Distributed solar + storage leading to energy independence + democracy

  • Published on July 23rd, 2018

For 100 years, most decisions about the U.S. electric grid have been made at the top by electric utilities, public regulators, and grid operators. That era has ended. (Part 2 – for the first installment, see Reverse power flow: How solar + batteries shift power from utilities to consumers

the 4 horsement of the utility apocalypseBy John Farrell
Institute for Local Self Reliance

Reversing the Power Flow

The combination of solar and energy storage won’t mean every customer is their own utility, but it reverses 100 years of top-down decision making by granting customers much greater choice. The reversal brought about by affordable energy storage akin to a fourth horseman of a utility business model apocalypse.10 As with the mythical riders, energy storage joins energy efficiency, distributed solar, and information technology to threaten the utility’s economic monopoly.11

Energy storage doesn’t end the utility of the electric utility, but––combined with distributed rooftop solar––it continues the shift away from monopoly power toward energy democracy. In particular, promises to nearly sever the reliance of electricity customers on a central utility company because it allows customers to avoid utility-imposed charges and to arbitrage (buy at low prices, sell at high prices) the time-of-day differential in the cost of electricity generation. It also gives them unprecedented access to grid value and revenue streams. Utilities will need to offer customers a reason to stay connected.

Unfortunately, many are doing the opposite.

Another Bonfire of Risky Spending?

Despite the evidence that economics and customers will continue to drive distributed energy, many utilities are forging ahead with major power plant construction plans. Across the country, utilities have over 60 gigawatts of new gas power plant capacity in the queue for the next four years alone, 50 percent more capacity than is expected to be retired counting nuclear, gas, and coal combined.

This planned gas capacity will have stiff competition. On one hand, distributed generation will reduce the demand for conventional energy generation, both baseload and peak, as well as ancillary services. On solar + storage means stiff competition for utilitiesthe other hand, bids for utility-scale renewable energy combined with storage are coming at prices unimaginably low. When Xcel Energy in Colorado received bids for new power plants slated to start delivery in 2023, it found it could buy wind or solar paired with storage for less than $40 per megawatt-hour, far less than the expected cost of energy from a new gas combined cycle power plant.

The competitive threat also applies to “peaker” plants that provide capacity during periods of peak demand but operate at relatively low efficiencies. Almost three-quarters of the 13 gigawatts in planned capacity is scheduled for states with competitive solar and energy storage now or in the near future. Writ large, Greentech Media analysts suspect that energy storage alone will compete with gas peakers on price by 2022, and beat them consistently within a decade.

Already, regulators are increasingly challenging company plans to build new gas plants:

Some utility companies have scrapped plans for new natural-gas plants in favor of wind and solar sources that have become cheaper and easier to install. Existing gas plants are being shut because their economics are no longer attractive. And regulators are increasingly challenging the plans of companies determined to move forward with new natural-gas plants.

“It’s the No. 1 Power Source, but Natural Gas Faces Headwinds,” New York Times, March 28th, 2018.

The following map shows the capacity of planned gas peaking plants across the country, highlighting map of planned gas peaker plants in troublestates that have a solar resource similar to states––California and Nevada––that have halted gas plant development to consider economical solar plus storage alternatives.

Some planned plants have already died. As mentioned earlier, California regulators have ordered a recent gas plant proposal (Johnson City) back to the drawing board to take competitive bids from renewable sources and energy storage, and energy company NRG recently announced retirement of three other gas peakers for “economic reasons.” Arizona regulators recently put a moratorium on gas plant construction to come to grips with economical solar and storage alternatives.

When independent power producers plan new power plants, they have to decide whether the market will buy their product in the long run. But many utilities have captive customers. When their plants fail to SS report power failurepay back, they become “stranded assets.” Journalists in the U.S. Southeast recently broke a major story on a $40 billion “bonfire of risky spending” by monopoly utility companies on nuclear power plants and carbon-capture coal power plants that will never produce a kilowatt-hour, but will cost their customers for decades.

