Utilities seeing solar in a new light

Amy Gahran | Aug 24, 2015

Not too long ago, many U.S. utilities viewed solar power rather warily - as a disruptive threat to revenue and a challenge to grid stability. But a growing number of utilities of late have been making big investments in solar. 

Examples, in fact, aren't hard to find.

In July, Southern Co. awarded $100 million in new solar projects to PowerSecure, an independent power producer - most of which is for an $85 million project in Georgia. By the end of 2016, Southern subsidiary Georgia Power expects to have a total of nearly 1,000 MW of operating solar capacity. This summer, the utility launched a new residential rooftop solar program through a 20-year-old unregulated business unit, Georgia Power Energy Services.

Another Southern subsidiary, Gulf Power, is developing 120 MW of utility-scale solar at three military installations. Also, Mississippi Power is partnering with three solar businesses and the Navy to build four utility-scale solar facilities totaling more than 100 MW. 

Southern's unregulated subsidiary, Southern Power, owns more than 800 MW of existing or under-construction solar generating capacity from 16 solar facilities in five states. Some of these projects are partnerships with First Solar and Turner Renewable Energy.

July also saw Duke Energy Renewables (an unregulated subsidiary of Duke Energy) acquire two utility-scale solar farms in California totaling 30 MW. This brings the company's total portfolio of commercial solar assets to 100 MW, across eight states from coast to coast. This is just a fraction of DER's 1,600 MW of wind power, but since the Production Tax Credit for wind energy expired in 2013, the company shifted its development focus to solar.

Duke Energy Renewables is also building a new 52-MW solar project to supply George Washington University, American University and the George Washington University Hospital in Washington, D.C.

Finally, in Arizona, Tucson Electric Power is spending $10 million this year and another $16 million in 2016 (a substantial investment for a utility of its size) on a pilot program where the utility will install, operate and maintain rooftop residential systems. Power from these systems will be directed to the grid, and participating homeowners will receive a fixed power rate for up to 25 years.

What's driving these, and other, major utility investments in solar?

"It's definitely a trend," said Lisa Wood, executive director of the Edison Electric Institute's Institute for Innovation. "One of the main reasons is that the price of solar panels came way down. Also, utilities are responding to a tremendous amount of interest from all customer sectors. And many states are driving this as well, with renewable portfolio standards."

According to the Lawrence Berkeley National Lab, U.S. median prices to install residential solar fell by more than 50% over the last decade, from about $8.50 per watt to $4. Nonresidential solar projects (over 500 kW) saw an even bigger drop: from an average of $8 per watt to $3.50.

Utility-scale solar nowadays just makes the most economic sense for utilities. A recent report from the Brattle Group indicates that it can cost twice as much, or more, to generate power from small rooftop-solar installations than from a large solar farm (300 MW or more). 

Utility-scale solar offers advantages beyond cost. 

"It's all about generating stable returns over time. We almost always sell that power through long-term power purchase agreements," said Thomas Williams, a Duke Energy Renewables spokesman. "With the economies of scale, the return is similar to that of a regulated asset."

Of course, utilities have not generally owned solar capacity; typically they've contracted with independent suppliers. "But they are now buying solar, absolutely," said K Kaufmann, spokeswoman for the Solar Electric Power Association. "They're not necessarily building it themselves, that's still less common. But they're acquiring it."

And despite the much higher cost of power from rooftop solar, many utilities are expanding their residential offerings in response to strong consumer demand. Competition from non-utilities also is a big driver, as researchers at the University of Texas at Austin recently noted.

"One utility reported that, even without significant penetration of residential solar PV in its territory, staving off potential attrition of its customer base partly drove its adoption of a (community solar) program. Another utility, a large (investor-owned utility), reported that it was motivated to pursue (community solar) for the same reason. The organization anticipates increases in the popularity of solar (distributed generation) going forward. By investing in (community solar) it hopes to satisfy customer demand for solar (distributed generation) as cost-effectively as possible," their report said.

According to some, solar owned and operated by a utility might offer an advantage in low- to middle-income households, by significantly reducing the up-front cost and ongoing expenses. 

In the Tucson pilot, for example, homeowners pay just a $250 upfront fee. Some third-party suppliers that lease residential rooftop solar, such as SolarCity, offer free installation - but they tend to require a high credit score (at least 700) to qualify.

In part, utilities and customers also are moving to take advantage of government solar incentives for solar while they last.  At the end of 2016, the residential renewable energy tax credit - currently equivalent to 30% of the cost of a residential solar system - will drop to about 10%

"We've been seeing that many recent requests and proposals to build new solar projects explicitly demanding that construction be completed in 2016," said Ryan Edge, research analyst with SEPA.

Renewable portfolio standards, meanwhile, are definitely driving solar development.

The state of California has gone so far as to mandate that its three biggest utilities - Pacific Gas and Electric, Southern California Edison and San Diego Gas & Electric - offer community solar. The utilities now plan to set up 600 megawatts of community solar by 2019.

However, regulatory pressure isn't the only driver of the push by traditional utilities into solar. Georgia Power, for example, is moving ahead with its solar programs, figuring it's just good business, despite the fact that the state of Georgia lacks an RPS -- or even a voluntary renewable energy standard. 

Utility-operated solar also may help improve grid reliability. 

This is part of what the Tucson Electric pilot program is testing - adding solar resources in more stressed areas of the grid to help manage load and improve reliability during peak demand. The utility is recruiting customers in critical locations.

Until now, "we've not had the ability to use a distributed resource like this, to improve reliability," said Joseph Barrios, spokesman for Tucson Electric, who also noted that this point was included in their application to the Arizona Corporation Commission.  "We're learning as we go."

Through it all, large commercial customers, especially data centers and big-box stores, seem hungry for more renewable power contracts. There's fierce commercial competition for these power purchasing agreements, but utilities like to think they have the edge. 

"It's sometimes easier for these large customers to work with utilities than independent competitive suppliers," said Wood. 

That's the hope, anyway. 

In any case, more utilities are expected to follow suit, especially as the White House expands its push for greater renewable energy adoption, as it did Monday, announcing fresh financial incentives for solar panels, smart grid technology and other alternative energies for homeowners and builders.