Residential Solar Could Hurt Utilities’ Bottom Line


Utilities throughout the country have been fighting the growth of solar under the presumption that increased solar adoption will hurt profits and grid reliability. Some utilities have taken the initiative to embrace solar and find methods to work with it, but they are currently in the minority. While many utilities fear a decline in their profits, it has yet to be shown how much solar is taking away from their bottom line.

A new report released by the Lawrence Berkeley National Laboratory (LBNL) looks to answer this, by examining the potential impacts of residential solar on utilities’ profits and rates. The report, Financial Impacts of Net-Metered PV on Utilities and Ratepayers: A Scoping Study of Two Prototypical U.S. Utilities, shows that these impacts can vary greatly depending upon the specific circumstances of the utility — and may be reduced through a variety of regulatory and rate-making measures.

Adoption of distributed PV by residential and commercial customers has expanded rapidly in recent years, driven by decreasing costs and the prevalence of net metering. Although distributed PV generation currently represents roughly 0.2% of the nation’s electricity supply, and no more than 1-2% in even the states with highest solar penetration, widespread debates have surfaced about the financial impacts of distributed PV on utilities and their customers.

According to LBNL’s Galen Barbose, one of the report’s authors, “This work is intended to fill a gap in those debates by providing some concrete information about the potential magnitude of the financial impacts, by identifying the key conditions under which they may become more or less severe, and by evaluating possible strategies for reducing their severity.”

The report is based on two prototypical utilities – a vertically integrated utility in the southwest and a wires-only utility in the northeast – and estimates the possible financial impacts of distributed PV on both utility shareholders and ratepayers.

At PV adoption levels equal to 2.5% of total utility retail sales, which is greater than levels that currently exist in all but one state, the study found that distributed PV resulted in approximately a 4% reduction in shareholder earnings for each of the two utilities. The impacts on average retail electricity rates, however, were considerably smaller, with increases of 0.1 and 0.2% for each utility.

The study goes on to consider a future in which distributed PV increases to reach 10% of total utility electricity sales. The report estimates that shareholder earnings might be reduced by anywhere from 5-13% for the southwestern utility and by 6-41% for the northeastern utility. Those ranges reflect alternate assumptions about the utilities’ underlying load growth, rate structure, and other factors, as well as uncertainty about the degree to which distributed PV defers the need for utility capital investments in new generation, transmission, and distribution infrastructure.

The report also considers what measures utilities can take to offset these earnings declines. Each of the ideas has its pros and cons, but one of particular interest is utilities themselves leasing solar panels to their customers. Andrew Mills, a co-author of the report, explains, “The effectiveness of these measures often depends critically on how they’re designed, and in many cases, they involve important trade-offs – either between utility ratepayers and shareholders or among competing policy objectives.”

Despite some utilities’ best efforts to stop it, distributed solar is continuing to grow. This report makes it clear that if utilities continue on as is, profits will decline as time goes on. While this would not be the end of the world, its safe to assume utilities will put new measures into place that ensure their profits.