When Will Solar Be More Affordable Than Traditional Utilities?

When Will Solar Be More Affordable Than Traditional Utilities?

Grid utilities are VHS tapes. They're Blockbuster. They're newspapers, cassette tapes, and the U.S. Postal Service. They're landline phones.

"New markets have a way of completely outmoding the incumbents," Jamie Mandel, a senior consultant on disruptive technologies for Rocky Mountain Institute, said in a phone interview.

And utilities like Arizona Public Service and Xcel Energy are no different. Rooftop solar panels paired with battery storage are already competing with the Hawaiian Electric Company's grid.

"That's really a postcard from the future," said Jon Creyts, RMI managing director. "We have a lot to learn from Hawaii."

RMI, a research and analysis firm focused on renewable energy and sustainability, partnered with Homer Energy and CohnReznock Think Energy CRTE to study the timeline for rooftop solar panels paired with battery storage.

Creyts said recent discussions about the "threat" solar energy poses to the standard grid utility business model had RMI wondering when it was likely to become economically feasible for the masses to defect from the grid by switching to solar and battery kits at home and in their businesses.

He also said that he and his team were surprised no one beat them to the research. There was only one other study on when solar panels paired with batteries would really begin to threaten the utility model, and that was a regional look at Japan.

The RMI team focused on five states: three with high electric rates and two with some of the lowest rates in the country. They found that the economics already make sense to defect from the grid in Hawaii.

The surprise was that New York utility customers will have financial incentive to abandon the grid in just 11 years, and Californians will have parity in solar and battery kits by 2031.

Kentucky and Texas, which have low utility rates, won't have favorable economics for defection until 2047.

The danger for utilities
"Of course, there are a lot of situations where customers will adopt the new technology even before it's economically viable," Creyts said. "You need look no farther than Sandy to see that happening."

Creyts said that the study used conservative figures, and it's possible solar paired with batteries could be economically viable even sooner. This spells trouble for major utilities.

"The current utility business model is to make investments now in new power generation equipment and pay it off over the next 30 years using customer revenue," Mandel said.

But what if that customer base begins dwindling? Rates will go up more rapidly, creating an even greater incentive for grid defection.

"Once economics are no longer a factor, that's a utility death spiral," Mandel said.

That makes this a particularly relevant issue today when utility companies are trying to decide how they will replace aging and increasingly regulated coal-fired power plants. Should they be investing hundreds of millions of dollars in natural gas plants?

What utilities can do
RMI and its partners are working on a companion report that will examine possible solutions for utility companies.

Hawaii is considering legislation that will force the utility to find a new business model focused more on connection as a service than on selling kilowatt hours.

In the end, recent debates in states like Arizona, California, and Colorado about net metering are shortsighted. The threat solar poses to he utility business model is real and it's time for utilities to start creatively brainstorming ways to adapt.

How you can profit
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The article When Will Solar Be More Affordable Than Traditional Utilities? originally appeared on Fool.com.

Amanda Miller owns shares of SolarCity. The Motley Fool recommends SolarCity. The Motley Fool owns shares of SolarCity. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Originally published