Remaking the Utility Business Model One Roof at a Time

In a recent posting, I said I felt that a sea change was ahead for the traditional investor owned utility business model.  This change is not being caused by the recession, but the efforts at economic stimulus are speeding up the pace of change.

This transformation is being reinforced by passage of an expansion in the California Net Metering cap to 10% approved by the State Assembly and waiting action in the California Senate. See: .

The Obama stimulus plan allocates $5.5 billion to improve the energy efficiency of federal buildings including the use of solar energy systems as well as grants for solar installations. But government bureaucrats are still drafting rules and regs which are not expected until later this year.  So why are solar service company installations up almost 90 megawatts of in the January through April 2009 period in California, compared with 33.4 megawatts for the same period in 2008?

California’s three investor-owned utilities are required by state law to realize 20 percent of its power mix with renewable electricity by 2010. Reaching that target is proving to be a difficult challenge.  See: .

California’s three large IOUs collectively served 12.7% of their 2007 retail electricity sales with renewable power according to the CEC with Southern California Edison (SCE) at 15.7%, Pacific Gas and Electric (PG&E) at 11.4%, and San Diego Gas & Electric (SDG&E) at 5.2%.

PG&E and SCE recently announced deals with Bright Source Energy to buy up to 1.3 GW of power output from seven solar power plants in an effort to realize the state RPS target.

The statistics for the California Solar Initiative (CSI) released by the California Energy Commission (CEC) show residential installation up 58 percent for the first four months of 2009 or 19.3 megawatts compared to 12.2 megawatts a year ago. See: .

The best explanation for this surge is a combination of factors including:

  • PG&E rebate reduction for residential customers set for December 2008 drove a rush of year-end applications.  Since new residential filings for the first four months of 2009 fell 14.1 MW from 20.5 MW in the last four months of 2008.
  • 30 percent federal investment tax credit for homeowners installing renewable energy systems started in January 2009 boosted the incentive to file before year end to get credit on an early 2009 installation.
  • Substantial marketing effort by solar companies trying to improve their results in a weak economy seems to have used these stop and start deadlines effectively.

But the big story in the statistics was the surge in commercial, government and other non-residential installations to 70.6 megawatts from 21.2 megawatts a year ago.  The analyst review of the CSI data released shows the timing effects of rebates and incentives to manage the timing of renewable energy installations:

  • Rebates for non-residential customers were set to drop in February which boosted applications for that month to 22.8 megawatts, a peak CSI.
  • Government applications for 2009 surged 153% to 33.1 megawatts year/year. This big jump seems to reflect the relatively easier time government has in financing such projects than private sector customers.  There is also a government anticipation of federal stimulus money for later in 2009 so this represents the same queuing up since these projects are larger and take more lead time.
  • Commercial applications rose 22 percent to 21.9 MW and nonprofits jumped 242 % or 6.8 megawatts.  Some of this push is the result of a growing corporate environmental sustainability commitment to demonstrate action about global warming concerns while controlling their energy cost of operations.

The CEC measures power output differently than most solar manufacturers advertise believing that its alternating current (AC) method is a more accurate reflection of the actual impact of the installations on the grid resulting in lower overall capacity than manufacturers claim.

Another interesting feature of the statistics released is the ability to see the relative performance of the solar market players from the applications filed.  Here is the analytics breakdown:

  1. Sharp (SHCAY.PK) won 16.9 megawatts of applications for both residential and non-residential from January through April 2009, up 176 % year over year.
  2. SolarWorld (SRWRF.PK) filed 15.6 megawatts of applications up 235%
  3. SunPower (SPWRA) had 13.9 megawatts, or a 14 percent gain.
  4. Suntech Power (STP) had 9.1 megawatts of applications a four fold increase year over year.

PG&E appears to be leading, at the moment, the three California investor owned utilities in solar power applications with about 123 megawatts of systems installed, compared with 81.2 megawatts for Southern California Edison and 18.6 megawatts for SDG&E, according to the CEC.  See: .  You can also download the raw data from these links if you want grub around in the numbers yourself.

So what, you say?

Expanding RPS standards and the growth in market share of renewable energy is part of the strategy to reduce greenhouse gas emissions. Utilities are finding ways to adapt and comply with these new requirements, but ratepayers have yet to see the full cost of the policy aspirations of their political leaders.  Is it a good environmental and energy strategy for the long term—absolutely!

How much will it cost?