Utilities Respond Inconsistently

Responses by utilities to the changing technological and political landscape vary widely. Some are aggressively hostile, trying to shut down their emerging distributed competitors. Some are building utility-owned solar and storage facilities. Some are establishing utility-owned rooftop solar systems.

Stopping Distributed Clean Energy Competition

The most common response of utilities to distributed energy options like solar and energy storage has been to try to stop them. Countermeasures include legislation to remove net metering (or other rules that guarantee customers fair compensation on their utility bills for installing solar) with 31 states considering policies related to distributed generation compensation in 2017 alone. With regulatory approval, utilities have also levied special fees on the electric bills of solar customers (19 utilities pushed proposals in 10 states in 2017). Finally, many utilities have proposed raising the fixed portion of the electric bill high enough to limit energy savings from any on-site resources, whether efficiency or solar energy.

Battery storage may undermine the utility playbook on stopping distributed energy. In Iowa, Alliant Energy’s standby tariff and high utility demand charges drove Luther College to examine how energy storage could continue its pursuit of a clean, resilient energy supply. A study by the National Renewable Energy Laboratory found that “Luther College could save approximately $25,000 in energy costs for each of the next 25 years if it installs a 1.5 [megawatt] solar array and a 393 [kilowatt] battery,” due in large part to the ability to avoid excessive demand charges by Alliant, totaling as much as 40% of the college’s monthly bill.

In California, changes to net metering compensation lower the financial value of distributed solar, sometimes significantly. But adding storage to projects can restore many of the lost savings. The following chart from a study by Clean Energy Group walks through the process. The first bar shows solar peaker gas plantssavings in the current regime, while the second shows the markedly reduced value of solar alone in the new regime. The two floating bars show the added monetary value of storage in time-shifting when the customer draws power from the grid and in reducing demand charges. The final bar shows the result, with greater savings by combining solar and storage than with solar alone.

In some cases, storage may allow affordable housing or other commercial rate customers to switch to rate plans without demand charges, increasing energy savings by two or three times.

Adopting Clean Energy at Utility Scale

Utilities convinced of competitive solar and storage sometimes embrace large-scale, utility-owned systems. Utilities have installed nearly 25 gigawatts of utility-scale solar and 600 megawatts of energy storage in the past five years. Over 85% of utilities expect increases in utility-scale solar and energy storage in Utility Dive’s 2018 annual survey.

This strategy has two benefits for utilities: many can still make money with large capital investments, and it weakens environmentally-driven arguments against the utility company’s monopoly.

On the other hand, utility-scale renewable energy investments compete with distributed solar and storage only to a degree. Some crucial grid services––helping maintain a consistent voltage––are best provided near load. Centralized solar and energy storage have a limited ability to meet such needs. If centralized renewable energy projects don’t lower the ultimate price of electricity, they also won’t address the customer who can produce cheaper electricity on-site or who values other benefits of local production, such as resiliency in the face of grid outages. Finally, many communities have now made commitments to get 100% renewable electricity, often within the next 15 years. If utilities don’t keep pace, their customers may move on without them.

Deploying Utility-Owned Distributed Clean Energy

Some utilities go beyond utility-owned large-scale clean energy facilities to embrace utility-owned distributed solar and storage. Several investor-owned utilities have muscled into the rooftop solar market, offering a roof rental fee to customers for hosting utility-owned solar panels. The offering aims to address customer demand for solar while keeping ownership, and profits, within the utility.

Our 2015 analysis revealed that utility-operated rooftop solar programs kept as much as two-thirds of the financial benefit typically seen by customers that owned solar on their rooftops (fortunately, in the case of Tucson Electric Power and others, utility-owned programs are small relative to the non-utility market). Notably, two of the utilities muscling into the rooftop solar market––Arizona Public Service and Tucson’s utility––have also tried to reduce compensation for customer-owned solar.

