Solar in the Spotlight

Solar power could help the United States achieve energy independence.

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Over the past seven years, carbon emissions have fallen by 13 percent in the United States.

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Most of the attention may be focused on domestic oil and gas production, but it could be solar power that really helps the United States on its path to energy independence.

Aside from the high-profile bankruptcy of Solyndra—the solar panel maker that defaulted on a $528 million federal loan in 2011—the industry has been on a tear over the last couple of years. Solar installations are up more than 75 percent, according to the Solar Energy Industries Association, which projects another 65 percent increase in 2013. The industry's rapid expansion has made solar the fastest growing energy source in the United States, according to the SEIA.

Much of those gains are thanks to a combination of tumbling installation and equipment costs—photovoltaic solar costs dropped almost 30 percent in 2012, the SEIA reported—and the rise of an innovative approach to financing expensive rooftop solar panels called third-party-owned solar.

With this approach—also known as solar service—homeowners no longer have to pony up tens of thousands of dollars to enjoy the long-term cost savings of solar power. Instead, a solar service company purchases the rooftop solar panels—which run about $30,000 on average—and installs and maintains them. The homeowner then purchases power generated by the panels from the solar service company at about a 20 percent discount of what they would pay for power from a utility, according to some estimates. At night or when it's cloudy, the homeowner is still hooked up to their local utility and purchases power from there.

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"Homeowners used to be slaves to their utility," says Edward Fenster, co-CEO of Sunrun, a California-based solar service provider. "The only way to get power was from a centrally generated source. Now solar service is providing the average consumer, for the first time, choice in how they want to get their electric power."

But not everyone is excited about the increasingly competitive solar sector and its applications in the residential market. In 2012, the residential solar market grew a staggering 62 percent, with solar service accounting for half of all new residential solar installations in California, Arizona, Colorado and Massachusetts, according to market analysis firm GTM Research. After 2013, the growing adoption of third-party-owned solar will "start to erode the utility sector's market share," the report added, a trend that's making utilities increasingly nervous.

A lot of the angst has to do with how utilities make money. Instead of relying on the amount of power sold, most utilities earn a rate of return based on the assets they own, such as power plants and transmission lines. The larger the asset base, the more potential to increase their profit with the expansion of generation, transmission and distribution infrastructure.

But with less demand on the grid thanks to increased adoption of solar power and other factors such as more energy-efficient appliances, utilities have less and less justification to build more infrastructure that would increase their asset base and revenue. "It's nothing if there are just a few of these [rooftop systems], but utilities see them spreading and that poses a big problem," says Michael Burr, editor-in-chief of Public Utilities Fortnightly, a trade publication for the utility and energy industries. "[Company executives] are taking this seriously on a level they never have before. If the trend continues with solar being increasingly economic, as it has been on an accelerating basis, within five years solar will reach grid parity."

[REPORT: Clean Energy Sector Poised to Double by 2022]

But utilities aren't standing idle in the face of a burgeoning threat from rooftop solar. According to Sunrun's Fenster, they're reacting "aggressively," threatening potential rate increases and villainizing solar service for shifting higher costs onto non-solar users. Other utilities are responding by phasing out solar energy incentives and putting caps on how many homes, schools, and other facilities using solar can participate in net metering, an arrangement that allows customers using solar to earn credits while their home or business uses solar-generated power. "Arizona Public Service sent a note to customers that said because people installed energy-efficient devices and recycled refrigerators, they had to raise electric rates," Fenster says. "Utilities have never faced competition and they're so used to having a monopoly, they're being very aggressive about it."