How solar is turning American energy on its head

It's early days, but solar power is beginning to show how it could recast the entire American power grid. Some power companies are worried. But in Vermont, they're giddy with excitement. 

At first glance, Baxter Street seems an unlikely place for an energy revolution. The street runs through an older, working-class neighborhood in Rutland, Vt., lined with one and two-story frame houses with postage-stamp front lawns and unpaved driveways.

At No. 60, the clues border on subtle: a low-profile heat pump nestled against the side of the 110-year-old house and solar panels hugging the roof of a detached garage set well back from the street.

But it is here that Vermont's largest utility, Green Mountain Power, is collaborating with the Borkowski family to turn the power industry on its head.

The property’s three-week energy makeover in March 2014 lowered energy bills for the Borkowskis from the start. This year, the electric bills for Sara and Mark Borkowski, their two young daughters, and a pair of indoor rabbits have run negative since April as they sell excess power back to the grid. This builds credits they will use to offset their winter electric bills.

Green Mountain Power is fine with that. In fact, to the utility company, No. 60 Baxter Street is all about figuring out how it will adapt in a world where solar-consuming customers could undermine the industry’s business model.

If customers don’t need as much electricity from power companies, after all, how do those companies survive?

That future isn’t here yet. The number of customers like the Borkowskis is growing, but small. Still, they are beginning to reveal the outlines of a new energy future, where an increasing number of customers would no longer be merely using a utility's electricity but helping to supply it, potentially allowing them to move off the grid entirely.

For utilities, the seismic question is how to respond. Some are trying to slow down the transition, seeing in the rise of solar panels on the roofs of homes and businesses an existential threat. But here in Vermont, Green Mountain is attempting to carve out a more proactivevision of the future where the line between customer and power provider blurs by mutual consent.

“We are trying to accelerate the adoption of disruption,” says Mary Powell, the utility's president and chief executive officer.

In recent years, that disruption has been accelerating all on its own. Historically, utilities have built large power plants and distribution facilities and delivered electricity to customers. But a range of new energy technologies has naturally led homes and businesses toward becoming mini generating stations, says James Mandell, an analyst with the Rocky Mountain Institute, a renewable-energy think tank in Snowmass, Colo.

“People are buying smart appliances, like a Nest thermostat, because they like them. They lower their costs and add convenience,” Dr. Mandell says. “Increasingly, we’re going to see customers want a battery [backup for homes] because it improves the power quality and protects them from outages. We’ve already seen customers wanting solar for a lot of the same reasons. If you combine solar, batteries, and some of these smart controls, you have customers that can supply a lot of their own needs.”

As a result, many customers large and small will draw less electricity from large power plants – facilities utilities have paid a lot of money to build and operate. By 2020, the falling costs of panels and related installation expenses are expected to bring the price of solar energy “to within striking distance” of new construction for tradition fossil-fuel plants and for nuclear plants, according to an analysis by researchers with McKinsey & Company, a global management consulting firm.

Traditional utilities might no longer be a customer’s most economical choice for getting electricity.

Not all power companies are happy about this.

Different utilities, different responses

In 2013, Arizona allowed its largest utility to charge customers with solar panels a monthly fee, based on the amount of electricity the panels produce. The more electricity a rooftop generates, the higher the fee. This year, the utility – Arizona Public Services Company – has asked regulators to raise the fee.

Utilities around the country are making similar requests. The idea is to make solar “investments uneconomic for the customers,” says Mandell.

Utilities see the issue differently. They argue that financial incentives adopted to help states meet clean-energy goals are overpaying customers for the solar-generated electricity they sell back to utilities.

The result is a situation that “is patently unfair,” says David Owens, an executive vice president with the Edison Electric Institute, a utility trade association in Washington.

Some 60 percent of the price per kilowatt-hour of electricity comes from infrastructure costs. During periods when solar customers paying nothing to the company, they’re essentially getting access to the power grid without having to bear any of the costs of maintaining it.

These customers “make no contribution toward the fixed costs of providing electricity,” Mr. Owens says.

Instead, he says utilities should be paying for customers’ surplus power at rates comparable to what utilities pay for fuel – the other 40 percent of the price per kilowatt-hour.

In San Antonio, for instance, the largest municipally-owned utility in the country unveiled a pilot project in July that involves a 1.2 megawatt community solar farm. The idea is to make solar more widely available, since not everyone has a good location or enough money for their own panels. Homeowners, businesses, or nonprofit groups can buy one panel at the solar farm or enough to meet all their energy needs. The electricity would feed into the grid and the purchasers would earn credits on their bills.

