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A SEPA Perspective: Grid evolution and the double standard for utilities

By K Kaufmann

Editor’s note: Before signing on as communications manager at the Solar Electric Power Association (SEPA) last year, K Kaufmann spent eight years reporting on utilities, renewable energy and energy policies at a daily newspaper in Southern California.

It is an all-American and by-now familiar narrative: A long-established industry with a market dominated by large, profitable corporate players is disrupted by a new technology and the swarm of innovative startups that commercialized it. At first, the big guys may not take the whole thing seriously, thinking the complicated and expensive new products or services will not catch on.

But they do — at ever-accelerating speed and scale, bringing down costs. Then the industry giants start playing catch up by launching similar products and services of their own, or they acquire or partner with the startups, which in the meantime have become successful, well-established businesses.

If the big guys navigate the transition and use it to evolve and grow — retaining and maybe even expanding their markets — they are seen as smart, well-managed companies.

Unless the big corporations in question are electric utilities.

K On The Roof2
K Kaufmann, following the solar story.

In the real-time story being written about the transformation of the energy industry now underway in this country, utilities — and particularly, the investor-owned, regulated outfits — seem to be operating under a double standard. If they’re not being criticized for obstructing the expansion of rooftop solar with proposals for rate changes or extra fees on solar customers, they are being slammed for trying to control the market by starting their own rooftop or community solar programs.

Or their eventual demise is being forecast as power demand drops and customers in droves abandon the grid for solar and storage.

To a certain extent, the creation of this narrative is to be expected, particularly in the mainstream media where reporters are hardwired to be skeptical of large corporations and to look for conflict, drama and the profit motive in every move these companies make.

What is being missed here is a shifting, complex but equally compelling story that needs to be told, well and clearly, so it can be understood by the American public and all the players in energy markets.

The transition in our energy system — toward cleaner, renewable and more distributed energy production and consumption — is occurring on a regional basis. Different time frames, business models and regulatory approaches and policies are being adopted in individual states.

And while utilities of all stripes — investor-owned utilities (IOUs), public power companies and electric cooperatives — increasingly understand the need for change, they have a wide range of comfort levels and degrees of willingness to fully engage with the process.

But the underlying reality is that consumers, utilities and other energy industry players are all, to varying extents, now operating in a hybrid energy system. Solar, wind and other distributed energy resources (DERs) — an umbrella term for storage, efficiency and conservation technologies — are being integrated into a power grid with a basic structure that has not changed in more than 100 years.

The speed and intensity of innovation continues to accelerate. But, in a consumer culture where affordable, 24/7 power at the flick of a switch is considered a basic right, the legacy model of large power plants and a one-way grid still delivers the reliability customers expect.

It isn’t going to disappear. It will evolve into an interactive platform through which utilities and other companies can leverage increased value by offering consumers a range of energy services.

The current debates over net energy metering and utilities’ entry into the residential rooftop solar market, while important in and of themselves, point to some of the core issues that will require long-term solutions.

Of course, customers with rooftop solar should be compensated fully and fairly for the excess power they feed into the grid. The larger operational and social benefits this power can provide must also be recognized. But how to value the costs and benefits and determine appropriate compensation going forward is, like everything else in the industry, changing and uncertain.

Is the primary purpose of net metering to provide that full and fair compensation or is it an incentive, intended to offset the upfront costs of installing a system? Utility concerns about the current practice of net metering at full retail rates — that it can result in shifting of costs for grid operation from solar to nonsolar customers — are rooted partly in outdated rate designs and partly in that question of policy objectives.

Both net metering and utility participation in solar markets also call into question the regulatory compact under which IOUs receive approved rates of return on their investments in generation plants and transmission infrastructure. To what extent the IOUs can and should remain regulated monopolies — and what parts of their business they will have to open to market competition — are questions that will likely have different, regional answers.

With so many issues in flux, at this point only a few things can be said with any degreee of certainty.

The role of utilities is going to change, but so will the role of the solar industry, which for the most part also happens to run on the profit motive. Hopefully, the changes will occur on a level playing field in which varied stakeholder interests are balanced and the common goal is to produce clean, affordable, reliable and sustainable power for all.