The trend toward an idealistic, even starry-eyed, fixation on renewable energy is a source of annoyance and threat for many utility executives. Activists and dreamers can let emotion rule as they pin their hopes on solar and wind. Utility executives must face the hard facts of economics. They have no choice but to grapple with questions such as how to maintain a stable energy grid amid the flight to renewables, or how to cover their own fixed costs amid unpredictable energy usage by consumers.
One adaptive response by the industry-imposing flat fees in a bid to move away from usage-based rate calculations-draws fire in the media and among activists. Take the Nov. 11, 2015, Scientific American story headlined "New Fees May Weaken Demand for Rooftop Solar: Utilities that impose fees on solar homeowners see a sharp drop in installations." The piece describes the "chilling effect" of fees on home solar markets in states such as Oklahoma and Arizona, where one utility reportedly saw its new rooftop solar applications decline from 600 per month to 25 per month after it imposed the fees. "Just this year, at least five states from Florida to Arizona have implemented or are considering a variety of new fees for homes with solar panels connected to the grid," the magazine reported.
Imposing fees is perfectly understandable given the economics of today's energy market. However, these tactics can easily be misinterpreted as "obstructionist" and anti-renewable energy. As such, they carry an under-discussed risk-namely, the potential to undermine utilities' relationships with their own customers. That would be fine if new competitors were unable to jump into the marketplace, but quite the opposite happens to be true.
With respect to the masters they serve, investor-owned utilities, in particular, have a split loyalty: Yes, they need to drive stock value for their shareholders, but their business models and public mandates also hinge on serving energy customers to the best of their ability. And whether one likes it or not, the U.S. push for renewables has the potential for changing the relationship between customers and their utilities. Moving forward, the utility-customer relationship will not be solely about using a central service station, wires and a meter to provide a consistent energy supply at a fair price. Instead, it will be about offering energy consumers a wider array of choices. Given this shift, utilities should consider being proactive and aggressive about signing and even promoting rooftop-solar leasing arrangements.
After all, if utilities fail to "get ahead" of the demand for rooftop solar, their hungry competitors will be more than happy to take the lead. Indeed, in the absence of widespread rooftop leasing deals initiated by utilities, it is likely that "behind-the-meter" arrangements will grow at a faster rate. When consumers finance panels from third parties or buy them outright in behind-the-meter arrangements, utilities lose money. Of course, if the customer goes off the grid entirely, the utility also loses that long-term relationship. Leasing deals, by contrast, actually preserve and strengthen the utility-customer relationship. By leasing the customer's rooftop, the utility actually enhances its ties to the customer: "We're not just a power provider anymore; we lease part of your roof."
The time to act is now. Recent changes in Georgia help illustrate how the demand for alternative energy is already leading to more choice for consumers. Over the summer, the Georgia Legislature passed the Solar Power Free-Market Financing Act of 2015. The bill cleared the way for third-party financing of solar panels in the state. Now entrepreneurs are seeking ways to help rooftop solar go mainstream across the state. One example is the Kennesaw-based startup Solar CrowdSource, which launched in September. Founded by an attorney, it aims to help nonprofits, utilities, HOAs, individuals and municipalities ramp up interest in group-funded solar campaigns. The goal is to be a one-stop-shop for help with the legal, engineering, marketing and regulatory challenges that typically arise on solar projects.
In Texas and other states, meanwhile, large corporations are now keen on setting themselves up as so-called "retail electric providers," which function a lot like utilities but without the need to generate power. These entities do nothing but broker power from various sources-solar, wind and natural gas included-and develop customer bases. They represent serious competition for conventional utilities. One example is Think Energy, a retail electric provider established by GDF SUEZ Energy Resources NA, which announced on Nov. 3 that it is now supplying residential electric service to consumers across Texas. In the press release, the company promised to broaden consumers' options, give them more information and "make the entire energy-buying process simple, straightforward, and transparent."
Legally, there is nothing to prevent customers from doing anything they want with their own energy loads-up to and including going totally off grid-so long as they meet local standards. Regardless of whether one agrees with the sentiment, the fact is that growing numbers of residential customers see rooftop solar as a way to save money and help the planet. As a result, many are keen on leasing or buying rooftop solar panels. Meanwhile, commercial operators with millions of square feet of rooftop space are also getting more interested in alternative approaches. The likes of Walmart, Costco, Kohl's, Apple and IKEA, to name a few, are leading adopters of rooftop solar. These businesses are well aware of how "going green" can boost their relationships with their customers by creating more positivity around their brands.
However, even commercial users that do not focus on the customer-facing side of the business sometimes see good reasons to invest in rooftop solar. Let's say a landlord wants to build a 1 million-square-foot warehouse in an industrial district. One way to secure financing would be to emphasize that the warehouse's rooftop solar arrays will provide additional collateral value: "I'm not going to depend only on rental revenue," the landlord explains to the lender. "I'm also going to generate a lot of power and sell it back to the grid."
With time, the proliferation of competition in the energy sector, along with evolutions in micro-grid technology, energy storage and solar panel efficiency, will likely make rooftop arrays cheaper and easier to install for both commercial and residential customers. Cognizant of these trends, some utilities are already making big bets on the future. Over the next three years, for example, Southern California Edison aims to spend $12 billion to modernize the electric grid. According to The Los Angeles Times, Edison CEO Ted Craver says the utility views the capital investment as preparation for a future in which more individuals actively sell electricity: "Someday, there may be a marketplace where customers sell the power they generate while others are buying it. Think Bitcoin or eBay, platforms that match buyer or seller on an individual basis. We're preparing for that day when we may provide that platform using our network." In October, Santee Cooper, the state-owned utility in South Carolina, approved an incentives package for customers who want to buy or lease rooftop solar panels or join a Santee Cooper community solar program.
These utilities want to get involved and help consumers choose how they go about buying electricity. One could draw an analogy to U.S. retailing. Across this sector, the best chains have learned to embrace "omnichannel" approaches. Rather than simply sell goods in a store, they now leverage a wide variety of channels: online, catalogs, mobile apps, in-store kiosks and more. This was not necessarily by choice: These chains knew they could not simply ignore the rise of Amazon and eBay.
While not all utilities are comfortable with it, becoming an integral part of the rooftop-leasing trend is a way for them to maintain strong customer connections at a time of increasing competition and choice. Does it create headaches and challenges? Absolutely. But getting involved now can also help utilities protect the integrity of the grid, because this gives them more knowledge-and input-about its evolution. With the U.S. energy model drastically changing, being an integral part of those changes is a better way to regulate the quality of service you provide. Ultimately, this will help you build even stronger relationships with your customers and investors.