A tremor in the world of electric utilities is shaking these usually steadfast institutions to their foundations: solar power is rapidly dropping in price and utilities across the country are panicked about what it might mean for their future. Everyone from Bloomberg New Energy Finance to the International Energy Agency are projecting that solar power will become as cheap as the average cost of other sources of energy (referred to as “grid parity”) in most countries in the next 2 to 7 years, and globally by 2030. In fact, the best domestic solar sites like Arizona and California have already reached this holy grail of energy viability.
All of which makes the recent direction of Washington’s largest utility, Puget Sound Energy, so hard to understand. Its recently released integrated resource plan overlooks the potential of solar energy in a troubling way. It’s an omission that could pose several grave problems.
To understand why, let’s dig into the details.
An integrated resource plan, known as an IRP in the energy world, is a complicated, data-rich document that acts as a utility’s road map for its future. It’s used for virtually everything the utility does, from justifying customer rate increases to applying for loans to finance infrastructure improvements. In its latest IRP, PSE forecasts that its customers’ peak demand will increase by 2,276 MW (see Appendix H 22, Figure H 9), which is roughly equivalent to the power used by 1.3 million Northwest homes. If its forecasts are right, PSE will need vast additional capacity from updated, replaced, or new power plants, which means that PSE will also need loans to pay for the infrastructure improvements, and it will (as is standard practice) ask state regulators to allow it to increase rates on customers to pay for them.
The worry is that while PSE does discuss its very limited current solar projects and its net metering program, nowhere in the document does the utility take into account plummeting prices for solar power. In the past, utilities have been able to justify relying on coal and natural gas power plants because their upfront costs have tended to be lower than renewable sources like solar and wind. But if solar prices continue to fall, as everyone says they will, then these coal and gas investments may actually increase customers’ bills needlessly by forgoing less expensive alternatives.
What’s more, even PSE’s projections for customer demand are troubling when one considers what the future may hold for solar. The utility’s projections for new energy demand are based on several factors, including estimates of economic growth and changes to demographics and population. But none of its projections factor in the prospect of “distributed energy generation” where residential and commercial customers install their own solar panels, both offsetting their own power usage and selling back to the utility what they don’t use.
Across the country, utilities are talking about the “threat” of increased rooftop and community solar installations, but PSE’s projections for the next 20 years don’t account for this potentially transformative development. If PSE continues to apply for loans and make bets on increases in power usage, while customers increasingly produce their own power (maybe even going off the grid completely), things could get ugly in a hurry. Customers who cannot afford to produce their own power could see outsize increases in their bills. In the most extreme scenarios, a utility could even default on its loans.
Does any of this really matter in the cloudy Pacific Northwest though? The answer is yes, but to understand why we first need a little context. While conventional wisdom says that solar doesn’t work here because “it rains a lot,” the truth is a bit more complicated.
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It is important to remember that utilities purchase energy from a wide geographic area, not necessarily where their customers live. Hydropower from Washington is often sold to California, just as coal-fired electricity from Montana and Wyoming is sold to Oregon and Washington. Solar is no different. So while the sun might not be shining here, we could still power our homes with solar from somewhere it is.
Second, even in the cloudy region west of the Cascades, rooftop and community solar installations are still viable. Even when the sun is not shining, panels can still absorb and deploy solar energy. In fact, many areas in western Washington produce around 4 kW per hour annually, which is roughly the same as places like Tennessee and Missouri. (This link from National Renewable Energy Laboratory allows you to compare annual solar rates across the United States.) That’s because, while our skies do get pretty gloomy in the depth of winter, our long, sunny summer days make up the difference, putting us on par with much of the rest of the United States over the course of a year.
Finally, solar can compete on cost. It is true that Northwest electricity is quite cheap, in large part thanks to our abundant hydroelectric power, which can make solar seem relatively expensive. But while hydropower production can be adjusted slightly, it provides a relatively fixed quantity of energy, and when utilities are deciding how to provide more power they must look to other sources, and that means solar is effectively competing against more expensive forms of energy like coal and natural gas. In short, even in the Northwest, solar is much closer to price parity, at least on the margin where it matters, than it might seem.
What happens next with solar power has meaningful implications for the Northwest’s energy mix, our utility bills, and even the structure of utilities themselves. Over the next two decades, utilities will need around $2 trillion—with a “T”!—worth of infrastructure improvements. The energy groundwork we build with that money will be with us for decades, and there’s growing evidence that our plans are based on faulty information coupled with a 20th century mindset that no longer makes sense.
Research volunteer Nick Abraham works in energy communications.
It’s great to hear more groundswell about the plummeting cost of solar power, and I hope more utilities respond positively the the benefits of cheap solar power.
