Disruptive Innovation Alert: Regulated Utilities Vie for a Piece of the DG Solar Pie

13 Aug 2014

Regulated utilities have made many attempts to get involved with the distributed generation solar, but is this the best way for utilities to acquire solar assets?

Regulated utilities have made many attempts to get involved with the distributed generation solar, but is this the best way for utilities to acquire solar assets?

After gaining a reputation for being one of solar’s most outspoken naysayers, Arizona Public Service (APS) shocked the industry by announcing its intent to get into the residential solar market. This is not the first time a regulated utility has attempted to catch up to a disruptive innovation by owning solar in its own territories, and it likely won’t be the last. The timing of the APS program comes not far after Jon Wellinghoff, former FERC chair, published a report entitled Thinking Outside the Box: A Case for Utilities Owning Solar within Regulated Service Area along with James Tong from Clean Power Finance.

To date, many attempts for regulated utilities to cash in on the solar game in their own territories have been unsuccessful or met with mixed results – and that’s only if regulators approve them in the first place.Florida Power & Light (FPL) is vying for its piece of the DG solar pie by asking customers to voluntarily contribute $9/month that the utility could use to construct solar plants. When filing with the Florida Public Service Commission, FPL estimated that only 7,800 of their 4.7 million customers would sign up in the next three years. And, back in 2010, Duke launched its own utility–owned customer sited rooftop “PVDG” program, which was also met with underwhelming results, significantly underperforming initial filings.

Overall, the concept of regulated utilities owning solar assets has been met with controversy because they have been granted a state-protected monopoly.  This in turn makes them far cheaper borrowers than any industry in the competitive space can be – a potentially significant unintended advantage.

At Sol Systems, we see more opportunity for deregulated utility subsidiaries to successfully acquire DG assets. Deregulated utilities are significantly more nimble, they are not required to have a certain rate of return, and they already have a salesforce that’s used to selling. By necessity, they must be innovative and compete, whereas regulated utilities by nature have not been required to win customers or alter their business models.

Utilities’ attempts to own more solar in their territories remind us of other famous examples of disruptive innovation. Remember, Verizon fought cell phones for a long time before they had to play catch up and buy their way into the mobile space. The solar and utilities discourse also mirrors the evolution happening to the taxicab industry with the emergence of Lyft, Uber, and others.

Regardless of your opinions on whether regulated or deregulated utilities should own solar, you can’t argue the action of utilities like APS show that utilities see the market as sustainable beyond the bump-down of the investment tax credit (ITC) in 2017.  If you can’t beat ‘em, join ‘em?

About Sol Systems

Sol Systems is a renewable energy finance firm that provides secure, sustainable investment opportunities to investor clients, and sophisticated project financing solutions to developers.  Founded in 2008, Sol Systems focuses on meeting the industry’s most critical solar financing needs, including tax structured investments, capital placement, debt financing, and SREC portfolio management. To date, the company has facilitated financing for thousands of distributed generation solar projects and hundreds of millions in investment on behalf of Fortune 100 corporations, utilities, banks, family offices, and individuals. For more information, please visit www.solsystemscompany.com.

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Sara Rafalson

Sara Rafalson