In an interesting interview with Bloomberg, NRG President David Crane finally has put his company’s actions behind his thinking. They have the NRG Residential Solar Solutions unit. Mr. Crane obviously wants to grow that and add more than solar.
“Crane wants to provide customers with fuel cells and microturbines, which produce electricity from gas. “The individual homeowner should be able to tie a machine to their natural gas line and tie that with solar on the roof and suddenly they can say to the transmission-distribution company, ‘Disconnect that line.’ ” Crane said.”
I do note that Crane has a problem. “NRG, which acquired GenOn Energy Inc. for $2.2 billion in December and Texas Genco for $5.8 billion in 2006, has stakes in 94 power plants, with all except about 1.5 percent of the generating capacity driven by fossil fuels.” If solar is as successful as Crane thinks, he will be losing money on those investments.
Duke, too, recognizes the problem. “‘There’s been a huge effort to build solar on the rooftop, both residential and commercial,’ Duke’s Rogers said, as well as systems that generate power at industrial sites. ‘All of this is leading to a disintermediation of us from our customers.’” But Duke’s plan is . . . ?
So what are NRG’s utility brethren to do? Compete! NRG’s unit is unregulated and so will require higher returns. Regulated utilities should own the solar on people’s homes, put it in rate base, and charge the hosts a discounted rate just like Solar City does. With their lower regulated cost of capital, they can out-compete on price. That will not be enough, though; see Disruption On All Sides – What Is A Utility To Do? and Is Your Head Still In The Sand? Big-Bang Disruption In The Electric Industry.
The problem for most distribution utilities is their ownership by corporations that also own generation. Typically, the book value of the generation far exceeds that of the distribution company, and so management is loathe to do anything that threatens the earning power of the generation. It is much easier to hang on as long as they can without recognizing the losses, hopefully long enough to leave it to the next set of management.
Even if generation is not involved, transmission and distribution utilities see a way to increase profits by increasing rate base. In this case, they prefer to do it through transmission that is regulated by FERC. Nonetheless, they still wind up increasing retail prices, and that is the flashpoint of competition (see SolarCity Winning Competition With Utilities For Customers).
There is no doubt about it, U.S. utilities have tough decisions to make and a very small amount of time in which to make them, especially because they need to get their regulators on board.