Based on the falling costs of solar and rising electric prices, Pacific Gas & Electric (PG&E), one of the largest utilities in the country that serves northern California, may not be able to compete with residential solar soon. That’s according to a recent piece at think tank, The Energy Collective by energy expert Douglas Short, President of Exas Consulting, LLC and a former Vice President at Constellation Energy.
PG&E is the seventh largest investor-owned electric utility by market value, and has more retail customers than any other utility, according to Short. At this point its residential rates are between 31 cents to 35 cents per kilowatt hour, he says. These same prices caused the solar revolutions in Hawaii and Australia. Even worse, according to PG&E, "By 2022, PG&E’s top residential rate could reach 54 cents."
Part of the issue is that with the advent of solar leases and other financing methods, solar is basically helping to break the utility’s monopoly-like hold on its customers and the state hasn’t introduced legislation to allow utilities to be more competitive. “Once there are alternatives to a product, how you price really matters to your competitive position,” Short says. “Worse, once customers go solar, PG&E loses the sales forever, exacerbating the smaller sales / higher price cycle.”
“Make no mistake about it, solar competes with utilities for sales at the point of use,” Short writes, referencing a recent statement from SolarCity CEO Lyndon Rive, who contended that his company can install solar for free and sell it at lower rates than from the utility. “The customer decides, do I buy from the utility or from a solar company?,” Short says.
He adds that the installed costs of rooftop solar will continue to fall by about 10 percent per year, “Until they meet DOE’s 2020 SunShot goal of $1.50 per watt.” He adds, “Depending on return requirement assumptions, this works out to 10 to 15 cents per kilowatt hour in San Francisco, far below PG&E’s marginal prices and on par with its current average costs of 15 cents per kilowatt hour.”
The state’s regulatory environment and rules also make it increasingly difficult for PG&E to compete with solar at those prices. For instance, the utility is also impacted by California’s net-metering law, which requires it to allow customers with solar arrays to get credit for excess generation and customers can choose to cash out any extra energy credits annually. “PG&E cannot even fix its problem even though their marginal prices do not reflect their costs, which on average are much lower.”
“There is nowhere else in the U.S. with the same confluence of events: High and rising marginal prices, good sunshine, and inability to respond to changed competitive circumstances. If ever an electric utility was set up to fall to solar, it is PG&E,” Short concludes.