Residential Solar: Challenges and Opportunities – 2/16/16

Residential solar is facing challenges and opportunities as utilities use regulatory pressures to push back against solar’s recent growth.

According to a recent report from GTM Research, falling installation costs and rising retail rates for electricity have made residential solar more attractive in the US. 20 US states are currently at grid parity, and 42 states are expected be past that point by 2020, if current trends and assumptions hold. Accounting for favorable regulatory environments (net metering rules, rate design, and other incentives), California, Massachusetts, and Hawaii are the most attractive for new installations. On the other side of the spectrum are states typically associated with fossil fuel extraction like North Dakota or West Virginia.

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Despite recent successes in reducing the cost of solar energy, the industry still relies on regulatory support and high retail electricity rates to reach grid parity. The instability of those two pillars of support has been especially apparent after an increase in fees for solar rooftop projects in Nevada threw solar businesses in the state into chaos and low natural gas prices kept electricity prices low through most of 2015. Demand for residential solar soared in previous years (48%, 2015; 52%, 2014) on solar leases determined on the basis of net-metering but push back from utilities puts net-metering and, by extension, the whole value proposition for solar in jeopardy.

Utilities, who lose demand for every new rooftop solar user, have clear incentives to use regulations to obstruct installations. They need revenues to pay for the grid and social programs providing low rates to poorer customers. The utilities also find matching supply to demand on grid becomes harder when some customers generate and sell power on their own. Ultimately, the costs of renewables will fall to the point where utilities have to accept those issues as the new reality of electricity generation. Cheaper methods are always favored in the long run so what will happen when more and more people decide to cut their bills by installing residential solar systems? Who will pay for the grid? For those without the capital to invest in solar? As always some states have accepted the inevitable while others continue to put off planning to deal with the disruption just on the horizon, leaving businesses to move on the issue before politicians.

Some unlikely heroes may be fossil fuel companies that best understand how the energy industry is changing. Statoil ASA, Norway’s biggest oil and gas producer, announced that it will invest as much as $200 million in renewable energy over 4 to 7 years. The move to diversify the company’s energy holdings will have it taking stakes in startups developing technologies including wind power, energy storage, and smart grids. “The transition to a low carbon society creates business opportunities, and Statoil aims to drive profitable growth within this space,” Irene Rummelhoff, executive vice president of the clean energy unit, said in the statement. Support from large companies like Statoil and famous investors like Bill Gates, who unveiled his own Clean Tech Initiative last fall to encourage investment in energy innovation, should serve as writing on the wall for those who still doubt that major changes are coming to the energy sector.

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