Rooftop solar panels could soon cut utility profits by 15% or more

Utilities have reason to worry about solar power cutting into their profits, according to a report by Lawrence Berkeley National Laboratory.

A grid-connected photovoltaic power system on the roof of a house near Boston.

A grid-connected photovoltaic power system on the roof of a house near Boston.

Rooftop solar panel installations could cut utility profits by 15% or more over the next eight years, according to a federally funded report (download PDF) that studied two prototypical U.S. utilities -- one in the Southwest and the other in the Northeast.

The study predicts that rooftop solar panel installations will grow from 0.2% market penetration today to 10% by 2022.

Using that scenario, the analysis found that shareholder earnings fell by 8% for the Southwest utility and by 15% for the Northeast utility using the 10% photovoltaic (PV) rooftop panel market penetration assumption. However, earnings fell by as much as 13% and 41%, respectively, under certain other conditions.

"The potential magnitude of these impacts especially among wires-only utilities or other utilities with a relatively small rate base may create more immediate pressure on utilities to address shareholders' concerns about the erosion of profits caused by customer-sited PV," the report said.

At the same time, the report found that as solar rooftop installations grow to 10% of the market, electricity rates for utility customers will grow only by as much as 2.7% over the next eight years. By comparison, the cost of electricity on average rose 3.1% from 2013 to 2014, according to the U.S. Energy Information Administration.

For the SW Utility, the all in average retail rate at 10% PV penetration is 23 cents/kWh (1.8%) higher over the first 10 years of the analysis period (i.e., from 2013 to 2022) than it is without PV.

The rate impacts for the Northeast utility are similar, with an average rate that is also 23 cents/kWh (1.5%) higher at 10% PV penetration than without PV.

"Compared to the impacts on ratepayers, the impacts of customer-sited PV on utility shareholders are potentially much more pronounced," the report stated.

The study was performed for the Office of Energy Efficiency and Renewable Energy under the U.S. Department of Energy. One of the main purposes of the study was to evaluate measures that could be pursued by utilities and regulators to reduce the financial impacts of distributed PV.

The report recommends measures such as changes to utility rate design and rate-making processes, mechanisms that allow utilities to recoup revenues lost due to distributed PV or to earn profits on distributed PV, and a variety of other strategies.

According to the latest edition of Tracking the Sun, an annual PV cost-tracking report produced by Berkeley Lab, installed prices for residential and commercial PV systems completed in 2013 fell by roughly 70 cents per watt (W) or 12% to 15% from the prior year.

"This marked the fourth consecutive year of significant price reductions for residential and commercial systems in the U.S.," Galen Barbose, one of the report's authors, wrote. "Within the first six months of 2014, prices for such PV systems in many of the largest state markets have continued on their downward trajectory."

The Berkeley Lab cost-tracking report highlighted a wide variability in PV system pricing, detailing the installed price differences that exist across states and across various types of PV applications and system configurations. For example, about 20% of all residential systems installed in 2013 were priced at or below $3.90 per watt, while an equal proportion was above $5.60 per watt.

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