty from excess purchases. Having a real time visibility into the solar deployment is really important to the utility stakeholder."

Forecasting becomes increasingly difficult as distributed generation spreads in the U.S., but it also becomes increasingly valuable:

"We're seeing this in certain parts of the U.S. now, but it's going to come to the point where everwhere is looking at the value of understanding and managing how distributed solar occurs over time."

4. Asset and Data Management: As new solar installations come online across the grid, they have to fit smoothly into the utilities' existing infrastructure: the meters, the distribution network, the billing center, and every department that may interact with the customer, a customer who now not only consumes power, but generates it and sells it back.

Other points raised by the panelists:

• Although Solar Power is booming in the United States, it's doing so largely in a small number of states, led by California (with 3,761 MW), Arizona (1,250), and New Jersey (1,119). Those three states accounted for about half of U.S. solar capacity in 2012, and the top ten states account for about 80 percent.

• The Federal Residential Renewable Energy Tax Credit is scheduled to decline in 2016, but Jones said he thinks the solar market will be mature enough by then to adapt and continue to thrive. "We don't think it's going to be a major challenge because we think that the market's going to get to the place where it can continue to grow."

The cost of solar power has declined from $5 or $6 per watt in 2008 to $2, Jones said, and some experts forecast it will drop to as low as 30 or 40 cents per watt by the time the tax credit expires.

"This is no longer sort of the bleeding edge technology or niche market," Klein said. "This is considered big business now and it's continuing to grow."