Thursday, June 27, 2013

Solar Panels Sound Death Knell for U.S. Utilities

Energy supply and demand has been the dominating mechanism controlling prices in the public utility sector for a century and that model is threatened by the rise in solar power and other distributed renewable energy technologies, writes David Roberts in this Grist article. Reducing energy demand and improving energy efficiency are anathema to the utilities, by their own admission, as Roberts explains. 

The "money quote" in the article, taken from an Edison Energy Institute (EEI) report, states: 
The financial implications of these threats are fairly evident. Start with the increased cost of supporting a network capable of managing and integrating distributed generation sources. Next, under most rate structures, add the decline in revenues attributed to revenues lost from sales foregone. These forces lead to increased revenues required from remaining customers … and sought through rate increases. The result of higher electricity prices and competitive threats will encourage a higher rate of DER additions, or will promote greater use of efficiency or demand-side solutions. 
Increased uncertainty and risk will not be welcomed by investors, who will seek a higher return on investment and force defensive-minded investors to reduce exposure to the sector. These competitive and financial risks would likely erode credit quality. The decline in credit quality will lead to a higher cost of capital, putting further pressure on customer rates. Ultimately, capital availability will be reduced, and this will affect future investment plans. The cycle of decline has been previously witnessed in technology-disrupted sectors (such as telecommunications) and other deregulated industries (airlines). 
The bottom line is: don't expect the public utilities to be leaders in the shift to renewable energy. It's clearly not in their financial interests to do so. 

Creative Commons photo from USFWS Mountain Prairie