Solar Village

Deck: 

Combined efforts bring mutual benefit.

Fortnightly Magazine - January 2011

CEOs who lead today’s electric utilities, solar equipment manufacturers, and solar project developers are learning the value of collaboration.

A variety of collaborative business models have helped drive tremendous growth in solar power, even in the face of economic turmoil and lower demand for energy. Though electricity use was down 4.2 percent in 2009 compared to 2008, overall solar capacity grew by 37 percent. Capacity at the 10 utilities with the most solar in their service territories climbed 66 percent.

In light of this information, it’s no surprise that a vice president of one of the largest banks responsible for investments in renewable energy told me that he expects five of his 10 biggest competitors in search of solar investment opportunities to be utility holding companies.

Collaborative Models

A recent study by the Solar Electric Power Association (SEPA), Utility Solar Business Models Phase II: Developing Value in Solar Markets, examined a multitude of business models that utilities are pursuing in their efforts to develop solar power generation capacity. The report confirmed that regardless of what drives the action—state regulation, federal policy, economic reality—collaboration between utilities and the solar industry is now becoming prevalent. These expanding definitions of utility solar business models represent a significant potential for solar market growth, and provide paths for others to follow. Some examples:

• Public Service Electric & Gas in New Jersey and Petra Solar formed a partnership that will install smart-grid-enabled, 200 watt panels with microinverters on 200,000 utility poles totaling 40 MW in capacity. The equipment is provided by Petra Solar but owned and installed by the utility.

• Salt River Project, one of the largest public power utilities in the United States, partnered with Stirling Energy Systems and Tessera Solar to launch the first commercial-scale dish stirling plant in the world.

• Arizona Public Service developed the APS Qualified Solar Installer (QSI) program. The program is designed to make it easier for APS customers to identify a solar installer who holds the applicable license; is knowledgeable of system design and installation practices; understands APS policy and procedures; and has high customer satisfaction ratings. In turn, the APS QSI program allows installers to be distinguished in the market and build their customer base. The program provides benefits to the installer community including supplemental training, access to solar advertising funds, customer referrals, and many other benefits.

• Southern California Edison, in partnership with multiple companies, completed the initial rooftop projects that are part of its 250 MW, utility-owned rooftop program. SCE also began purchasing the output of the 21 MW PV plant developed by First Solar and owned by NRG Energy.

• Pacific Gas & Electric, like many other companies, is taking a portfolio approach to solar rather than putting its eggs all in one basket. While the regulated piece of the business is pursuing a combination of purchase agreements, utility-owned solar and customer-owned solar, the parent holding company is foraying into investing in solar projects installed by independent solar companies. So far PG&E has invested $160 million in projects being installed by SolarCity and SunRun, companies operating in multiple states that offer solar lease and PPA options, largely in the residential market.

Allocating Benefits

Even utilities that proactively want to engage in solar activity encounter challenges, since all utilities operate within bounds established by higher authorities, whether a public service commission, a city council, or a co-op board.

One challenge is how to assign stakeholder impacts: who benefits from utility solar activities, who pays for them, and how benefits and costs should be allocated among different stakeholders and utility customers. This challenge isn’t uncommon for utilities, of course, and certainly isn’t unique to solar programs. Many proposed programs have been declined by higher authorities as a result of these concerns, so addressing them in advance is an important key to success.

Utilities struggle with the issue of revenue erosion as well. Customer-owned solar capacity feeds into the problem. Why should a utility encourage customers to generate their own electricity without a clear value proposition? Though it’s been implemented in only a handful of states and remains controversial, decoupling—or separating profits from sales—might represent a partial solution. Perhaps the most productive path forward is for the solar and utility industries to identify win-win business models that create the necessary value proposition for utilities. They can also work together to help educate regulators about policy changes that create an incentive rather than a disincentive for utilities to implement solar programs.

As former Chrysler executive Thomas Stallkamp said, “The secret is to gang up on the problem, rather than each other.”

Technology Path

Two areas of opportunity exist where more collaboration would have a positive end result for everyone’s solar energy goals: smart grid and storage.

The term “smart grid” has an elusive definition. It’s complex, and if you ask 100 people, you’ll get 100 variations on the answer. But utilities are already collaborating quite effectively with various smart grid technology players, while solar companies are more frequently sitting on the sidelines.

During a recent SEPA trip to Japan with 18 utility representatives, individuals from utilities, government agencies, and solar companies all independently voiced a similar perspective. To paraphrase, they said, “In the United States, you talk about the smart grid as a way to improve reliability, to improve customer satisfaction and to reduce rates. In Japan, we talk about the need for a smart grid, too. But the only reason we talk about it is because it’s the enabler to reach our goal of creating a low-carbon society. A smart grid will allow us to integrate far more solar electricity.”

With some exceptions, in the United States smart grid conversations frequently downplay or even ignore the significant role it can play in helping meet clean energy goals. If the solar industry can work in close collaboration with the utility industry to define this value and draw clear parallels for regulators between the smart grid and the ability to meet renewable portfolio standards, utilities and the solar industry will both benefit. Proactively seeking partnerships and collaborations will result in a grid well suited for our modern energy needs.

Electric power storage is another area of collaboration that could add to the effectiveness of renewables. Solar production frequently follows peak closely, but not always and not perfectly. So the ability to store the output of a solar plant to serve peak demands as well as to provide backup power significantly increases solar energy’s value to the utility. The development of storage technology solutions is yet another huge collaborative opportunity for the utility and solar industries.

Both the utility and solar industries are still far from reaching their goals, and we’ve still only scratched the surface on the potential of solar energy in the United States. As SEPA’s Utility Solar Business Models Phase II study shows, collaboration and business model innovation will be part of the solution.