The effect of solar on power utilities

From Monetary Realism, the basic argument is this:

  1. Solar is rapidly decreasing in price. Quite rapidly. Amazingly rapidly.

  2. There is no reason to believe that the current trend will end. Understandable. Once you start going down, you just can’t stop.

  3. Solar is still decades away from being cheaper than fossil fuels… but only the cheapest rates. It’s not One Price To Rule Them All. Power companies charge different customers different rates, and solar is now, already, even as we speak, creeping into the range of the high-rate customers in expensive regions. These customers that get hit hardest have every incentive to add panels to avoid the worst charges.

  4. Power companies have ENORMOUS fixed costs, not just with constructing the plant but also with transmission of power and continual maintenance. It takes an extensive customer base in order to meet those fixed costs. Profit is made at the very end, only after the ENORMOUS fixed costs are met. Profit is made with those high-rate customers who are now substituting away from those high charges.

  5. The power company would like to stay in business. It might have no choice but to scale back its price discrimination and charge just about everyone higher rates to meet its ENORMOUS fixed costs. Everybody pays more for power off the grid. (Ouch.)

  6. Higher rates means an even greater incentive to add solar.

  7. Death spiral for traditional utilities. The added incentives for solar drive the price down even more quickly than its already astonishing rate.

The last few steps in their logic are kind of a leap. There’s a lot of political and economic feedback in this system that make predictions difficult. But still. Interesting argument. Hawaii is already having issues. Oahu’s power utility has successfully stalled installation of more solar panels, ostensibly for grid safety concerns. The solar customers are paying for their own power, but not for the ENORMOUS fixed costs of that grid. The utility worries about circuits being overcharged. That concern seems obviated if batteries are installed to absorb the excess juice, but the general profitability of power transmission is obviously still an issue. The issue is heating up in other places like Arizona, too.

I don’t quite know what to make of this. The grid is important. The plant is important. We can’t just switch to solar overnight, especially given the variance of solar output. This is an interesting problem. I thought some people here might have more nuanced takes on what’s actually happening, and more informed guesses about what’s going to happen.

There is the point that Solar and wind are already cheaper when one takes into account the most likely costs of us continuing to dump emissions into the atmosphere.

IMHO just on the side of having more security (I really do think those terrorists out there are looking at our old electrical grid) what I see is that our electrical grid needs a lot of updates to become a smart one and once that is in place solar and wind will be an even bigger factor on prevent rolling blackouts.

I can see the point that people that install solar panels are saving so much that it is hurting the local power companies, but as Arizona shows the companies can not just nilly willy stop the change, a fee was imposed on the solar panel users, but not as much as the ALEC lawyers (in league with the old power companies) wanted.

Solar will become immensely more popular once the current generation of research comes to the market. Several different methods and materials are in the research phase that might promise 80% or more (comparison: best panels are roughly 30% today) efficiency. Even if we only get that to 50%, we’ll get a huge amount of power from the sun for relatively cheap.

Once that happens, we can likely completely shut down most of the CO2 producing power systems, like coal.

The other side of the coin that we should also be doing is building out nuclear infrastructure to back our solar power. Basically, the down side of solar is that the sun goes away - especially in winter - so we need a backup power generation source to even that out. Part of this can be in storage of the solar energy, but that would also require expensive-to-maintain power storage stations.

Expensive energy and plants aren’t going away, but we already have low pollution options like nuclear to replace coal and others that pollute.

As for the power company staying in business, there are two possibilities:
A) Everyone pays for the expensive plants and transmission mediums through a socialized method (e.g. taxes or a fixed monthly bill to all premises)
B) The solar panels on everyone’s house become part of the power company’s infrastructure, and they add/maintain/upgrade as part of your service and charge you accordingly.

That’s fucked up what they did there.

Eh, it kind of makes sense. Utility companies need to make sure their infrastructure can serve everyone, and those who are hooked up to the grid but end up not using it most of the time should still be interested in maintaining the health of the grid for numerous reasons. It is somewhat like the gas tax conundrum: from one perspective, we all need roads and they must be maintained, so it is only fair that we figure out some way that drivers of hybrids and electric cars can pay their fair share even if they aren’t paying very much, if anything, in gas taxes that are a major component of road improvement funding. From the other perspective, it’s kind of messed up to institute a special tax on hybrid and electric vehicles because we should be encouraging people to buy those types of cars.

