By John Farrell
For 100 years, most decisions about the U.S. electric grid have been made at the top by electric utilities, public regulators, and grid operators. That era has ended.
Small-scale solar has provided one-fifth of new power plant capacity in each of the last four quarters, and over 10 percent in the past five years. One in 5 new California customers of the nation’s largest residential solar company are adding energy storage to their solar arrays. Economic defection––when electricity customers produce most of their own electricity––is not only possible, but rapidly becoming cost-effective. As the flow of power on the grid has shifted one-way to two-way, so has the power to shape the electric grid’s future.
The shift of power into customer hands is already having three, unintended consequences:
- Legacy, baseload power plants are becoming financially inferior to clean energy competitors.
- Electricity sales have stagnated as customers reduce use and produce electricity for themselves.
- Communities are reaping greater economic rewards from power generation, as electric customers, individually and collectively, produce more locally.
Almost no utility or utility regulator is adequately planning for this fundamental shift. Dozens of utilities across the country have proposed new gas-powered generation that has little chance of remaining online through the end of its economic life due to stiff competition from solar-plus-storage. Some have been approved despite substantial gaps in the economic analysis.
Utility have also made reactionary moves, or made gestures inadequate to address the magnitude of system change. There tend to be three inadequate utility responses to the reversed flow of decision-making power:
- Utilities have damaged their reputations by resisting customer interest in distributed energy resources, sending lobbyists to preempt or curtail policies that reward customer-sited and customer-owned power generation.
- Utility investments in large-scale renewable energy have addressed environmental concerns, but these low-cost power purchases have not delivered reduce electricity prices for end users nor assuaged the interest in over 70 cities of reaching 100% renewable electricity more rapidly.
- Utilities have deployed utility-owned distributed energy resources, but in ways that withhold much of the economic or financial benefit from customers.
Regulators and state legislators cannot expect incumbent utilities to respond adequately because the rise of economical solar-plus-storage challenges the century-old assumption of a natural electricity distribution monopoly. Instead, electricity market rules should facilitate fair compensation for distributed energy resources and market participants where technology already allows them to compete.
This report details recommendations for changing utility oversight and modifying electricity markets to transition from the dying utility distribution monopoly to a vibrant, democratic energy system where customers have the opportunity to choose distributed energy options that benefit themselves and the greater grid.