Utilities traditionally have met renewable portfolio standards with power purchases from IPPs. But new approaches are allowing utilities to build their rate bases with investments in solar...
Facing Facts About Solar
Distributed solar might be a game changer, but at what cost?
My friend Reggie recently asked me for advice about installing photovoltaic (PV) panels on the roof of his boathouse on the river. It has no electricity now, but he wants just enough PV to power a few lights, an automatic garage door opener, and the occasional power tool. I told Reggie the same thing I tell everybody who asks me about rooftop solar: it's exciting but still expensive. Then Reggie explained why I was wrong
I told Reggie the same thing I tell everybody who asks me about rooftop solar—namely, PV has very exciting potential for the future, but it isn’t the most economical way to spend his energy dollar today. And that’s especially true for an off-grid system that gets little use. If he wants solar panels to support his green ideals, that’s fine. But he shouldn’t expect them to pay for themselves.
As it happens, Reggie is a green-minded person—with disposable cash—so my speech about economics didn’t deter him. And he explained that he’d already researched prices, and learned that our local Home Depot was offering to finance, install, and warrant rooftop solar systems manufactured by BP Solar at surprisingly low prices. What’s more, if he takes advantage of various incentive programs—including low-interest green loans, the state’s net-metering law, and a solar rebate offered by the local utility (Minnesota Power)—he can install a grid-tied rooftop solar system that should pay for itself in about 10 years. After that he should be in the black.
I congratulated Reggie on his research. Yet I couldn’t resist pointing out that while solar might be affordable for him, that’s only because the rest of us are helping to pay for it. Minnesota Power must maintain the grid 24 hours a day to support and integrate Reggie’s PV generation, but for every hour his panels will be generating power, his net-metered bill will subtract his share of the costs—leaving the rest of us to pick up the tab. And while the utility will finance the solar rebate programs to meet its obligations under the state’s renewable portfolio standard, it rolls those costs into everyone’s bills.
I was thinking about these facts as I was writing the CEO Forum for this issue (“Facing the Future ”). In an interview for that article, NRG Energy’s David Crane talked about the “Post-Officization” of rate-regulated utilities in a world where rooftop solar [a wholesale technology] competes against retail power prices. Crane made a compelling point, but I wonder: can we—society—accept an outcome that makes the utility grid uneconomic? While people like my friend Reggie are living the green life and showing off their solar panels, will the rest of us be content to pay ever-higher utility bills?
In the short term, I think the answer is yes. Today the costs of net metering and RPS compliance remain modest, so PV investments make sense as part of a long-term R&D effort.