Utilities and small solar: Learn to love it

As we've been noting through a variety of articles, the advent of significant sources of solar, wind and distributed energy in general is threatening utilities' traditional business model. The trend is also toward using less energy through smart meters and energy retrofits.

After a decade or so of being forced to support renewable energy through state-mandated renewable portfolio standards (RPS) and energy efficiency through state energy efficiency resource standards, these programs are working and utilities are feeling it in their bottom line.

For the past century, utilities have been making money from people using more energy, not less. The deal was they were given monopolies in exchange for investing in massive, central power plants and transmission lines. They charged customers to earn that money back, and in addition, received guaranteed returns. Investors received reliable dividends.

But with distributed energy shifting control to developers, communities and even individuals that invest in their own energy sources, many utilities are pushing back. In at least six states -- Arizona, California, Colorado, Idaho, Louisiana and Vermont -- they are trying to scale back net-metering policies that pay homeowners and businesses for the energy they send to the grid. The American Legislative Exchange Council is pushing to eliminate or water down RPS and efficiency programs.

Some utilities, however, are finding ways to embrace the trend. Here are some examples:

New York's Long Island Power Authority (LIPA) is paying developers -- under its feed-in tariff -- to build rooftop solar systems in growing towns that lack adequate grid infrastructure. Developers that build in targeted areas receive a premium rate for electricity they produce. That saves LIPA $84 million on new transmissions lines and other grid equipment that isn't needed. A feed-in tariff in Los Angeles pays premium rates for solar produced during peak demand periods.

In Austin, Texas, the city's municipal utility Austin Energy goes beyond state-mandated net metering. When customers' solar systems send energy to the grid, they pay a premium rate that incorporates deferred utility investments and the greenhouse gas emissions prevented. Forty-six states have net-metering laws but utilities have fought to pay as little as possible, de-incentivizing people from installing solar.

Duke Energy and Edison International invested in residential solar financing firm Clean Power Finance and Duke has built 10 megawatts of distributed solar in North Carolina, mainly on industrial buildings.

In the first half of 2013, the U.S. installed more than 1.8 gigawatts of solar -- more than half in small rooftop projects. Indeed, distributed generation could account for 45 percent of all solar installations this year, according to GTM Research and the Solar Energy Industries Association.

Why should utilities embrace small, distributed energy?

From a utility's point of view, managing a centralized network is much more straightforward than worrying about thousands of tiny systems. Depending on a widely distributed network could be a problem for voltage, power quality and other grid conditions that ensure smooth, reliable electricity.

"Most U.S. utilities don't view distributed generation as an asset -- it's seen more as a liability," Michael Coddington, a former utility engineer and a senior engineer at the National Renewable Energy Lab, told InsideClimate News. "It just creates more work for the utilities in trying to operate their system."

But with the increasing frequency of disruptive weather events, the policy push toward renewable energy and a lack of funds to make the improvements a centralized grid really needs, the trend is clearly toward distributed energy. One clear signal is the move to independent microgrids.

"Disruptive forces, if not actively addressed, threaten the viability of old-line industries," Edison Electric Institute says in its report, Disruptive Challenges (PDF). "Examples of once dominant blue chip companies/entities being threatened or succumbing to new entrants due to innovation include Kodak and the U.S. Postal Service."

The report's authors encourage utilities to invest in solar leasing funds, for example. The potential is there to fund a large and growing industry, they say.

"One can imagine the day when battery storage technology or micro turbines would allow the customer to be electric grid independent. To put it into perspective, who would have believed 10 years ago that traditional wire line telephone customers could economically 'cut the cord?'" the report asks.

"The new electric power industry will have to be designed with three objectives in mind -- creating a decentralized control paradigm, retooling the system for low-carbon supplies, and finding a business model that promotes much more efficiency," notes Peter Fox-Penner in his book "Smart Power."

This article originally appeared at Sustainable Business News. To learn more about renewable energy and the convergence of sustainability and technology, be sure to check out VERGE SF Oct. 14-17.

Transmission tower image by gui jun peng via Shutterstock.