How rooftop solar and big utilities can co-exist

A field of solar panels.

Solar installations in the U.S. jumped 15 percent in the second quarter, thanks to increasingly popular leasing programs for rooftop panels. That's good news for the environment and energy security, but not such good news for utilities.

Utility companies have enormous investments in power plants and the electrical grid, and they count on regulated monopolies to make a profit by selling electricity. At some point, enough solar panels feeding the grid from enough rooftops starts to undermine the utilities' business model. In California, the solar industry and utilities just struck a deal to keep the peace, at least for now.

At the private San Rafael Airport in Marin County, the 100 hangers hold airplanes, of course, but also some surprises.

"My father-in-law's got some of his car collections in here," says the airport's manager, Bob Herbst. "And then his fishing boat that he takes out salmon fishing in San Francisco."

On top of the hangars is another surprise: 4,600 solar panels. The airport uses some of the solar power for itself. It sells most of it to a new community power company. One megawatt's worth.

"That's enough to power about 1,200 Marin homes on a typical summer afternoon when they all are running their air conditioning," Herbst says.

Last year, that megawatt earned the airport a quarter million dollars from the new utility, MCE Clean Energy, which was created by local governments to provide more electricity from renewable sources. It's captured 80 percent of Marin County's customer base from PG&E, Northern California's utility.

So in this small corner of its territory, PG&E is one of the first big utilities to confront the solar industry's challenge to its business model.

"This is really an ongoing question, and probably the most controversial issue of all right now in the U.S. solar industry," says Michel Di Capua, head of North American analysis at Bloomberg New Energy Finance.

Solar installations don't just cut into the electricity sold by a big utility. They use its grid, and depend on its generating plants for back-up power. Non-solar customers usually carry the brunt of these costs.

California has already cut the link between electricity use and profit. If more PG&E customers install solar panels, the utility can ask for a rate hike to make up for that lost revenue.

"Our profit is not tied to the electricity we sell," says a PG&E spokesman, Denny Boyles.

But PG&E still has to maintain backup power and the grid. To share those fixed costs more evenly, this month California passed a law that allows utilities to bill solar customers an additional $10 a month.

The solar industry got a win, too: The law removes a limit on the amount of electricity solar customers can sell to a utility.

Di Capua, from Bloomberg, calls the law "the great solar compromise." But, he predicts troubled days for most other states, where the revenue of utilities is still directly tied to electricity use.

By the end of 2020, he says, solar power could sap 3 percent or more of utility sales in states including New Jersey, Massachusetts and Arizona. That might not sound like much, but it's a big deal in this industry, which is growing less than one percent a year.

About the author

Marjorie reports on energy issues.

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