Utility Companies Need to Evolve as The Energy Market Does

Utility Companies Need to Evolve as The Energy Market Does Solar energy continues to grow at a record-breaking pace, reaching a total installed capacity enough to power 5 million American homes in 2015. While solar supporters celebrate the growth, utility companies lament that increased solar energy production is causing them to lose revenue due to reduced energy demand. At the center of this debate is Net Metering (NM), a key policy behind the solar energy growth. Under NM policy, a customer is only billed for net energy consumption, the difference between energy s/he generates and consumes in a given period of time (see NM map below).

Net Metering Summary Map

If a customer nets out to zero energy consumption, s/he pays nothing to the utility. Given the variability of solar energy source, utility companies are quick to point out that solar customers still rely on the electric grid and insist them to pay fees accordingly. Solar-induced “disruptive challenges” causes utility companies to lose revenue and leaves them with a shrinking pool of customers to recover their costs from. The resultant increased rate, utility companies argue, drives more customers to adopt solar and puts utility companies on a perilous death spiral (see the figure from EEI’s report).

Utility Death Spiral

(Source: EEI http://bit.ly/1kkTiRB)

Solar supporters, however, point out a slew of values solar brings to the grid. The values include avoided cost to develop more power plant capacity in order to meet hours of highest energy demand; reduced wear and tear on the grid system, and avoided environmental costs. If these benefits are integrated into the valuation, the benefits of solar energy outweigh its costs to the electric grid. Solar energy supporters believe “NM is a fair way to compensate solar owners for the value they provide.”


While the NM debate continues, it’s of paramount importance that utility companies do not impede solar energy growth. First, the imperative of low-carbon mandates continued solar energy generation. A new study points out just last week that we can emit far less carbon than previously estimated in order to have any chance of keeping the global warming within 2C. Second, NM is an important driving force for distributed solar energy growth, which in turn helps wildlife conservation. Distributed solar prevents wildlife falling victim to more oil and gas spills and incidents, and keeps energy production out of undisturbed or only partially disturbed lands. Reduced transmission lines also avoid disturbance and fragmentation of habitat in a variety of ecosystems.


(A monkey electrocuted while crossing a high-tension wire. Photo credit: indiaendangered.com)

Third, the traditional government-guaranteed return on investment utility business model no longer suffices the nuanced energy market needs. It’s long overdue that utility companies and their regulators allow the invisible hand to drive market innovation.

To serve as an aggregator and a trading platform for reliable and equitable energy of the future, utility companies need to evolve as the market does. It’s either that they be part of the clean energy revolution or left behind with the energy of the past.

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