Research shows that Americans generally don’t pay attention to where their electricity comes from or fully understand their utility bills. That’s changing with the emergence of an energy source that’s been grabbing a lot of attention lately: solar.
Solar panels can save money, help fight climate change, and give environmental cred. At the same time, they’re stirring up big policy fights in many state capitals, and even receiving attention from President “I know a lot about solar” Trump, who has griped that solar is too expensive. Well, unless panels can power his wall along the U.S/Mexican border, then they’re OK.
While solar accounts for only about 1 percent of all electricity produced annually nationwide, it’s among the fastest-growing sources of electricity, according to the U.S. Energy Information Administration (EIA). In March of this year, wind and solar generation collectively hit the 10 percent mark for the first time ever (solar made up 2 percent), according to the EIA. That number won’t be consistent from month to month, but it does point to solar’s growth.
That government data reflects both a boom in building giant solar farms in remote regions like the Mojave Desert and anchoring solar panels to the roofs of homes and businesses.
The growth for rooftop solar, in particular, has been happening fast enough that supporters and critics alike view it as a disruptive force upending the way Americans receive and pay for electricity. At the same time, the business of installing solar panels on rooftops faces its own set of hurdles as it moves closer to a mainstream energy source while injecting fears into utilities about the disappearance of their traditional grid business.
The Solar Opportunity
Many Americans like the proposition laid out by solar installers: Produce your own clean energy and cut your utility bill. Though whether solar is cheaper than grid power depends on a variety of factors, like government incentives.
“The notion of being able to generate your own energy unleashes that American spirit of independence, and people really like that,” says Larry Sherwood, CEO of Interstate Renewable Energy Council, a nonprofit that works on policy and public education.
Some utilities, on the other hand, fret that the expansion of rooftop solar will lower their revenues and make it more costly and difficult to run the grid smoothly. These utilities worry that an infusion of solar electricity at different times of the day — and at varying volumes — will make it hard to maintain the necessary balance of supply and demand throughout the day. Keeping that balance is crucial for avoiding blackouts and penalties from regulators. But research, such as this report by the National Renewable Energy Laboratory, shows that grid operators have been able to manage the increasing supply of solar energy without destabilizing the grid.
As a result, some utilities and their lobbying groups have been fighting to reduce incentives and change rules in states that favor rooftop solar. They’ve found success in states such as Arizona, Hawaii, and Maine. In 2015, Nevada ended a program called net metering, which gives homeowners credits on their bills for exporting excess electricity to the grid, only to restore it this year after a public outcry.
“We are disrupting the electricity sector as we go, and that’s why there’s so much friction,” says Danny Kennedy, who co-founded a solar financing and installation company and is now managing director of the California Clean Energy Fund, which puts money into startups in renewable energy and electric grid technologies.
“The truth is we are going through a transition, and it’s moving faster than what the electricity sector has faced in a century,” Kennedy adds.
That transition has been created by generous tax breaks and rebates from federal and some state governments and by plummeting prices for solar panels. A federal tax credit alone knocks 30 percent off homeowners’ costs for going solar, but they can claim the credit only if they owe taxes.
Since 2010, the wholesale price of solar panels has fallen by 81 percent worldwide thanks to intense competition among manufacturers that quickly expanded their factories to serve not only the United States but other growing markets as well, including China, Japan, and Europe, says Hugh Bromley, an analyst with Bloomberg New Energy Finance.
Cheaper prices have brought solar, once closely associated with hippies and tree huggers, into the mainstream. Given that electric rates from utilities typically go up over time, many consumers and business owners have taken the calculated risk that their investments in solar will lower their electric bills for years to come. The bet has worked for some, but not others.
“A lot of people assume solar costs more [than grid power], but with the financial engineering associated with all the subsidies, you can have a deal where you pay less (for electricity) right away. Who can argue with that?” says Richard Sedano, president of the Regulatory Assistance Project, a nonpartisan renewable energy think tank.
Big Growth, Small Size
The amount of solar generation capacity for homes, businesses, and organizations (everything other than for utilities) grew from 585 megawatts in 2010 to 4,247 megawatts nationwide in 2016, according to the Solar Energy Industries Association (SEIA) and GTM Research. The top five states with the most solar generation capacity are California, North Carolina, Arizona, Nevada, and New Jersey.