Other utility efforts operate in a gray area because the utility itself is customer-owned. Rural electric cooperatives have addressed customer interest in solar with options for customers to subscribe to solar projects not on their property. In some cases, these subscription models allow more customers to share in the economic benefit of solar and offer significant savings. In other cases, customers are simply asked to pay more for electricity when they could have saved significantly with their own solar installation.

Green Mountain Power stands virtually alone as an investor-owned utility offering distributed options for its customers. This Vermont utility finances Tesla Powerwall home battery packs for $37 per month and has boosted compensation for rooftop solar producers. It may be no coincidence that it’s also a B-Corporation, with a commitment to provide social and environmental benefits to customers and not just financial rewards to shareholders. As it happens, the two goals align well.

The problem with utility-provided distributed energy resources is less about the individual benefit to customers and more about customer choice. Utilities act as gatekeepers to the benefits of distributed energy resources through interconnection policies, rate structures, pricing, and market access for selling services like grid voltage or frequency. If offered in a competitive market, utility distributed energy services are a welcome addition to the customer’s choices. If not, they’re an extension of the monopoly to services that don’t require monopoly control.

A combination of the three tactics may slow the spread of distributed energy generation and storage. Anti-distributed energy policy can slow customer adoption. Building utility-owned clean energy at scale may undermine the sense of urgency in the environmental advocacy community. Offering utility-owned distributed generation can assuage customer interest in local clean energy and cut competitors out of the market.

The tension between customer-empowering solar+storage and the distribution grid monopoly market structure makes good rules imperative.

Solar + Storage Rules That Lead to Energy Democracy

Strong economics don’t make a distributed solar and energy storage revolution inevitable. As noted, utilities have already made efforts to weaken competition from customer-owned power generation. The following policy recommendations would allow the maximum grid and local economic benefit from the distributed solar and energy storage opportunity.

Utility Targeted Recommendations

Electric utilities must demonstrate their continued value in a competitive market—one in which their customers can choose cost effective alternatives to grid-delivered power. Energy market regulators and state legislatures should take the following actions on behalf of electric utilities and their customers:

  • Issue a moratorium (like Arizona) on construction of new, large-scale fossil fuel power plants and require competitive bids from distributed energy resources to supply any new capacity needs
  • Sharply increase requirements for utility acquisition of economic demand response (see Xcel Energy Minnesota 2016 resource plan requirements) and energy efficiency, and require utilities to offer tariff-based inclusive financing to break down barriers to customer adoption
  • Require utilities to engage in distribution system planning to accommodate solar and energy storage deployments (and electric vehicles) by doing a full value analysis of distributed energy resources, modeling to optimize distributed energy deployment, and designing appropriate policies (other ideas here)

Require utilities to acquire energy storage, with an obligation to test multiple vendors and technologies, but allow customers access to the same rate structures or interconnection accommodations provided to utility-owned systems

Market-Targeted Recommendations

Because utilities retain enormous control of the electricity system in most states, preserving monopolies over the distributed grid or even vertical monopolies over the entire system, energy regulators and state legislatures must provide more opportunities for competitive access to energy solutions that don’t require monopoly control. Energy market rules can be affected primarily at the regional, state, and local levels. At the regional level, federal authorities write rules and recommendations for regional grid systems. Crucial rules for capturing the value of solar and energy storage include (many gleaned from FERC Order 841):

  • Lowering thresholds for selling grid services into markets to 100 kilowatts
  • Valuing both capacity and response speed in ancillary services markets to support system voltage and frequency
  • Offering pricing and participation over short intervals to capture small movements in price
  • Allow aggregated energy production and storage to participate in capacity, energy, and ancillary services markets, so that projects like the South Australia 50,000-home virtual power plant could capture value in U.S. markets.

