Rooftop solar could kill—or save—the Texas electric grid

That’s a boon for the solar industry, and for homeowners who can often save money and have more reliable power by generating it on their roof. But it poses a challenge for the utilities that need to keep the lights on for everyone else. That’s especially true as climate change impacts pose a growing, and expensive, threat to the grid—climate resilience upgrades could cost US utilities $500 billion by 2050, according to a March 3 report from the consulting group ICF. Analysts have warned of a “death spiral” for utilities as solar becomes more popular: the loss of customers forces traditional utilities to jack up prices for remaining customers, making it more financially attractive for others to buy solar. The exodus of customers continues until utilities are threatened with bankruptcy.

Utilities stand to lose tens of billions of dollars to solar defectors if they make no changes to their business model, according to the Rocky Mountain Institute (RMI).  An analysis of the northeastern US by the non-profit research group found that by 2030, nearly 10 million utility customers could get most of their power from solar, inflicting losses of $15 billion.

But the “death spiral” is not inevitable. Utilities have a chance to make the transition to clean, distributed energy work in their favor. For one thing, total electricity demand in the US is expected to grow by up to 13% (pdf) by 2035 as vehicles and buildings shift away from burning fossil fuels, meaning utilities could gain some sales as they lose others. Second, solar and batteries could make the grid cheaper, cleaner, and more reliable for everyone if companies and regulators exercise a bit of foresight. Solar homes providing energy and services to the grid could become utilities’ new business model.

How utilities can reinvent their business model

Since the first electric grids were built more than a century ago, utilities have made money selling as much power as possible at fixed rates. Government bodies approve a guaranteed rate of return on capital investments for things like power plants and transmission lines. It’s a hub-and-spoke model, where a small number of power plants supply many customers.

But as climate change intensifies, this centralized design is inherently vulnerable to extreme weather. Even relatively minor weather damage can quickly cascade into huge outages across the system. As utilities contemplate multibillion-dollar investments in grid “hardening,” they can turn to rooftop solar as a source of reliability. Even during normal weather, lots of solar, especially in combination with household efficiency upgrades and energy storage, means lower demand during peak times (a summer afternoon, for example), and correspondingly less need for spending on infrastructure that is only used at those times.

“There’s a lot of money on the table if we get this right,” said Mark Dyson, a principal electricity researcher at RMI. “Instead of earning money only by getting a return on equity, utilities could earn even more if the invested capital produces useful customer outcomes.”

Utilities could turn the hub-and-spoke into a multidirectional network, in which they manage the flow of electrons between thousands of interconnected solar panels, batteries, electric vehicles, and other sources. That would allow them to deliver power to whoever needs it in the most cost-effective way at that particular minute, which could be your own solar panels, the traditional grid, excess solar from a neighbor’s roof or battery, a utility-scale battery, or something else. Instead of a redundant power plant or major transmission line, utilities could spend more on smart meters and advanced grid management software enabling more real-time control of supply and demand improving the system’s efficiency. Transparent, responsive pricing could allow consumers to save energy-intensive chores, like running a clothes drier, for times when demand is low and help the utility charge more when demand is high. Regulators, meanwhile, could allow utilities to set rates based on how well they meet pre-designated policy targets, like reliability or utilization of distributed resources.

But the “death spiral” will continue to loom without this kind of innovation. In Texas, the inflection point is still years or even decades away. Electricity is relatively cheap (outside moments of crisis like the last winter storm), the share of households with solar is among the country’s lowest, and there are no statewide solar tax incentives like in a solar-friendly state like California.

But rewiring a business that has barely changed in a century, and where the stakes of failure are high, will take time. “This industry needs a bit of different ethos than ‘move fast and break things’,” said Joshua Rhodes, an energy market scholar at the University of Texas-Austin, “because when things break, people die.”