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Clearing Up / Bearing Down

[June 1, 2018 / No. 1853]

Your Local Electric Utility: The One-Stop Shop for Residential Solar

Summary: With California mandating solar for most new residential construction beginning in 2020, electric utilities in the state will experience an acceleration of a trend that could shake their financial underpinnings. If mandated solar comes to the Northwest, maybe there's a way for the electric utility industry to cut itself in on the action.

It had been a while since one of these showed up in the mailbox, but there it was, an invitation to dinner at the local outpost of a chain restaurant, for the opportunity to "learn about new technologies to help reduce your power bill and make your home more comfortable."

Further inquiry into the website of the sponsoring entity—Sol Solutions—reveals that the new technologies being offered aren't exactly cutting edge—solar panels, solar-powered attic fans, insulation blankets. Oh yeah, and synthetic grass (to save on water bills).

What's worth noting about this mailing is the coincidental timing with a decision by the California Energy Commission to require solar panels on almost all new residential construction beginning in 2020 (CU No. 1850 [15]).

The domestic solar-panel manufacturing industry gains nothing if all those new California homes are crowned with panels made in China.

It's a mandate that makes the solar-system installation industry very happy—nothing like having a gargantuan market handed to you through government edict. Whether the domestic solar-panel manufacturing industry gets much out of it depends more on the outcome of international trade cases; it gains nothing if all those new California homes are crowned with panels made in China.

The building industry is accepting—maybe grudgingly—the rules. Everyone seems to acknowledge that the initial sales price of homes will be driven up in what is already an expensive state to develop in. Advocates of the rule say the reduced electricity costs (and maybe even some revenue through net-metering arrangements) will over the long run flip the calculation in the homeowner's favor.

The affected party most likely to wind up on the losing side of the transaction (other than first-time homebuyers scrambling to accumulate a down payment) is the electric utility sector, which will be asked to configure its generating, transmission and distribution systems to accommodate a big increase in highly variable demand and supply. That accommodation won't come cheap, but if the mandate does what advocates contend it will, the accommodation will also reduce utility revenue from customers. Gradual, market-driven adoption of home solar was already a long-term issue for the industry.

As California goes, so go Oregon and Washington, so the idea of mandated solar systems in residential construction is likely headed northward. Whether the idea gets any traction in the Northwest will depend on the political climate more than the actual climate, as well as differences in regulatory structure.

Thus utilities are left with several ways of playing this issue:

  • They can ignore it and hope it goes away.
  • They can actively fight it and hope it goes away, counting on the strength of such arguments as the impact on housing costs and differences in payback rates between sunny California and the overcast Northwest.
  • They can get in early and attempt to shape any potential legislation into something more palatable, a strategy the California homebuilding industry appears to have taken to ward off more onerous requirements for even more stuff.
  • They can ask legislators and regulators for help with the costs of transition.
  • Or—and this is a real spitballing, throw-it-against-the-wall-and-see-if-it-sticks kind of Modest Proposal—they could dive headlong into the residential installation-and-operation solar business themselves.

This gets us back to that dinner invitation that led off this column. Imagine how stuffed the mailboxes, real and electronic, of homebuilders and prospective homebuyers in California (and the Northwest, if the region follows) will be with pitches from installers, product manufacturers and companies that sell and lease systems. Everyone is going to be trying to grab a share of what could be a big-deal market.

Everyone, that is, except the utilities, which will get a connection fee for new residential construction and some revenue, albeit less than they would have without having every house a generator in its own right (mandatory-solar advocates would argue that's a pretty large benefit, in that it delays or eliminates the need for new large-scale generating capacity). Balanced against that is the cost of building and maintaining the infrastructure to keep that house connected to the grid.

Suppose, though, it was the utility making the pitch to make your next home a solar one. "We're the ones who know electricity. We can screen and pre-select the installers for you. Better still, make us your one-stop shop; let us install, maintain and operate your rooftop solar system. You'll still get a break on your power bill, but without the hassles and headaches."

Wouldn't that be a compelling argument for a lot of consumers?

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Yes, it would. It would also be tinder for some heated battles over issues such as competition and rate subsidization; installers are likely to have a few things to say on the matter. Then there's diversification of operations, a business strategy with which utilities have at best a mixed record.

But compared with other ventures that utilities have tried, sales, operation and maintenance of residential solar is much closer to their core business.

Utilities have stuck their toes (sorry—do utilities have toes?) into the business. "[Puget Sound Energy's] Customer Connected Solar Program works with builders of new homes just as we do other customers looking to interconnect solar with PSE's service," said Leslie Moynihan, who oversees PSE's net-metering program, via email. "We have experience working with residential builders—in Bellingham and Issaquah [Washington], to name a couple of hot spots—where they have incorporated solar into the new construction. Once the home is sold, the new PSE customer benefits from net metering with PSE."

If utilities want more out of the trend toward residential solar, however, they're going to have to get more elaborate in what they offer and more aggressive in how they do it. Selling is not a part of the utility-industry culture. It could be. For the industry's long-term financial viability, it better be. BillVirgin


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