Two months later, the utility announced a partnership with a Texas company to install and maintain solar panels on roofs at no charge to building owners. San Antonio buys the electricity the panels produce, and the building owners receive a fixed-rate credit for every kilowatt-hour the panels produce. In effect, the city is paying to rent the roof.

The goal is to turn what could be a potential “death spiral” for utilities into an opportunity, and other states regulators from California to New York are grappling with how to do it.

Advocates for solar power argue that many utilities are thinking too narrowly about the value it can provide. For example, it can help utilities buy less power during midday hours, when electricity is most expensive. Peak hours for prices also are peak generating hours for solar panels.

In addition, as batteries become more affordable, customers will help utilities by more effectively managing when they draw power from the grid or pump power into it, says Sean Gallagher, vice-president of state affairs for the Solar Energy Industries Association, a trade organization in Washington.

“Solar can actually provide value to the grid that's not being utilized right now,” he adds. “If you properly account for the values that solar customers provide to the grid, as well as the costs, in most cases in most states approximate or outweigh the costs to the utility.”

The Borkowskis' $15,000 revolution

In Rutland, Green Mountain Power is following multiple paths to accelerate disruption. One of them led to Ms. and Mr. Borkowski.

Baxter Street was just the setting the utility wanted as the first of 100 projects around Vermont to demonstrate that that energy efficiency and home-produced electricity could save money.

Within three weeks, contractors had rewired the house, thoroughly insulated it, installed a heat pump on the first and second floors for much of the heating and cooling, added a smart thermostat for controlling temperatures, and installed a 3.3-kilowatt solar array on the garage. 

In a keep-your-head-bowed basement (Vermont's senior US senator, Patrick Leahy, bonked his head here during a visit), Mark points to a furnace that uses electrodes to heat bricks that gradually release the warmth to the rest of the house. The furnace only kicks in when it's too cold outside for the heat pumps upstairs to warm the rooms.

The family borrowed $15,000 to pay for the work, while Green Mountain Power “put some equity into the project” as well, Sara says.

Mark drives a school bus and Sara is a special-ed teacher. The loan amount initially gave them pause. But they went for it anyway, Mark says.

Mark and Sara have been repaying the loan via their utility bill. Prior to the makeover, and with the extra expense of an oil furnace providing heat, the electric bill averaged more than $200 a month, Sara says.

Since the makeover, the family has been paying less than that, even with the $159 per month payment on the loan. The credits for electricity from the solar panels mean that the total bill from Green Mountain Power has run less than $159 most months, Sara says.

Across town, the utility has installed a 2.5-megawatt solar farm atop an old landfill next to the high school. It's tied to the grid in such a way that the utility can send the electricity to a small area around the high school – including the city’s emergency shelter – after a natural disaster. The project shows how solar can create resiliency in the grid, providing power to certain key areas even when traditional sources are down.

Other utilities are following more traditional paths, relying on more centralized, large-scale generating facilities, even though they use renewable sources of electricity.

A radical idea: Let the customer choose

The entire industry is feeling its way through the transition. It's a period of experimentation, notes Seth Blumstack, an assistant professor in Pennsylvania State University's department of energy and mineral engineering.

Although large utilities are generating increasing amounts of electricity via renewables, including solar energy, much of the innovation is likely to come from smaller utilities where the cost of electricity is relatively high. It also will come from areas where severe weather has uncovered vulnerabilities to the grid, Dr. Blumstack says.

Green Mountain Power's effort represents a bit of both. And yet, its efforts, too, represent an experiment, says Kirk Shields, Green Mountain Power's director of development and risk.

“Even as an electric utility, we're not all that familiar” with hands-on operations of a system that blends community and individual sources of electricity with the larger grid, he says.

“We understand the concept, but how it applies and how you manage all of these disparate local, small resources and how you integrate them into the grid and control them? We struggle with the same issues the big utilities do, because it's a paradigm shift,” he says.

Still, he says, “this stuff is getting cheap and the distribution channels are so wide-open now that we want to be one of the best choices customers have.”

Those choices still include a more-traditional relationship with customers who merely want to come in and turn on the lights, says Ms. Powell, Green Mountain’s president.

It’s a matter of giving customers what they want, she adds, even if that complicates life for utilities.

“It's a messy, interesting, fascinating time,” she says. “There's come cool stuff happening, but I would characterize most of it as professional-playground-level investments versus companies really doubling down and saying: I want to be an innovator of this future.”