When the world wide web first came onto the scene, the dominant supplier of proprietary software, Microsoft, was forced to adopt the internet to stay relevant. Could there be a lesson here for utilities grappling with the disruptive nature of distributed technologies like solar?
Much like tech companies of the 1990s, utilities face an “unavoidable shift” and don’t have any choice but to embrace distributed solar, argued executives from Clean Power Finance in a webinar recently hosted by the Solar Electric Power Association. Given that Clean Power Finance operates online exchanges for distributed solar financing, it shouldn’t be surprising that the company is bullish on the potential of utilities and distributed solar.
Still, the discussion unearthed some of the issues that have made many utility executives uneasy about the rapid rise of distributed solar. It’s a dynamic that has led to reviews of net energy metering laws in California and Arizona and much discussion over whether power providers will be marginalized as more consumers adopt distributed energy.
In an attempt to define and understand these changes, Greentech Media also released its grid edge concept this week, which categorizes the shifts in hardware, services and business models in the power sector.
No one disputes that the prospect of smaller electric bills or even losing customers outright could be deleterious to utilities. But how do these companies, many of which are investor-owned, actually make money in distributed energy? It’s an important question to all electricity users since utility bills help pay for the upkeep of the physical infrastructure — the poles and wires that bring power to homes and businesses. Without viable business models, utilities could struggle to fund operation of the grid which, in many cases, needs upgrading today.
Kristian Hanelt, senior vice president for renewable capital markets at Clean Power Finance, laid out three possible business models for utilities to profit from distributed solar.
1. Utilities invest in residential solar outside of their regulated territory. Much like a utility invests in centralized power plants or wind farms, it can invest in many rooftop solar installations. The advantage is that the utility now has a relationship with a new customer to whom it can sell additional services.
2. A utility owns distributed solar assets in its own territory and earns a return as it would on other investments. The utility could purchase solar from an independent power producer and resell it to the consumer at a profit in some cases, according to Clean Power Finance. The utility has a low cost of capital and is a trusted and known brand compared to solar installers or financiers, Hanelt said. This could also help meet renewable portfolio standards.
3. The third model is one where the utility offers solar as part of a “value-added service model,” in which solar is a “gateway” via which to upsell other technologies, such as EV charging stations or smart thermostats.
The utilities that actively explore new business models in distributed solar, rather than fight them, will benefit the most because they’ll have a lead on others, Hanelt argued.
There are already a handful of examples of utilities getting their feet wet in distributed solar. This summer, Edison International announced plans to buy solar installer SoCore, and NextEra Energy Resources bought Smart Energy Capital, which offers solar financing. Also, Duke Energy invested in Clean Power Finance this summer.
Judging from the questions posed during the webinar, it’s clear that embracing distributed solar is more complicated than partnering with an existing solar company. One questioner noted the difficulty of selling a product — that is, distributed solar — that eats into revenue a utility earns from its existing service. A number of participants also noted that it’s still not always clear to regulators whether distributed solar is covered under the monopoly that utilities are granted.
The questions underscore one of the big differences between technology disruption in electric power compared to other industries. Unlike IT, for example, the utility industry is highly regulated, which means incumbents don’t have the same flexibility to change. At the very least, it suggests the industry will change slowly as the business models and regulations change to fit new technologies.
Lyndon Rive, the CEO of solar installer SolarCity, said that utilities can participate in distributed solar in a similar way to how they do business now — that is, investing in power assets and earning a return on equity. But it needs to be done on the deregulated side of the business for that to work. Utilities could invest profits from the regulated side of the business to expand into distributed solar and take on new customers, Rive said.
For now, though, few utilities are actively participating in distributed solar. That means those companies trying to square their current business models with distributed solar need to get it right.
Photo Credit: Solar Energy Models/shutterstock
Greentech Media (GTM) produces industry-leading news, research, and conferences in the business-to-business greentech market. Our coverage areas include solar, smart grid, energy efficiency, wind, and other non-incumbent energy markets. For more information, visit: greentechmedia.com , follow us on twitter: @greentechmedia, or like us on Facebook: facebook.com/greentechmedia.
Leave a Reply
21 Comments on "3 Models That Could Help Utilities Make Money From Solar Energy"
You must be logged in to post a comment.
You must be logged in to post a comment.
“ it [utility investment in distributed solar] needs to be done on the deregulated side of the business for that to work.”
Right, under the regulatory scrutiny of a public utility commission, the truth about the high cost of distributed solar (compared to utility scale solar, and most other energy sources) would be harder to hide. As usual, the most recent data from the Solar Energy Industries Association shows that residential solar is over twice the cost of utility scale: $4.72/Watt versus only $2.04/Watt; furthermore, SEIA data shows that 4 of the top 5 solar states (California, Arizona, Nevada, and North Carolina) have been high successful by deploying the majority of their solar at utility scale. Utility scale wind power has been below $2/Watt for years, and delivers higher capacity factors than solar in most locations.
