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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.

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:

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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:

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.

For ongoing environmental coverage in March 2017 and afterward, please visit our show Earth Focus, or browse Redefine for historic material.
KCET's award-winning environment news project Redefine ran from July 2012 through February 2017.

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