SEIA and GTM track installations by market segments, not by the placement of solar panels, but the vast majority of solar systems built for residential, commercial, and government customers are perched on their roofs. “Generation capacity” refers to the size of a system, not how much electricity it can produce, which can vary depending on the amount of sunlight it gets.
Despite their growth, rooftop solar installations are still small compared to large solar energy projects built to serve utilities. The generation capacity for the utility segment grew from 267 megawatts in 2010 to 10,760 megawatts in 2016, says SEIA.
Not only that, but the share of electricity flowing from rooftop solar panels is minuscule in the overall energy mix, compared to sources like coal and natural gas.
The EIA, which tracks the amount of electricity produced by state, reports that “small-scale solar photovoltaic systems,” most of which sit on building rooftops, generated 0.02 trillion kilowatt-hours of electricity nationwide in 2016. Those systems, more than half of which grace homes, represented 0.47 percent of overall electricity production in the country last year. In 2014, small-scale solar systems made up 0.27 percent.
But those numbers belie the fact that solar energy generation has never been evenly spread out among the states. Rooftop solar is growing at much faster rates in states with friendly solar policies. In California, the biggest solar state, electricity from rooftop solar energy systems accounted for just under 4.2 percent of the total in 2016, an increase from nearly 2.4 percent in 2014, reports the EIA.
That swift growth paints a worrisome picture for utilities, which look ahead and wonder whether they will be able to maintain their traditional sources of revenue for decades to come. They have historically built and operated the grid as a one-lane highway to deliver electricity from giant power plants, usually fueled by coal or natural gas.
Large solar farms, typically built out of the sight of city and suburban dwellers, still allow utilities to maintain the same mechanism for delivering electricity. But rooftop systems not only reduce the demand for electricity from big power plants, they also create a two-way flow of electricity when excess solar electricity enters the grid.
The threat to the utility model from disruptive forces is now increasingly viable. One prominent example is in the area of distributed solar PV [photovoltaics], where the threats to the centralized utility business model have accelerated….
That caution has prompted some utilities to take action.
Utilities have lobbied their state regulators to lower incentives and impose special charges on homeowners with solar and have argued that these homeowners are enjoying lower electric bills at the expense of others who can’t afford or don’t want to install solar. The non-solar customers, the utilities say, are in effect shouldering a greater share of the fixed costs of running the power plants and the grid even though the solar customers need the grid to draw and export electricity.
Whether those contentions are true are in dispute. Solar energy advocates say utilities also need to consider the value, not just the costs, that rooftop solar brings to the grid, such as reducing the need to build big power plants and ship electricity over a long distance. Solar’s low-carbon footprint also makes it a more valuable energy source than fossil fuels, particularly in states that aim to reduce their greenhouse gas emissions, solar proponents say.
“We still have utilities trying to protect their right to run a boiler in the middle of nowhere and run an expensive transmission and distribution grid,” Kennedy says.
Sherwood says the responsibility for addressing the challenges of growing solar energy production ultimately lies with state regulators, who need to ensure their utilities get ready to change how they operate to accommodate a greater infusion of solar.
“In the media, it gets devolved into fights between solar companies and utilities, but at its core, it’s the job of regulators to make sure there’s a fair deal for consumers and utilities,” Sherwood says. “That’s a big discussion that’s happening in many states.”
Utilities in a handful of states have been willing to work on metrics to evaluate solar energy’s role in their operations and accommodate future growth, Sedano says, citing California, New York, Minnesota, Michigan, and Rhode Island as examples.
In the meantime, resistance by the utility industry overall is contributing to slower growth in the residential solar market. After growth of 20 percent in 2016 and 48 percent in 2015, residential solar installations are expected to increase a mere 2 percent this year, predicts Bloomberg New Energy Finance.
Policy changes aren’t the only cause for the slowdown. Several major solar companies, such as SolarCity (now owned by Tesla), are dialing down the pace of their expansion after an initial big push to sign up customers quickly. Their aggressive expansion into more states increased their marketing and sales spending, which then cut into their profits and widened their losses.
The growing preference by consumers to own rather than lease rooftop solar panels also is forcing big solar companies to change their sales and marketing strategies and offer loan options, Bromley says. He expects the residential market to grow again, at nearly 22 percent, in 2018, but for the rest of this year, “The foot is off the gas pedal. This is a year of transition.”