How Just 1% of Solar Energy Is Disrupting the Electricity Market

Eric Garland Energy Trends 1 Comment

My man Chris Nelder, international analytical giant of all things energy markets just gave a great interview to NPR about how development of solar energy can cause a headache for utilities – even though it’s only 1% of generation these days.

A classic case of Clay Christensen’s theory of the Innovator’s Dilemma, the further solar progresses, the more it succeeds, the more traditional utilities will have a big problem.

One percent of the total nation’s energy or electricity production is not really the problem. The problem is at a specific utility they might have a significantly higher percentage of their total power generation coming from rooftop solar and things like it.

And so what’s happening as that progression continues is that more and more customers are generating their own power instead of buying it from the grid, from the utility. At the same time, the utility is required to maintain its lines, to maintain the associated infrastructure, and so they have to now distribute those maintenance costs over essentially a declining base of rate payers who are actually giving them revenue by buying power from them.

And so this is creating a situation that a recent paper from the Edison Electric Institute, which is an association of the shareholder-owned or private utilities in the country, what they call disruptive challenges. And one of them is this notion of a so-called death spiral, where you have more and more customers generating their own power, the utilities are losing the revenue from those customers, and yet they still have to pay for the associated infrastructure and so on.

And so as time goes on and that progression continues while the cost of solar itself is falling, it just continues to put the economics in the direction where it’s more advantageous for more customers to put solar on their roof.