While I look forward to a solar power northwest as well, the point that our sunny summers make up for our cloudy winters is only useful in the context of annual statistics. We don’t store energy very well to offset peaks and troughs in demand throughout a day, much less seasonally. Also, the peak power demands in the northwest tend to be in the winter, not the summer, which is an unfortunate mismatch with solar [http://www.pnucc.org/sites/default/files/file-uploads/2013%20Northwest%20Regional%20Forecast_0.pdf]. These realities force the decision of either sizing the system to meet load in the winter, and then selling excess in summer (California?) or sizing to meet load in the summer and purchasing energy in the winter (coal if PSE has its way!). Of course the first sounds better, but obviously costs more up front…
Thanks for keeping solar in the discussion – looking forward to its continued penetration into the northwest!
Thanks for the post I completely agree that solar is inherently off our peak needs. However, here I was simply talking about rooftop and community solar. Since here in WA people can sell back to the grid, people can offset some of their own usage in the winter and sell back their excess in the summer. Your issue becomes a problem if/when solar becomes a much larger portion of the electricity grid, which would be a good problem to have. Having a more connected grid to sell off excess renewables and energy storage do have promising options but would probably require an other post to fully go into.
Nice article, thanks for digging thru PSE’s IRP. Solar should be a major factor in everyone’s energy planning.
One statement of yours confuses me: “In fact, many areas in western Washington produce around 4 kW per hour annually, which is roughly the same as places like Tennessee and Missouri.”
I think the unit you may mean to report is that the solar resource in Washington is about 4 kwh/m2/day. Here in Western Washington where our company installs pv systems, another way we look at this is recognizing that on average, we receive 3.5 hours of full sun per day. The more useful way to state this is that each KW of installed pv (south-facing and un-shaded) will generate about 1000 kwh/yr. In the rain shadow along the northern portion of the Olympic Peninsula, that figure is around 1100-1200 kwh/yr, and in eastern Wa, we see around 1300-1400 kwh/yr.
I wanted to use a unit of measure that was easily accessible for people and could be compared to other areas of the country quickly. Your unit is more specific I just didn’t want to make it too confusing.
“nowhere in the [PSE IRP] document does the utility take into account plummeting prices for solar power.”
Indeed. In the PSE IRP Appendix K “Electric Analysis”, it appears that PSE uses renewable energy in the AURORAxmp model only to meet the I-938 (aka, RPS, Renewable Portfolio Standard) target, not the general resource need. Excerpting from Appendix K, p. K-36 and Figure K-2.
“After existing and “proposed” renewable energy resources are accounted for, “new” renewable energy resources are matched to the load to meet the applicable RPS.”
However, to be fair, in Appendix D “Electric Resource Alternatives”, PSE does present an analysis of solar vs. wind (p. D-44):
“Since PSE built the Wild Horse Solar Demonstration Project in 2007, costs have declined considerably, reaching national averages of approximately $6.50 per Watt-dc for residential systems, $5.75 per Watt-dc for commercial systems, and $4.00 per Watt-dc for utility scale systems (Solar Electric Industry Association, 2010). Many residential customers have seen costs below $4.00 per Watt –dc with larger systems. PSE’s calculations of the lowest levelized cost for utility-scale solar systems located in eastern Washington have ranged from $0.18 to $0.25 per kWh, which significantly exceeds costs for other renewable energy sources, such as wind.”
Does Sightline or any other group take issue with this analysis?
Doesn’t the NWPCC include a price model for solar, just as it does for natural gas, coal, etc?
I-938 –> I-937
I can’t speak for Sightline, but I believe these were current rates of solar usage rather than projections for the future. PSE’s plans moving forward was all I’m trying to discuss.
This is a great article! Thanks for making such a complicated and important issue so accessible! It’s an important conversation to have and I’m glad you’re taking a step to spearhead PSE’s faulty decisions.
Great article. Have you looked into the Seattle City Light Integrated Resource Plan to see how they account for the declining cost of solar?
I have not but good possibility for a future post!
Nick – I’m curious, did you contact PSE prior to publication? If so, did they, “return your phone call?”
PSE has been very progressive on wind power for a long time. I would be interested to hear more on what they have to say about solar (other than net metering).
I did not for this post. The IRP is supposed to be their official stance on what they project for the future so I didn’t feel like I had to but it is something I could have done.
PSE has installed a fair amount of renewables but most of their wind energy was put in because it has already become less expensive then other alternative and to meet the state I-937 renewable energy mandate. This is something that could use a longer post as well. I agree they’ve been smart in a lot of areas but progressive isn’t necessarily the word I’d choose.
Thanks, Nick, for your reply. I agree that the IRP is a document that pretty well spells out the thinking and analysis that goes into utility planning. Their plan is reviewed by the state’s UTC; who knows, maybe the regulatory commission will have a question!
My personal view is that it is generally worthwhile to get an organization’s response to a major question or reservation such as yours. PSE is worth the time and effort to ask. Case in point: I recently had the opportunity to hear CEO Kimberly Harris’ answer to a question about a revenue-neutral carbon tax (!). The discussion was at the 2013 meeting for PSE retirees in the northern service territory. (Disclosure: I am retired from PSE.) Ms. Harris’ replied at length and looked at the issue from both a company perspective and her own. She answered the question well. Give PSE management a try!