America’s Power Grid

Hulking, Creaky and Challenged by Solar

By | Updated March 14, 2016 7:08 PM UTC

The biggest machine on Earth delivers $400 billion of electricity a year across 7 million miles of transmission and distribution lines. It’s the U.S. power grid, an interconnected system of generating plants, wires, transformers and substations that keeps the lights on for the homes, offices and factories of the world’s largest economy. It’s also an aging dinosaur that sorely needs an upgrade to its $840 billion in infrastructure. Improvements would make the grid more reliable, resilient and efficient, cutting the nation’s carbon emissions. It’s not clear where the money will come from. More and more power customers are bypassing the grid, many in search of cleaner energy, most often from solar panels. Every one that unplugs is another blow to the utilities that must keep the power flowing.

The Situation

U.S. consumers and businesses are increasingly making their own electricity, and that’s generating a surge in fights at the state level over policies that helped encourage the growth of solar power. Instead of big, centralized plants that make power for utilities, solar panels can pump out juice that goes straight to the user. Technology companies including Google and Apple have developed solar farms to power their data centers. Verizon has spent $100 million on solar panels and fuel cells for offices and call centers. Almost half the new electrical generating capacity added in 2015 was solar-powered, while hospitals, universities and manufacturers have installed on-site fuel cells that turn methane into electricity through a chemical reaction. Solar power’s share of electricity production is tiny — less than 3 percent — but as price barriers drop the trend has utilities lobbying their states hard. At least 17 states are debating or have recently changed rules regarding how households with solar power get paid for excess supply they send to the grid. In Nevada, a new law led to a plan by regulators to raise a fee for connecting customers solar panels to the grid by 40 percent while cutting  payments for power they sell to utilities. In response, two big solar companies vowed to leave the state. Solar is posing a similar challenge in parts of Europe, helping to wipe out about $400 billion in the stock market value of utilities there.

Source: Solar Energy Industries Association

The Background

The 3,200 utilities that operate the U.S. grid haven’t changed their business strategy since Thomas Edison switched on the first power plant in 1882. Massive, centralized facilities — think Hoover Dam and the 99 commercial nuclear reactors in 30 states — generate energy that’s sold to residential and commercial customers. It’s a monopoly industry that’s now facing a fundamental threat because customers who once had only one choice for purchasing electricity now have the option of producing it themselves.

The Argument

If a robust grid is a public good, even for households or companies that brew their own electricity, who should pay for its upkeep? Traditionally, grid maintenance has been a fixed cost for utilities, funded through kilowatt-hour charges. But power companies worry that folks going partway off the grid are acting as free riders. Worse, the more customers pull out of the system, the more heavily its costs fall on the ratepayers who remain. That could give them more incentive to install rooftop solar panels, setting off a vicious cycle that would hurt households that can’t afford them. California’s top three utilities say that trend could shift $1.3 billion in annual grid costs to customers without solar panels within a few years. Solar proponents say that distributed resources cause less strain on the grid and will reduce utility maintenance costs for everyone.

The Reference Shelf

 

(This QuickTake includes a corrected description of the chart data.)

First published Oct. 17, 2013

To contact the writers of this QuickTake:
Chris Martin in New York at cmartin11@bloomberg.net
Will Wade in New York at wwade4@bloomberg.net

To contact the editor responsible for this QuickTake:
John O'Neil at joneil18@bloomberg.net