Solar power won’t kill the utility industry, but solar power plus storage might. Once people have the ability to reserve electricity produced on their rooftops, not just generate it, they’ll need utilities less than they do today. And that, in turn, is likely to make the utility business–at least as it exists now–less attractive to investors.
That’s the upshot of a report from the Rocky Mountain Institute, a think-tank that analyzes the future of the energy system. The report posits that the combination of solar panels plus home battery systems–like the one Tesla is now rolling out–represent a “utility in a box.” Some customers may leave the grid completely; many more are likely to dial down on how much grid power they use.
RMI looked at five markets (Honolulu, Hawaii; Los Angeles, California; Louisville, Kentucky; San Antonio, Texas; and Westchester, New York), compiling data about current solar installation rates, solar resources available, and projected future costs for solar power and conventional electricity. The organization then modeled four scenarios, including one where the cost of solar continues to fall fast, and others where there are improvements in energy efficiency.
The report finds that solar-plus-battery costs are already equal or lower than conventional electricity in some states like Hawaii. Others, including California and New York, are set to reach “grid parity” in 10 to 15 years. The key point is this: 10 to 15 years is less time than the typical economic life of centralized power plants and transmission infrastructure (30 years). So, utilities making those investments don’t have time to get repaid–at least not without raising prices still further.
“Such parity and the customer defections it could trigger would strand those costly utility assets,” the report says. “Even before mass defection, a growing number of early adopters could trigger a spiral of falling sales and rising electricity prices that make defection via solar-plus-battery systems even more attractive and undermine utilities’ traditional business models.”
RMI expects utilities to lose millions of dollars going forward. For example, in the Southwest and Mid-Atlantic markets, it says more than half of all commercial customers could beat conventional electricity prices with their own solar+battery combos by 2024. That means three million customers, and revenues currently worth more than $22 billion a year. In the Northeast, sales to residential customers could drop by 50% by 2030, it says.
While some revel in the death of the utility industry, RMI isn’t one of them. It thinks we need these companies to build out infrastructure and maintain reliability. But the organization also believes the current utility model is unsustainable and that utilities aren’t helping their long-term prospects by blocking moves to distributed generation (for example, by charging extra fees to hook up solar panels).
Instead, it hopes utilities will see the benefit to integrating solar, then work with regulators, technology companies, and customers to make better arrangements for everyone. Better to ride the wave than fight it.