On the larger point, Hawaii has very expensive electricity, roughly three times more expensive than the Mainland. It makes a lot of sense that solar is taking off there, but Hawaii isn’t a good model for what’s going to happen in the rest of the United States. So I’m inclined to think that the death spiral is way overblown.

Plus, I’m given to understand that fossil fuel plants have an important role that’s going to be hard to get away from. It has been explained to me that even if we get a lot of our power from nuclear, wind, solar, hydro, etc, if there is a spike in demand (like a particularly hot day when people run their AC more), it is technically much easier to fire up a natural gas plant or whatever than demand that the sun, tides or wind pick up the increased load.

Yet still decades away from being cheaper than fossil fuels.

And I would need to see the analysis of why some customers in some regions pay so much more for energy, to be sure that they would not also pay more for solar. If you are out in the middle of nowhere and thus it costs more to ship the energy to you in whatever form, unless your area is suitable for solar the cost of shipping it to you is not going to go down - it will go up in the short run from the expense of building the infrastructure to collect solar energy.

Get back to us when it’s free.


After reading a Scientific American piece by Vaclav Smil (IMO,* a real smart gu*y), I am not expecting a rapid transmission to non-hydro renewables.

The article is behind a paywall, but here is a blog about it. Smil points out that each transition of power source (wood–>coal–>oil–>natural gas) from 5% to 50% has taken 50 or more years.

Wind and solar are only at 3.35%…

While I also think Smil is fairly intelligent, I’ve read this comparison and I think it’s flawed for one reason:

Ease of installation. To use coal, oil, or natural gas as a power source, it’s more efficient to do so in bulk. Burning 5 tons of coal or 500 tons of coal a day is pretty much the same thing. So, to capitalize on this economy of scale, you build a plant that can do, say, 40mW. It takes time and a lot of planning to put these sorts of plants in.

But once you have that power station in place, you are stuck with it. You aren’t going to rip down several billion in construction and you don’t want to invest in a new plant any time soon. So it’s there, begging to be used.

For solar, however, each panel produces x watts. the difference between 1 panel and 10 panels in the hardware (outside of the panels themselves) is a few hundred dollars. So, if you simply over buy your electrical distribution hardware, you can add panels as you see fit. On top of that flexibility, home owners can put in panels fairly cheaply, also. As we are seeing in a few places, like Arizona, uptake is by home owner and incredibly rapid and it’s offsetting costs to the utilities.

Now, I would make some changes to the model (e.g. selling power to the power company at WHOLESALE prices instead of retail), but solar is a power generation technology unlike most others: It’s evolution and adoption can be organic instead of organized, making it’s adoption as fast as the components of society wish to embrace change.

To be competitive with on-demand power production, solar and wind desperately need some cost-efficient way to store power. This article points to one speculative possibility: essentially, a battery that charges liquid chemicals that can be externally stored in tanks.

That’s probably a good thing. The current payment models are a very inefficient form of welfare (making sure that poor people can have a basic level of power at low costs).

Let’s charge everyone what it actually costs to generate electricity and give everyone the same incentive to save money by not wasting energy. If poor people don’t have enough money to buy energy (or food, or anything else we think is important), let’s give them money and let them decide how to spend it.

Well, there’s no rule of nature that says everybody must pay the same price. In theory you can use price discrimination to get rid of some of the deadweight loss stemming from the monopoly. But I see your point.
I’ve been giving a bit more thought to this, and I think the argument from that blog I cited potentially fails in two different ways.

First is their assumption about the causation from the drop in prices. They’ve noticed a correlation between increased capacity and decreased cost, and then extrapolate that out, but the relationship needn’t be robust if it were suddenly hurried up. Prices are going down because of better solar tech, and also economies of scale from current production. This is coinciding with the current rate of increased production. But given a massive increase in demand in a short amount of time, production capacity could be strained and those economies of scale might be temporarily tapped out. We could potentially see the current trend of lower prices slowing down, or even temporarily reversing until the tech catches up again. This would mean movement on a slower timeframe than they expect.

