A new report from UBS finds that renewable energy and energy storage are together presenting a “perfect storm” for big utilities. The declining cost of solar, energy efficiency, and electric vehicle technologies threaten to upend centralized electricity generation, putting the utility business model in jeopardy. Grid parity has already been achieved in certain parts of the world where conventional electricity rates are high and renewable resources are plentiful.
Renewable energy is beginning to cut into the bottom line for U.S. utilities. The average price for solar PV modules declined by 80 percent between 2008 and 2012. Net metering policies and innovative financing schemes like SolarCity’s leasing model are making distributed generation — where consumers generate power on-site — much more financially viable. This leads to a utility “death spiral,” in which utilities begin to lose customers, forcing them to jack up rates to cover lost revenue, which in turn pushes more people away. As of 2011, about three-quarters of U.S. utilities had a BBB credit rating or worse, indicating a striking lack of confidence in their financial future. In 2000, less than 40 percent of utilities earned such an abysmal grade.
This concept is not new, but the UBS report suggests the trend is picking up steam, particularly in developed markets with flat electricity demand including parts of the United States, Europe, and Australia. Data from the Energy Information Administration (or, EIA) shows that electricity sales have declined in four of the last five years in the U.S. While some of the drop off is attributable to the financial crisis and subsequent recession, energy efficiency and distributed generation are playing a key role. According to the EIA, “[g]rowing installed capacity of behind-the-meter sources of generation (largely from rooftop solar) is displacing some electricity sales that would otherwise occur.”