Utilities Grapple with Rooftop Solar and the New Energy Landscape

The emerging U.S. rooftop solar industry is often portrayed as the victim in a struggle with fossil-fuel-friendly utilities.  But the reality is more complex, as utilities in some states are beginning to adapt to a new renewable energy paradigm.

In the prevailing narrative of the rooftop solar industry, the dominant theme is combat.  The good guys are the innovative, climate-positive, customer-pleasing solar companies, which must be nimble to avoid being crushed by the plodding, influence-buying, fossil fuel-spewing dinosaurs of the electricity industry, the utilities.

Thus The New York Times headlined a recent story, “Rooftop Solar Dims Under Pressure from Utility Lobbyists,” while a Vox headline declared contrarily that, “Utilities fighting against rooftop solar are only hastening their own doom.” 

The combat trope isn’t entirely wrong.  The utilities have successfully waged battles to squelch rooftop solar in states such as Arizona and Indiana, mostly by wielding political muscle to reduce compensation to customers for electricity fed back into the grid.  This has helped hobble solar companies, and after four years of growth that averaged 63 percent a year, U.S. rooftop solar growth dropped to 19 percent last year, and this year is projected to be flat.

But the metaphor begins to break down here, since utility company opposition isn’t the only reason for the slowdown in rooftop solar.  According to Shayle Kann, head of Greentech Media Research, a leading electricity market analysis firm, two of the nations’ three biggest rooftop installers, SolarCity (now owned by Tesla) and Vivint Solar, shifted the emphasis of their business models from growth to profitability.  In addition, in California, home to nearly half the nation’s rooftop installations, rooftop’s growth has tapered off as solar companies have run out of early-adopter customers.  In any case, the decline is almost certainly temporary: GreentechMedia projects that rooftop solar’s growth in the coming years will rebound to a healthy 10 to 15 percent annually.

The truth is that the combat analogy is misleading.  Some utilities do actively oppose rooftop solar.  But others have been immobilized by the ongoing paradigm shift toward clean, renewable energy.  And a few utilities — most notably, in New York, California, Hawaii, and Minnesota — are taking tantalizing first steps into the new realm of distributed, or decentralized, electricity generation.

“The broad characterization of all utilities acting monolithically is highly unfair, highly unsophisticated,” said Tanuj Deora, executive vice president at the Smart Electric Power Alliance, whose members are utilities learning to navigate the renewable energy arena. Most utilities are moving slowly, he says, “not because they have some hatred for rooftop solar,” but because the task of adjusting to the coming renewable energy era is profoundly complex.

Both utilities and their regulators have been slow to recognize the tidal wave coming at them. For more than a century, utilities had learned how to send electrons in one direction, usually safely and reliably, from large, centralized fossil fuel and nuclear power plants over transmission and distribution lines to businesses and homes.

Now, abruptly, their networks are being asked to accommodate electrons flowing in two directions, to and from consumers, without compromising safety and reliability, as a new generation of electronic devices enters the market. These “distributed energy resources,” or DERs, can be stationed in or near homes and businesses. They include not just rooftop solar, but wind power, batteries, electric vehicles, smart meters, smart water heaters, smart thermostats, on and on. They promise not just emission-free, fuel-less electricity, but far greater energy efficiency, thus reducing consumer costs and environmental damage. Their expanding use increasingly will determine how the grid functions.

Rooftop solar has inspired so much contention chiefly because it’s the first DER to enjoy widespread use, experiencing “the biggest, fastest adoption of these technologies,” Jesse Jenkins, a contributor to a Massachusetts Institute of Technology 2016 report, “Utility of the Future,” said in an interview. “It’s a bellwether of the broader issues that we’re going to be dealing with in the next decade.” Everything about utilities, from their rate structures to their business models to their corporate cultures, is on the cusp of change.
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No matter what rate a utility sets, net metering fosters energy inefficiency because it does a poor job of reflecting rooftop solar electricity’s varying value depending on the time and location of its generation. At the moment utilities lack the technology even to identify sites where rooftop installations would be most valuable, so they have no way to formulate energy-efficient rates. And without business models that reward them for installing tools to evaluate the value of rooftop locations, they have little incentive to act. In this way, utilities aren’t so much villains as captives of their often somnolent regulators.

“The regulators,” said Greentech Media’s Kann, “are the keys to this whole transition.”

Regulators in a few states are beginning to reshape policies accordingly. California’s Public Utilities Commission is performing the delicate task of supporting the rooftop solar industry while phasing out net metering. Two years ago it introduced time-of-use rates for homeowners with new rooftop solar panels, and will follow up in 2019 with rates that also take location into account.

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