News and analysis about energy in California with an eye toward renewables.

Will Solar Power Doom PG&E?

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.

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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.


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About the Author

Chris Clarke is a natural history writer and environmental journalist currently at work on a book about the Joshua tree. He lives in Joshua Tree.
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The other thing this analysis does is point out the grotesque inequity of net metering, which rewards energy hogs and completely excludes everyone who cares enough about the planet to conserve energy. It's insane! The more power you waste, the more money you get from rooftop solar, which is the exact opposite of the loading order which is California law and theoretically California energy policy.

CA legislators and the CPUC in particular, have been desperately maneuvering to protect their constituents (Big Energy) from the enemy (ratepayers who want to install rooftop solar), and it just becomes more and more obvious every time some pathetic CPUC ruling or new legislation is passed, half-stepping and greenwashing and hemming and hawing, while ignoring the SINGLE energy policy that works - GENEROUS, fixed, feed in tariffs so that WE can receive fair return on investment from doing the heavy-lifting of transitioning our grid to clean, reliable, decentralized, affordable and most importantly non-wilderness-slaughtering energy.

Wake up California! Fight for restoration of PACE loans and generous feed in tariffs payable on PV systems located in the built environment sized below 100kW or you will soon find that Big Energy will dominate us (and our economy, democracy and environment) for another century while we all sat here congratulating ourselves for the tiny, insufficient, inequitable net metering policies we have been stuck with.