July 1, 2009

Managing Solar’s Revenue Impact on Utilities

Mike Taylor

Since 1882, when Thomas Edison installed the world’s first central generating plant in New York City, utility business models have varied little from the basic one: cover costs and generate profit by selling more electricity. But today, unprecedented challenges are sweeping through the industry. Soon utilities will face yet another new challenge: the large-scale implementation of distributed solar power, which can result in lower electricity sales. As solar implementation further challenges business-as-usual models, what’s a forward-thinking utility to do?

The PV Industry’s New Business Models

Much like the wind energy industry earlier in this decade, the global photovoltaic (PV) industry is poised for significant growth over the next five years — on the order of tens of gigawatts installed annually by 2015. Unlike wind, however, PV can readily scale from watts up to hundreds of megawatts per installation. Ownership can vary from the utility to the utility’s customer or a solar developer, and installation can occur on both the customer and utility sides of the meter.

Recent innovative business models for PV projects include the installation of 40 MW of PV on 200,000 utility poles, implementation of "distributed power plants" (up to 500 MW distributed on hundreds of customers’ property on the utility side of the meter), and announcements for centralized projects up to 550 MW. It is not an exaggeration to say that PV will become a new disruptive technology in the electricity sector, just as personal computers and cell phones were in their respective industries. For most utilities, the question of solar implementation should not be "If" but "How soon? By whom? and Where?"