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.