Skip to main content

Will Solar Power Doom PG&E?

Support Provided By

A report on the industry thinktank website The Energy Collective suggests that Pacific Gas & Electric might be the first U.S. power company to fall to competition with increasingly cheap rooftop solar.

In his report, analyst Douglas Short points out that a confluence of factors contribute to what he sees as a bleak outlook for PG&E's future, including the utility's retail price structure for power, state laws, and good old California sunshine. Other analysts have called this looming threat to utilities the "death spiral": as rooftop solar gets cheaper and more people install it, utilities raise rates on non-solar customers, who then have greater incentive to install rooftop solar.

Understandably enough, PG&E disputes Short's bleak prognosis for the company -- but not his overall assessment of the issues.Short puts it succinctly:

PG&E's marginal prices cannot compete with solar. Large residential customers pay 31¢-35¢/kWh [kilowatt-hour], the same prices that cause the solar revolutions in Hawaii and Australia. Even worse, according to PG&E, "By 2022, PG&E's top residential rate could reach 54 cents." Residential customers represent about 40 percent of PG&E's retail electric revenue. Commercial customers experience high rates, too. Unlike residential customers, who need a commercial third party to own the solar panels to take advantage of the accelerated depreciation, commercial customers can keep that advantage for themselves, making solar more financially attractive. Commercial customers represent about 46 percent of PG&E's retail electric revenue.

Making things worse for PG&E, says Short, is a state law limiting rate increases for the utility's lowest "rate blocks" -- those customers who use the least power and are charged a lower rate per kilowatt-hour. By focusing potential rate increases on PG&E's biggest energy consumers, the law increases the attractiveness of rooftop solar even more for those energy high-rollers. That's fantastic for the planet, as high energy users moving to solar have more of an impact than those of use who've already cut out consumption down to the bare minimum. But it's not so great for PG&E's bottom line, as those lucrative customers suddenly become far less lucrative when the solar panels go up on their roofs. As Short says:

[O]nce customers go solar, PG&E loses the sales forever, exacerbating the smaller sales / higher price cycle.

Short expects residential rooftop solar prices to fall by about 10 percent a year, a projection that's well in sync with recent trends. This would put the cost of solar electricity at about 10-15 cents per kilowatt-hour in foggy San Francisco by 2020, about what PG&E's customers pay for non-peak power in 2013.

"There is nowhere else in the U.S. with the same confluence of events," says Short: "High and rising marginal prices, good sunshine, and inability to respond to changed competitive circumstances. If ever an electric utility was set up to fall to solar, it is PG&E."

"I don't think we're going to 'fall to solar,'" David Rubin told ReWire Tuesday. PG&E's Director of Service Analysis, Rubin works on the utility's net metering program. "We don't see solar customers adopting solar as competition. Our concern is that the rates we can charge are misaligned, and that our non-solar customers end up picking up the costs to provide the important grid services our solar customers require."

According to Rubin, PG&E's approximately 85,000 customers with rooftop solar installations make up 25 to 30 percent of all such installations in the United States. "We're proud of that fact," said Rubin. "We're proud of our solar customers. We'd just like to work with all participants to create a solution that provides a better balance between the interests of solar and non-solar customers."

This isn't a new argument, of course, and it's been countered by groups like Vote Solar, which pointed out in January that increased rooftop solar also saves non-solar customers from covering the costs of new centralized generation, long-distance transmission and other avoided investments. According to a January study commissioned by Vote Solar, such avoided costs amount to a net $92 million saved by California non-solar ratepayers.

The California Public Utilities Commission (CPUC), meanwhile, has been doing its own cost-benefit analysis of net metered rooftop solar, and expects to release new rules based (in part) on that analysis by the end of summer. We can expect a lot of arguments and counterarguments on the benefits of rooftop solar until then. Whatever policies the CPUC proposes will likely be watched closely by regulators elsewhere in the country.

Here's the thing, though: plunging solar prices won't always need net metering to help encourage energy users to install solar panels to cover most of their daytime consumption needs. Once solar power is cheaper than buying power from the grid, subsidies will be just an additional incentive. At some point, and that point may not be far off, that solar death spiral will very likely claim an American utility. And it's not as if PG&E isn't vulnerable, especially given other recent potential financial setbacks for the company.

Support Provided By
Read More
Gray industrial towers and stacks rise up from behind the pitched roofs of warehouse buildings against a gray-blue sky, with a row of yellow-gold barrels with black lids lined up in the foreground to the right of a portable toilet.

California Isn't on Track To Meet Its Climate Change Mandates. It's Not Even Close.

According to the annual California Green Innovation Index released by Next 10 last week, California is off track from meeting its climate goals for the year 2030, as well as reaching carbon neutrality by 2045.
A row of cows stands in individual cages along a line of light-colored enclosures, placed along a dirt path under a blue sky dotted with white puffy clouds.

A Battle Is Underway Over California’s Lucrative Dairy Biogas Market

California is considering changes to a program that has incentivized dairy biogas, to transform methane emissions into a source of natural gas. Neighbors are pushing for an end to the subsidies because of its impact on air quality and possible water pollution.
A Black woman with long, black brains wears a black Chicago Bulls windbreaker jacket with red and white stripes as she stands at the top of a short staircase in a housing complex and rests her left hand on the metal railing. She smiles slightly while looking directly at the camera.

Los Angeles County Is Testing AI's Ability To Prevent Homelessness

In order to prevent people from becoming homeless before it happens, Los Angeles County officials are using artificial intelligence (AI) technology to predict who in the county is most likely to lose their housing. They would then step in to help those people with their rent, utility bills, car payments and more so they don't become unhoused.