Earlier this month, San Francisco hosted a clash of the Titans – both in market share and rhetoric – in distributed solar. To my knowledge, Danny Kennedy of Sungevity, Lyndon Rive of Solarcity and Ed Fenster of Sunrun have never appeared together on stage before and their rivalry, despite the good humour, was plain to see at the Commonwealth Club.
While they might heatedly disagree on which of them will install the best system on your roof, antipathy towards utilities was certainly a subject they could all agree on.
“If you look at your PG&E [Pacific Gas & Electric Company] bill, two thirds of the cost you pay is in getting the energy from your power plant to your home,” said Fenster.
“The real place that you want to put solar is on a home or business [premises], not in a desert where it has to be transported and distributed to load centres at cost. So it's much more competitive when you put it on a home because it avoids all the transmission and distribution costs.”
“Solar's coming up from this tiny miniscule proportion,” said Kennedy. “But 1% [goes to] 16% very easily and even PG&E and the big utilities will tell you that it will be 10% or 20% of the grid within the decade and if we get our way, it'll be more than that.
“It's a bit reminiscent of the conversation with landline telecom companies – sitting around being complacent saying don't worry about those cellphone things. We've got a similarly disruptive technology [with solar] governed by the same semiconductor manufacturing process and we've provided better service for less so we're going to take their lunch.”
It's tough these days to be a utility in the western United States, as transmission and distribution investments are where they make their money, such as San Diego Gas & Electric's reported $1.4 billion profit from the $1.9 billion Sunrise Powerlink.
Utilities like utility-scale solar, but distributed solar is giving them the heebie jeebies.
“It's taken us 10 years to get to 0.5%,” said Rive. “But let's say we've become really good and do in one year what we [did] in 10 years; the big issue here is that solar is threatening to new utility growth. The average utility growth is roughly 1-3% [annually]. That extra growth is pure profit and hides a lot of sins.
“So we've reduced that little bit of growth that they need. That's the next 10-year fight: who gets that 1-3% growth.”
Utilities have become so scared of their losses to solar, that they have gone on the attack. Most of the time, this fear of loss of profit is masked by debates over “cost shifting” on to non-solar customers, but that only disguises the real issue.
Arizona Public Service, however, has been more directly aggressive than most by writing to its customers to tell them that rates will increase because it is losing revenue from energy efficiency measures.
“Utilities are very aggressive about it because they've never faced competition and they have always earned riskless profit,” said Fenster. “Arizona Public Service, probably the most aggressive anti-solar utility in the country, sent a notice to customers that said because people are recycling their refrigerators and installing CFLs we need to raise your rates.”
It's all the more astonishing that the Arizona Corporation Commission allowed them to do so. It's hard to believe it could happen in California.
But like it or not, change is inevitable in the utility industry, said Kennedy.
“Steam technology is really old and the deals we struck with utilities to get us power to keep the lights on in the streets are really old contractual understandings.
“The utility model doesn't make sense in the 21st century. They haven't innovated much, they still use the same old steam turbines as they did in the 1890s; then along we come with this modular technology made out of silicon that produces stuff from sunlight without any boiling water or transmission. They are challenged by that. Some are trying to embrace it. NRG Energy stands out as a company that says a lot about DG, but others are definitely fighting it tooth and nail.
“But it's like being Rupert Murdoch 10 years ago and saying we've got to continue shunting media down a one-way pipe and you're going to suck it like a fire hose as a consumer. No, we don't take it like that anymore. We produce our own content. We have Twitter, blogs, YouTube ….
“The disruption that has been availed by the technology change is coming to electricity and utilities better catch a clue. From our pint of view we need to work with that. We need not to vanquish them but make them our friends.”
Rive admitted that during the investor roadshow ahead of SolarCity's IPO, the company considered pulling the floatation and discounted its value – and then on the day it launched its public offering, shares closed at 47% above its $8 price.
“The investment community has been beaten up by solar quite significantly,” said Rive. “Even though you can justify and show that you are not a manufacturing business, there's no appetite at all for risk and investing into the solar industry.
“We had the choice of pulling it, but if we'd pulled it, it would have been bad for the industry and bad for us. But we're now giving the investment community the opportunity to watch us to grow as an energy company selling electricity. That's important because we need to transform the energy infrastructure that we have. No body looks at PG&E and [says it's] a financing company or a power installation company; they view it as an energy company.”
Kennedy said that the IPO helped put the ghost of Solyndra to rest finally, a riposte to the “naysayers and naybobs of negativity”.
“One company failed, so it's like Netscape's down the internet is never going to work. These guys went out and tested the market against the odds and show that the public has a taste of this.”
Sungevity is partnered with crowdsourcing company Mosaic.
“We sell out in 24 hours when we have a project on offer,” he said. “That's an indication that the community is going long on solar. They get the dynamics, they know that electricity prices are going to go up and not coming down. The professional investor class may have lost their way.”