EBF 483
Introduction to Electricity Markets

12.4 Will Rooftop Solar Kill the Utility?

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Between the plummeting cost of solar photovoltaics and the array (no pun intended) of subsidies and incentives, growth in the installation of rooftop solar PV in the United States has been phenomenal. The Solar Energy Industry Association (SEIA) has a nice set of market reports that they issue quarterly, with data on growth in both large-scale solar photovoltaic installations and residential rooftop solar.

The growth in rooftop solar PV, coupled with the availability of home-size battery energy storage packs (the most well-known of which is perhaps the Powerwall from Tesla), has spurred concern in the electric utility industry about “grid defection.” Grid defection refers to electricity customers generating all of their own electricity and disconnecting from the grid entirely. As rooftop solar PV becomes less costly and the technology for home-sized battery energy storage matures, it is possible that larger portions of the population could actually save money by disconnecting from the grid.

This poses a real challenge for the electric utility sector. Read the overview of the Rocky Mountain Institute report “The Economics of Grid Defection,” which is available on Canvas (use the following link to access the full Rocky Mountain Institute report if you would like. The overview will give you a sense of what kinds of cost reductions in solar PV and home-size batteries would need to occur in different parts of the US in order to make self-generation of electricity more economical.

The Economics of Grid Defection report describes a kind of death spiral for the electric utility. As more people choose to generate all of their own electricity, two things will happen. First, the technologies for enabling grid defection will improve and become cheaper, lowering the cost of grid defection. Second, more grid defection means that there are fewer customers left to pay for the grid itself, so the costs of obtaining power from the grid will go up. These two forces together will spur more grid defection until the utility business model collapses. This is not unlike the situation in which some telephone companies now find themselves. As more consumers switch to Voice Over IP or mobile phones, the business model for the traditional land-line telephone service is failing, particularly in urban and highly populated areas. The state of Illinois recently passed a bill allowing AT&T to end land-line phone service throughout the state. You can read an article about the bill, Illinois OKs end of landlines, but FCC approval required.

While this situation makes for a good story and the realities of how solar PV affects electric utilities are more complex, the grid defection story does raise an interesting issue for this course and for the role that electric utilities play in ensuring reliable electricity access. Read the two short articles Why rooftop solar is disruptive to utilities and the grid and Utilities, solar energy and the fight for your roof, and think about the following questions:

  • Right now electric utilities have a regulated mandate to maintain the power grid to ensure that everyone has access to electricity. What should happen to this mandate as the cost of alternatives to electricity from the grid go down? Should we just get rid of the requirement that electric utilities serve everyone just like Illinois has gotten rid of the requirement that phone service be available to everyone?
  • Remember that one premise for giving electric utilities a monopoly within their service territory was economies of scale. If substitutes for grid-provided electricity become cheaper, should utilities have to compete with solar PV?
  • As the following article (Has Tesla cracked the grid energy storage problem?) notes, the earliest adopters of grid defection technologies are likely to be wealthy (this is also true of many other technologies). This shifts the cost of maintaining the grid onto less-wealthy people, making it look like a regressive tax. What kinds of equity issues does this raise regarding who pays for the power grid?