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Solar forecast for US utilities: Increasing sun

The outlook for solar points to a market that utilities cannot afford to ignore.

Solar energy is growing fast in the United States. Consumers are installing home generation solutions, including solar panels and bundled energy solutions such as solar plus battery storage, in ever greater numbers. These solutions are enabling consumers to become both buyers and sellers of energy. Accenture’s New Energy Consumer research reveals that nearly half of all US electricity customers plan to install solar or join a “shared” or community solar program in the next five years. And, with the extension of lucrative tax incentives and falling costs, we’re not likely to see a slowdown in this growth any time soon.

The Solar Energy Industries Association reports that between 2009 and 2015, the price per watt for solar energy in the United States fell by nearly a factor of four, while capacity has increased more than seven-fold to nearly 8,000 MW annually. Current market conditions virtually assure that solar capacity could double every two years for the next 10 years. All of this points to a market that utilities cannot afford to ignore. But many utilities missed out on the initial solar wave, and competitors from outside the industry have captured much of the early-stage market. Some utilities have sought to block the advance of solar through charges, or creating difficulties for prosumers to sell excess power back to the grid. But pursuing this path could become hazardous as momentum for solar power continues. What then, should utilities do to catch up to achieve a more prominent, prosperous role in the market?

We know that consumer adoption of solar will increasingly challenge utilities’ traditional revenue models. Solar is disrupting demand and displacing conventional sources of generation in the energy market. In addition, due to the intermittent nature of solar, it’s also starting to cause very real disruption to grid operations, accelerating the need for further grid modernization to accommodate bi-directional power flows and large fluctuations in load. However, for forward-thinking utilities this rapidly changing landscape should also indicate new growth opportunities. Some utilities, for example, are using their scale and access to consumers to directly install rooftop solar at a lower cost than third-party competitors. In Arizona, Tucson Electric has installed solar for several thousand customers at roughly half the market price. Other utilities enable their customers to adopt solar by providing rebates and financing that help reduce consumers’ upfront investment.

In addition to supporting individual consumers, utilities are also well positioned to aggregate consumer demand to invest in community solar projects. These larger solar farms offer customers virtual “credits” without the hassle of individual rooftop installation or requirement of home ownership. In Colorado, for example, Xcel Energy recently received regulatory approval to install up to 50 MW of community solar and sell shares to the public. Increasingly, utility-scale solar is also the electricity source of choice for utilities themselves, as solar economics undercut natural gas and wind prices and the industry races to meet emissions reduction mandates. Some states such as Texas and California are looking to large-scale solar as a primary new source of generation by signing contracts at record low prices. As the economic, fuel-diversity and environmental benefits become increasingly more attractive, solar will continue to challenge traditional sources of energy.

It is critical for all utilities to develop their own approach to solar, to decide if and how they want to play in this market. Such a decision requires a thorough assessment of the market, including:

  • Economic analysis to understand the interplay between energy markets, advances in solar technology, and consumers’ willingness to adopt solar

  • Scenario planning to inform the need and potential timing of required shifts in core strategy

  • Business modelling to develop models that satisfy consumers’ desire for solar, while protecting social obligations to serve all

  • Stakeholder strategy to explore the various regulatory pathways and deploy solar investments that align with stakeholder interests

As solar continues to gain traction, utilities will need to find ways to incorporate these new forms of generation. As adoption picks up speed, the need to analyze and plan effectively is imperative. Targeted acquisitions, regulatory engagement and new business models are all required. This is a market that utilities cannot afford to miss, but for those that get it right, the outlook is bright.