In his Sunday Wall Street Journal commentary on May 17, Brian Potts suggests that cost is the bottom line in the electric customer shift to solar, and that rooftop solar costs too much. But his defense of the utility’s view of energy costs leaves a big hole in the big picture: the value of solar energy and the cost of maintaining an antiquated system of monopoly control.
First, his cost estimates don’t add up. He claims utility-scale solar costs 13 cents per kilowatt-hour, but Vote Solar reported that the Palo Alto, CA, municipal utility signed solar contracts for 6.9 cents nearly two years ago. Prices fell 13% in 2014 alone, according to the Solar Energy Industries Association.
The attack on rooftop solar also falls short. The break-even price for a rooftop system in Palo Alto is 10.8 cents over 25 years (calculated with NREL’s System Advisor Model), 50% higher—not 3.5 times higher— than the utility scale solar array. Mr Potts may be right that net metering isn’t the perfect policy for compensating solar producing customers, but that’s because it’s a compromise accounting method to accurately track electricity sent back to the grid. This was done because it is the easiest way for the utilities to accommodate solar with their old meters and antiquated billing systems.
Net metering and Mr Potts both ignore the value of solar energy: to an electric grid that favors energy production in the afternoon and on hot, sunny days; as a zero-volatility fuel source; as a hedge against environmental compliance costs; as a near-zero water consumer in an era of drought. He ignores the numerous state studies that show a net benefit from net metering.
Most notably, Mr Potts ignores the opportunity cost of propping up a dying monopoly business model to fend off innovative entrepreneurs and customers. The rooftop v. utility-scale solar argument is a utility-contrived proxy for their defense of a 20th century model of monopoly control of the utility system.
Until recently, electricity service was similar to water or roads, where a natural monopoly was most efficient. Only a single, standardized electric grid was needed to connect each building. Technology options were limited to steam-powered turbines fueled by coal and oil, or large hydro dams with massive economies of scale. There was very little long-distance transmission of power, as each utility was responsible for electricity service within its own territory. Growth in demand was exploding and monopoly utilities could wield the most cost-effective financing for new power plants. These natural monopolies paid off for customers, with falling costs of reliable electricity even as demand rose rapidly.
But the 21st century electricity system is radically different.
The scale of electricity generation is rapidly shrinking, from coal and nuclear power plants that can power a million homes to solar and wind power plants that power a few to a few hundred nearby homes. Electricity demand has leveled off, so that every unit of new wind and solar power produced for the grid displaces a unit of fossil fuel energy. Batteries and electric vehicles provide new tools for distributed energy storage. Smartphones and smart appliances are giving electricity customers unprecedented opportunities to manage their energy use.
The utilities are loath to allow such competition—and have found spokesmen willing to adopt their “least cost” argument—but letting them cling to their antiquated monopoly is a cost we can’t afford.
Photo credit: Bart Speelman via Flickr (CC BY 2.0 license)