The anti-establishment/consumer-empowerment idea is so compelling that the public wants to believe the roof-top solar lobbyist; but as the solar industry grows the costs will get harder and harder to hide.
As the rooftop industry grows, the costs should go down to where it is more competitive with utility scale. Compare costs in the USA with Germany.
The utilities can lead, follow, or get out of the way.
Perhaps a communication grid analogy is useful.
AT&T was more than willing to add new services with new devices. Bell Labs even had the Unix operating system to run it, for free. Device makers like Motorola and Intel and IBM joined in. Earlier device makers like Western Electric faded. Grid software was a public/private venture. Apple was on the brink when they became an AT&T device maker. Steve Jobs needed the grid for his innovative designs. New grid vendors have emerged.
As an energy grid device maker you need to find a way for your services to fit the grid. Asking the grid to fit you and finance you for whatever reason or plan you have is a lot to ask. A little cooperation goes a long way.
Yes, the residential-utility cost gap should narrow somewhat, but there will remain other factors that favor utility scale:
So Germany favors rooftop solar of households (<10KW) with higher FiT’s (13cnt/KWh versus 9cnt/Kwh for solar until 10MW and no FiT for bigger solar).
And it grants batterie storage subsidies only to smaller (household) solar installations.
Distributed production, preferable at or near places of consumption, delivers superior reliability as shown by the reliability statistics of Germany.
With the grow of electricity produced by distributed renewable, the av. total outage time of customer connection went down from ~30min/year to ~15min/year now!
UK, France have ~60min/year.
In USA, excluding outages due to special weather (extreme cold, hurricanes, etc.), the reliability of electricity delivery is 8 times worse, with ~120min/year outage.
I think you might be focusing on the wrong metrics. My hometown has lots of thunderstorms which cause many power outages per year. Most people I know don’t even bother to buy Uniterruptible Power Supplies for their computers, because an hour or so of power outages per year is not that big of a deal.
We need to focus on replacing fossil fuel use for low cost and low environmental impact.
“We need to focus on replacing fossil fuel use for low cost and low environmental impact.“
Agree, so we should follow Germany asap.
Germany has not yet demonstrated themselves to be on a viable path. The only developed countries which have actually succeeded in decarbonizing their electric grid (France, Sweden, and Switzerland) have done so using a combination of nuclear power and hydro.
It is certainly possible that Germany’s Energiewend will lead to an equivalent low-carbon result. However, it depends on future breakthroughs and cost reductions which cannot be guaranteed, and it will take decades before we have an answer.
The minimum risk path is to rapidly grow our nuclear fleets, and in parallel, slowly grow our solar and wind deployments. Without large amounts of flexible generation (fossil fuel) to support the variable renewables, there will be more pressure to deploy renewables with energy storage (this is good, since storage is needed anyway to build a low-carbon grid that is rich in renewables).
The renewables without nuclear path is environmentally reckless, due to the liklihood of locking-in a 70% fossil fuel backup system.
Bas Gresnigt – You mean follow Germany who is building more coal fired power stations?
“…minimum risk path is to rapidly grow our nuclear fleets, and in parallel, slowly grow our solar and wind deployments…“
Nowadays:
So for the same money a 1GW nuclear plant produces 1MWh, renewable produce 3MWh.
Or with the same amount of money, nowadays the switch goes 2-3 times faster with renewable than with nuclear.
With renewable implementation takes less than a year. So the transition is already 9 years going on before the first nuclear plant become operational.
Agree installation of nuclear plants went faster in the past. That was possible as basic security levels were/are unacceptable low.
E.g. the EU stress test in 2011/12 had to restrict itself to a light sportsplane (piper cub) flying at cuise speed only, because no NPP in the EU can withstand a nornal plane…
“… liklihood of locking-in a 70% fossil fuel backup system.“
There are quite a number of countries and islands that show renewable can deliver 100% reliable electricity, without fossil backup. Check e.g. El Hierro, Iceland, etc.
Please provide references for your claims that renewables are cheaper than nuclear. Keep in mind that sources that specialize in anti-nuclear proganda are not considered reliable by anyone outside of the anti-nuclear community; unlike utilities who report to share holders/regulators and researchers who’s work is peer-reviewed, activitsts are accountable to no one. For example the US EIA uses data from actual utilities who are building the plants.
Certainly individual solar or wind installation can be built in a year. Large deployments, on the order of 50% of the grid demand, will take decades because of the need for infrastructure, no matter the technology.
