SOLUTION: SOLAR ENERGY AND UTILITIES

There is a proliferation of investment – big investment – in solar power plants and big solar panel installations. They are predominantly in the U.S. Southwest, the Middle East and Mediterranean regions but there are also such projects in the Mid-Atlantic and New England areas.

Now comes this landmark study on what business practices facilitate the best relationship between utilities, solar energy producers and electricity consumers. It is by the U.S. Department of Energy (DOE) - on behalf of its Solar America Initiative - and the Solar Electric Power Association (SEPA).

Implication: A change is coming.

The solar industry is already in the process of vertically integrating. Big corporations are expanding their capacities to cover every area of production from raw materials like silicon and thin film elements to the manufacture and installation of solar panels.

This study suggests the next step in solar power plants is utility ownership. And not just solar power plants. It appears the utilities are thinking in terms of controlling as much solar energy-generated electricity as they can. The day may be coming when distributed individual solar projects will comprise something like what the wind industry now calls "small" wind, a significant industry in itself but a sideshow to the big, energy-owning corporate-utility entities.

The goal of the DOE/SEPA study was to transform what the study refers to as a potential “threat” to utilities - customer-sited solar generation - into “opportunity” for all stakeholders (utilities, investors/owners, customers) by finding utility business approaches that are cost-effective, where “net benefits equal or exceed their net costs for each group…” SEPA and DOE want business models they describe as “win/win/win solutions” where everybody benefits and nobody is harmed.

The study concludes utility ownership of solar generation, whether in the form of central power plants or a million solar roofs, is the closest model to that "win-win-win" concept: Solves the problem of financing solar installations, eliminates the need for feed-in tariffs, and presumably requires continued regulation of utilities by public commissions.

The study presents 2 other, competing concepts: (1) Utility financing of distributed, privately owned installations; and, (2) agreements for the utility to purchase electricity output from distributed systems. Neither of these, according to the study, suit the “win-win-win” idea. Right - they seem to offer independent solar system owners advantages over the utilities.

This isn't only for rooftops anymore, Toto. (click to enlarge)

Utility Solar Business Models; Emerging Utility Strategies and Innovation
John Nimmons and Mike Taylor, May 2008 (U.S. Department of Energy and Solar Electric Power Association)

WHO
Sponsors (U.S. Department of Energy (DOE)/Solar America Initiative; Solar Electric Power Association (SEPA)); Study authors (John Nimmons, President, John Nimmons & Associates/Sustainable Energy Strategies; Mike Taylor, Director of Research, Solar Electric Power Association); Affected parties (U.S. investor-owned utilities (IOUs) and publicly-owned utilities (POUs); solar energy industry designers, manufacturers, distributors, integrators, vendors and installers; New Energy finance specialists (advisors, investors, money managers))

WHAT
Utility Solar Business Models; Emerging Utility Strategies and Innovation is a new report from SEPA and DOE/Solar America Initiative where the relationship between utilities and solar energy is and where it needs to go.

click to enlarge

WHEN
This is the first study of the relationship between utilities and solar power plant developers. It has just been released.

WHERE
In IOUs and POUs, considerations differ. The study examines how and where those differences apply.

WHY
- 2 primary study objectives:
1. Explore business approaches allowing utilities to use “customer-sited solar generation” as financial opportunity;
2. Explore “legal and regulatory strategies” for utilities to develop solar power plant-scaled generation.
- 3 approaches for utilities:
1. utility owns the solar energy generating assets - judged the most likely win-win-win arrangement.
2. utility finances the solar energy generating assets – judged best when regulatory laws or tax laws make utility ownership unfavorable.
3. utility purchases the electricity output from owners of solar energy generating assets.
- 10 conclusions:
1. Utility business models should serve customers, owners and society.
2. A strategy of ‘win/win/win’ solutions should underlie utility business models.
3. Most current solar programs are designed to extend solar energy development not to serve utilities.
4. New and developing utility models for solar energy have emerged in the last 18 months and are emerging.
5. Current solar-utility models will evolve as laws change, costs decline, markets mature and regulation is refined.
6. Federal tax laws are of special significance, tending to favor IOUs.
7. Financing can be structured to favor utility-solar development.
8. In the absence of tax benefits, utilities still offer stability, negotiating position, efficiencies, green initiatives, ratepayer bases, risk reduction and financing to solar developers.
9. In any case, solar generation on the utility side of the meter offers many advantages to solar developers.
10. Regulators must make it viable for utilities to enter into PPAs with solar producers.

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QUOTES
- The 3 fundamental questions: “1. How will the utility create value in the solar marketplace? 2. How can the utility benefit by capturing some share of that value? 3. How can the utility sustain its solar business over time?”
- Next steps forward: “Track the progress & outcomes of ongoing utility initiatives…Build on this project to refine emerging models, develop new ones, and create decision tools that can be used as a starting point for utility-specific programs…Begin to quantify the benefits and costs to stakeholders of different combinations of solar technologies, customer- and grid-oriented applications, and incentive structures…Examine competitive implications of alternative solar business strategies for utilities, and ways to structure them to promote collaboration and minimize anti-competitive concerns…Develop a SEPA ‘SWAT Team’ approach to help member utilities tailor solar business models to the distinctive business and regulatory circumstances and community conditions they face…”