Second is the previously mentioned problems of ignoring the current grid. Say it takes X dollars to keep the grid and plant maintained. Solar is too variable to rely on, so even if the high-rate customers opt out of the most expensive times, then… it will still cost X dollars to maintain the grid and plant that must be maintained, it’s just that the cost would be divided among a smaller customer base. This will increase the incentive to substitute away, but even then… it will still cost X dollars to maintain the grid and plant that must be maintained. Until there’s a way to decrease those massive fixed costs of power distribution in order to maintain consistent power when needed, X will remain a massive number, and solar will just result in a reallocation of costs rather than any kind of replacement.

Those fees that Arizona is charging solar users can go up quickly if the poorest start feeling a pinch. This would increase incentive to get X down, but again, it’s likely to take longer than they project. “Death spiral” will have to remain hyperbole when regulators need to protect their industry.

It’ll be interesting keeping an eye on Hawaii to see how it plays out there.

Storage is one of the big problems with solar. Typically storage would involve batteries or some kind of fuel cell. Super capacitors are a future possibility.

The other main problem with solar is that it produces DC voltage whereas most countries us AC to power homes etc. So in order to produce useful electrical power an inverter is used to convert DC to AC. Most inverters work efficiently when the PV panels are receiving a high level of solar irradiance. As the irradiance diminishes the efficiency of the device drops and noise, in the form of electrical harmonics, creeps in to the system. This can cause damage to electrical devices and upset the transmission of electricity where it is connected to the grid.

On the materials side, silicon still dominates the market and is likely to for the foreseeable future. Thin film PV and other such as OPV have not really made a significant impact commercially, although Sharp do make think film PV and I assume others do too. There are a few companies using hybrid devices such as dye sensitised cells but these occupy a niche market in using coloured windows to generate power.

True, and it’s possible the current system does an ok job of that.

I expect that in the future we’ll have better dynamic pricing options so that people with a lower marginal utility for power can buy it off-peak at lower prices and make the current infrastructure more efficient.

I’m also not convinced that increased solar efficiency is really going to result in the downfall of public utilities for economic reasons (I’ll ignore for a moment the huge political leverage they often have). There’s still a huge economy of scale gain by having large utilities manage things. Why would I want to have solar panels on my roof? I’d have to worry about cleaning them, making sure the trees don’t grow in a way that puts them in the shade, etc. Right now people are doing it either because they are situated where being served by utilities is not convenient, or because the payoff time is very short due to tax credits, but in the long term, power companies are going to be able to do all that stuff better and cheaper than me. If the transmission costs are huge, I’ll gladly lease the top of my roof for them to install panels locally, as long as they deal with it.

Look at the trend in computation. It’s also getting much cheaper and more efficient, but most of the actual work of administering it is offloaded to large companies that maintain server farms. Some people still run their own services for a variety of reasons, but the vast majority are happy to let Amazon and Google and Apple do the heavy lifting for them.

It looks to me like the Arizona utilities had to add that fee because they were using a stupid fee structure to begin with. A utility has two main sorts of expenses: Infrastructure costs, which don’t really depend much on how much energy a customer uses, and generating costs, which do. The sensible way to charge customers, then, would be a fixed monthly fee to pay for the former, plus a rate for the latter. Do that for everyone, and solar customers won’t be an issue: They’ll pay their way, same as everyone else. Or maybe they’ll be resourceful and find some way to get along completely off-grid, in which case they won’t be paying the utility at all, but also won’t be using any of its infrastructure, which is still fair.

This simply isn’t true at all. Check out Chile’s solar installation projects- they sell power on the spot market, same as other generation methods, without any subsidies.

Grid parity is something that will creep across the map, location by location. As it does, solar companies will effectively become competing utilities. They are in cases where they lease rooftop systems- they pay the upfront costs and the customer effectively buys (cheaper) power from them over the long term. We see the same effect with commercial and grid-scale projects.

In the long run the smart utilities will take an if you can’t beat 'em, join 'em approach and install their own (cheaper) solar generation capacity and sell that instead of selling coal and gas power. They won’t like it though- their market share is going to shrink shrink shrink.