Solar to Reduce Utility Profits in Five Years, Fitch Says

Rooftop solar power and energy-efficiency programs will eat into utility revenue and profit margins and discourage investment in new transmission projects within five years, a Fitch Ratings analyst said.

Utilities in stagnant or low-growth markets in the Midwest and Northeast face the biggest losses as more businesses and homeowners install their own generation systems and upgrade to more efficient appliances, said Glen Grabelsky, Fitch’s managing director of utilities, power & gas. Retirees flocking to southern states may offset some losses for local utilities.

Utility revenue is increasingly threatened by technology that’s reducing demand for electricity from the grid, including solar panels, smart meters and software that shuts down operations when power prices spike. As some customers’ bills fall, state regulators will let utilities shift some of their fixed costs to other customers who don’t use solar panels, Grabelsky said today from New York.

“You can only burden the other customers to a certain degree,” Grabelsky said today in an interview. “For now it’s fairly negligible but in five years it will become noticeable. Each year the disparity will grow.”

Regulators in 43 states require utilities to buy surplus power produced by consumers’ solar panels. The companies are beginning to grapple with the impact those policies will have on revenue.

State Support

Utilities’ efforts to penalize customers that add rooftop systems were recently defeated in Louisiana and Idaho. Arizona regulators are now considering a proposal by its largest utility, Arizona Public Service Co., to reduce the price it must pay to buy solar power from customers.

“As more customers install solar on their homes, it becomes even more important that everyone who uses the grid shares in the cost of keeping it operating reliably for the future,” Don Brandt, chief executive officer of Pinnacle West Capital Corp., which owns Arizona Public Service, said in a July 11 statement announcing the company’s proposal.

Loss of demand from customers that go solar or reduce consumption in other ways will shift more and more grid costs onto customers that do nothing. Power supplied by U.S. utilities declined 3.4 percent last year, largely from energy efficiency and on-site solar generation, which reduces demand for electricity from the grid, Grabelsky said.

Unless utility rate structures change, that will reduce utilities’ abilities to invest in major new projects and upgrade their transmission systems, Grabelsky said.

“It will have a negative impact on their ability to raise capital,” Grabelsky said. “Regulators will ask, ‘Do you really need all that new transmission when there’s no demand growth?’ There’s the potential for stranding assets.”

Before it's here, it's on the Bloomberg Terminal.