Will Utilities Look at Solar Microgrids in the Rearview Mirror and Say 'Uh Oh'

Growth in solar microgrids — and all forms of distributed solar — is accelerating. So much so that utilities better jump into the market now or risk watching it pass them by.

That’s the message from a new white paper, “Utilities and Distributed Solar: Go Bold (and Smart) or Go Home,” recently published by ICF International.

Utilities be forewarned: the economics of distributed solar are so strong, the industry can even withstand what the paper calls “the skunk at the solar party” —  which is next year’s reduction in the U.S. federal investment tax credit.

Sure, there probably will be a boom and bust, a flurry of activity in 2016 as consumers rush to take the credit, then a lull in 2017. But ICF predicts that the industry will pick itself up and continue to grow over the next 5-10 years.

It turns out that even without the credit, solar is cost-effective in states where electricity is pricey, like Connecticut, a key microgrid market. And analysts expect pricing to get even better. Commercial solar costs fell by more than 60 percent from 2002 to 2015; Deutsche Bank forecasts another 40 percent drop by 2017, ICF says.

Further, solar microgrids and distributed solar are increasingly used in grid management (especially when paired with storage) to improve reliability, serve demand, and decrease costs.

Most interesting, the report finds that distributed solar is seeing tremendous growth even as macro factors work against it. Demand for electricity is down. Natural  gas and oil prices are low. So is inflation. None of this makes for an ideal solar climate. Yet in first half of this year, 40 percent of all new generating capacity came from solar.

Consider what will happen, the report says, if these factors reverse; if inflation rises, for example.  Add to that the boost solar is likely to get from upcoming pro-renewable regulations, such as the federal Clean Power Plan, and it’s easy to see why analysts are bullish.

All of this is bad news for utilities, right? Maybe, maybe not. Some will lose sales to solar. But others are starting to go ‘bold’ and ‘smart’ on distributed solar, figuring out ways to leverage it, rather than pretend it’s not in the rearview mirror, gaining on them fast.

Palpable Utility Shift

“The good news is that a year or two ago, the greatest potential pitfall for many utilities was not seeing the trend, not believing it would last, or hoping that it would only be a factor elsewhere but not in their own market. There has now been a palpable shift,” says the ICF report. “While there are certainly some utilities feeling less impetus to have a proactive solar program, the majority are actively engaged and working effectively to protect their key values.”

New Jersey-based PSE&G offers a good example, according to the paper. The utility strengthens its customer relationships and earns a regulated rate of return with a solar loan program that has led to 80 MW of installations so far.

“This is a big market opening, and utilities can provide unique benefits to it,” ICF says.

The engaged utilities now must decide which distributed solar programs to pursue. ICF cites as some options solar microgrids, community solar, and customer incentive and loan programs. Utilities  also might consider combinations of options — pairing solar with storage, microgrids, electric vehicles, energy efficiency and other distributed energy to improve project benefits and economics, says the report.

“But utilities cannot afford to wait, and increasingly, they are not waiting. They recognize that change is just around the corner on utility planning time scales, and the change will be significant,” the report says.

This article was originally published in Microgrid Knowledge and was republished with permission.

Lead image: Microgrid Knowledge.

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