I don’t dispute that some small locations can go 100% renewable using hydro and geothermal (i.e. these dispatchable and baseload energy sources are essentially “conventional energy”). Biomass burning is a crime against nature when used at large scale. Please provide references that show grids that have high penetration of solar or wind, with little or no use of fossil fuel. This distinction is extremely important, since solar, wind, and nuclear power are the only sustainable energy sources which are scalable enough to provide all of humanity’s current energy needs.
Bill,
Germany increases the share of electricity produced by reneable each year ~1.5% (now 23-24%).
That implies that fossil, incl. coal, goes down.
As shown by the figures and explained here.
They build new flexible more efficient coal plants, to replace the old base load plants as there is no place for any base load plants in the coming decades.
This graph shows that even in the last 6 years all fossil burning, incl coal, went down despite closing 8 NPP’s.
Nathan,”…references for your claims that renewables are cheaper than nuclear.”
I showed that here, at TEC forum, already 2 times.
Just check compare the strike price of ~£115/MWh in 2023 during 35years going up with inflation of Hinkley UK, with the (expected) FiT’s of Germany in 2023.
Note: the UK stated strike prices for solar and wind will never become reality as there will be auctions for an restricted amount of money (MWh). A matter of deception in the original UK government document.
“small locations can go 100% renewable using hydro and geothermal”
Check El Hierro.
Only wind + (pumped) storage.
No hydro, no geothermal.
I expect solar + batteries will be added.
Again, I reject the logic of that argument, as being an improper use of inflation adjustment. Also, the future (expected) FiT applies to future installation. Future nuclear plants will also be cheaper, so that is not apples-to-apples.
Moved to a new thread for width.
The advantages of rooftop (or backyard) are that I’m avoiding buying power at retail cost, and if I have a battery backup I can go through outages.
Yes, that has been true due to the “net metering” incentive that were put into place to help solar power advance; solar was treated like efficiency, if you used less energy, you also paid less for grid service and capacity. But now that solar is growing in popularity, in more and more areas, rate plans are changing so that homeowners will pay a larger fixed charge and have a lower per kWh charge.
Adding a couple of hours of batteries to solar systems is a great way to make them more “grid friendly”; I think Germany is now starting a plan to incentivise this. If you want to make the battery even larger (or deep cycle it, which shortens its life) to ride through outages, then you might want to think carefully about the cost/benefits of this. Also, batteries tend not to be very environmentally friendly.
“… I think Germany is now starting a plan to incentivise this..”(batteries by consumers)
They did last summer, subsidizing batteries if there is a roof top solar installation <10KW.
The subsidy is ~30%, and a huge success.
Take the fast price decrease of batteries one may expect that all new rooftop solar installations will get batteries. In 2020 even without any battery subsidy.
“…rate plans are changing so that homeowners will pay a larger fixed charge…“
Considering the price decrease of batteries, that will imply that more homeowners will cut their connection with the grid…
Bas, regarding the 100% renewable electricity project at El Hierro, Canary Islands:
Ok, good example; their situation has many unique factors that facilitated the system. According to this article, their system costs about US $8 per peak Watt ($20/W avg?), and was 50% paid for by a European Union subsidy. The energy produced will replace the expensive output of an oil-fired diesel plant (which will be retained for backup, according to this flyer). The pumped hydro system uses a 700m path along an extinct volcano (with a naturally occurring bowl on top), and can carry the load for 7 windless days (flyer). 20% of the electrical demand is a dispatchable load – water desal. The peak load, 11 MWatts, is too small for nuclear. The project is centrally owned and managed (government plus private investors). So all we need is a 4x reduction in the cost of pumped hydro (plus a lot of new mountains) for the world to follow this model.
So, back to the topic of the post: utility business models. If they adopted net-metering (with no fixed grid charges), electricity users could generate all of their electricity with rooftop solar, and the grid could provide free energy storage and diesel backup. If everyone went solar, the utility could build a new business around government subsidies which could keep the grid working. Utility ownership/investment in the distributed solar (as suggested in the article) doesn’t help much, since it would not address the core issue that net-metering users are not helping to pay for the grid itself (in this system upgrade, the electrical generation from wind, at about $2/Watt, is only about one quarter of the total cost of the system; and the existing transmission & distribution network costs extra too).
“If everyone went solar, the utility could build a new business around government subsidies…“
If that happens we have a paradigma change, as then solar would produce far more than the grid needs during day-time. So that is a new situation.
It is ridiculous to assume that with the present low penetrations of solar.
Now solar mainly helps the grid as it shaves the peaks off (which are during the day; check at Fraunhofer), hence less peak-load for the high capacity lines between power plant and local distribution network and less peak-load for the power plant.
El Hiero. Yes it is small scale, but big scale (=cheaper) will follow as more countries are on the road towards 100% renewable. E.g. Scotland and Denmark.