Is the new California solar mandate a threat to utilities across the country?
California, a leader in clean energy, is the first state in the country requiring new homes to include solar panels, beginning in 2020. What’s more, the Golden State’s mandate provides incentives for homeowners to pair energy storage with solar. What does this mean for utilities across the U.S.?
Recent studies show that net-zero-energy homes cost 5 to 10 percent more than standard construction, but energy savings will likely offset these costs over time.
That gives more states incentives to follow California’s lead. In addition, it’s possible that portions of the new California requirement— which is in the building code—will be included in the International Energy Conservation Code, which serves as the foundation for many state codes.
While this trend takes hold, should utilities outside California be worried, or is this an opportunity?
The Leap to Residential Storage—and Potential Utility Defection
With solar already installed, the leap to residential storage is that much closer in California and across the country.
Homeowners will have the ability to defect from their utilities and generate their own power, possibly selling it back to utilities. The utilities could be left with high transmission and distribution costs, potentially stranded assets, and fewer customers. In addition, they could feel increased pressure to provide integration options for behind-the-meter technologies, yet may struggle to be compensated appropriately for such installations, whether through the rate base or an approved non-regulated affiliate line of business.
If you’re a glass-half-full utility willing to embrace new business models and the solar revolution, there are a number of opportunities available across the country. Consider these three:
Sell New Products Such as Installation and White-Labeled Products
The move to solar—and solar-plus-storage—is happening now, due to mandates like California’s and customer demand for choice. As a utility, you’re well-positioned to offer concrete storage products, either branded or white-labeled. Consider selling or financing solar and storage systems for customers, and—in cooperation with your state regulator—offering new rate structures that help homeowners make the most of their solar systems and associated technologies.
Additionally, consider helping customers tackle the high cost of solar. Right now, solar panels on California homes add about $9,500 to the average home cost, about 1.8 percent of the total cost. In locations like the Bay Area, with a critical housing shortage and high housing prices, the impact could be significant. The implications are even more critical in states like Missouri, where panels on new homes add about 6.4% to the cost of average homes, potentially pricing many people out of their housing of choice. Consider embracing the go-solar trend and extending your business models. While there’s still room to grow on the coasts, the middle of the U.S. is wide open to solar and storage adoption.
Give Customers More Control with Rate & Bundling Choices
Utilities could also offer new pricing structures that help homeowners make the most of solar-plus-storage systems—while helping the utility out during high-demand periods. If utilities offered time-of-use pricing, customers could store solar-generated electricity during the day and use it when time-of-use prices are high, during peak demand periods. This helps the utility reduce its peak and cut use of polluting fossil-fired “peaking” plants. Some utilities across the country now offer time-of-use rates; the rates and pricing plans vary, depending in part on what public utility commissions allow. Offering such plans gives customers more choice and allows them to have more control over their energy use.
A bigger step would be for utilities to offer real-time pricing. Ameren and ComEd in Illinois offer these programs, setting next-day hourly prices. Customers, alerted of the hourly prices, decide when it’s best to use energy or store it. Or, better yet, under such programs, their smart appliances and HVAC systems will make that decision for them, using software that establishes pre-determined set-points. Real-time prices, unlike time-of-use rates, are based on the true hourly market prices. They allow customers to reap additional energy savings, while helping utilities shave peak demand.
Take a Big Leap into Distributed Energy
With an increase in residential solar on the market, utilities will have the tools to innovate and discover new ways of operating across the grid. A focus on distributed energy brings with it implications for resiliency and your investment strategies.
New York state is taking a huge leap into the new world of distributed energy, for example. In its Reforming the Energy Vision, or REV, the state encourages utilities to move away from net metering and other traditional compensation arrangements. Instead, innovation and distributed energy are rewarded. Consolidated Edison stepped up to the challenge, meeting increased electricity demand in one area of the Brooklyn-Queens neighborhood with distributed resources instead of building a new substation. Rather than spending $1.2 billion on the substation, the utility’s distributed energy plan will cost $200 million. As a reward from REV, the innovative utility gets to earn as much as if it had built the substation.
A Threat or Opportunity for Utilities?
As Kelly Speakes-Backman, CEO of the Energy Storage Assoc. says about the California mandate, “These new codes are a good step toward making sure every house can be its own microgrid.”
With homeowners now demanding reliability from renewable energy, utilities can either feel threatened or embrace ways to change and grow.
If they choose to help their customers move into the new world of solar-plus-storage, utilities can take advantage of new business opportunities, cut carbon emissions, and make their customers happy—a win-win for all. Fail to grow now and you’ll sacrifice your business model and potential new revenue streams.
innogy consulting is an energy-focused management consulting firm with operations in North America, Europe, and the Middle East. Our 200 consultants drive projects from restructuring to innovation, change management to market capitalization, for leading U.S. energy companies intent on fortifying their businesses for the future. To learn more, visit innogyconsult.com.