State regulators and legislatures can also provide rules to improve access for solar and energy storage. Key rules include:

  • Join 12 states (graded “A”) in adopting modern and streamlined interconnection rules for distributed energy resources.
  • Adopt rules to allow energy storage to participate in net metering, as with rules under consideration or adopted in Massachusetts and Colorado.
  • Join six other states in mandating utility purchase of energy storage from a variety of vendors, with a variety of technologies, and at a variety of scales.
  • Establish transition funds for communities that host fossil fuel power plants likely to retire that address lost property tax revenue as well as labor retention, retraining, and retirement (see proposal for Diablo Canyon in California, community transition funds for a coal plant closure in Buffalo, New York; as well as worker transition ideas in this ILSR piece).
  • Allow energy storage to “value stack” by capturing revenue for a variety of uses (examples below from Clean Energy Group).

The Value of Storage infographic

Local officials can also enable solar and energy storage in several ways:

Procure energy storage for public facilities to test market opportunities, identify qualified contractors, and provide resilient power during grid outages at community buildings.


The combination of distributed energy storage and distributed solar is reversing the power flow, allowing customers and communities to generate most of their energy at home or nearby. It’s also reversing the political power in the system, enabling customers to evade most utility strategies for curtailing competition. In short, it’s a technology shift that enables energy democracy, where electric customers can––individually and collectively––have greater choice over the source and structure of their energy system.

But with much of the electricity system handed over to monopoly utility companies one hundred years ago, achieving energy democracy requires policy action.

Federal and state regulators must open markets to affordable distributed energy resources, and require any participant in markets (utilities or otherwise) to show that their infrastructure investments result in the most affordable energy and the greatest local economic benefit. State and local policy makers must adopt policies to allow communities to capture the economic opportunity from distributed energy resources, and rethink notion of utility monopolies in technology markets that are increasingly not. Local officials can also act, using public properties to demonstrate the value of distributed energy resources and enabling more residents and businesses to capture the value.

Energy storage is a 4th horseman to last century’s electricity system, providing a once-in-a-generation opportunity to rethink its structure. Technology has enabled a bottom-up revolution in power generation and management, and the question is whether policy makers will enable energy democracy or allow the incumbent energy monopolies to stand in the way.

Sources & Glossary


  1. Average revenue per kilowatt-hour (not the same as electricity rates, and not factoring rate design elements such as fixed charges). Rate structures can matter a lot. One customer with a $100 per month electric bill may have a $40 fixed charge regardless of their energy use (or use of solar and energy storage) while another with the same total monthly cost may have a fixed charge as low as $10 (allowing solar and storage to do much more to reduce their energy bill).
  2. Using NREL System Advisor Model, default PVWatts model with property tax removed, 10 year loan term instead of 25 years, 5% interest rate, real discount rate of 2.5%. Costs include a 7-kWh Powerwall ($3,000) plus 5-kW solar array ($17,500) for a total cost of $20,500.
  3. Demand charges may be a poor reflection of actual grid costs if utilities assess fees on “non-coincident demand,” or energy use that does not coincide with the system-wide period of highest energy use.
  4. As with the first map, based on average residential utility revenue per customer, and not factoring in rate structures. A 5-kilowatt solar array combined with a 7-kilowatt-hour battery will cost $15,800, a levelized cost of 11.7¢ per kilowatt-hour. Calculated using NREL System Advisor Model, default PVWatts model with property tax removed, 10 year loan term instead of 25 years, real discount rate of 2.5%. Costs include a 7-kWh Powerwall ($1500) plus 5-kW solar array ($14,300) for a total cost of $15,800.
  5. A gas power plant on standby will be burning fuel, heating water, and making steam to spin its turbines but not be sending electricity to the grid. In other words, it’s incurring almost all operation costs but without generating any revenue.
  6. 100% electricity supply cost calculated by ILSR using Level10’s PPA 2018 PPA report and Berkeley Labs 2016 Utility-Scale Solar report for solar costs, and Energy Information Administration data on average wind capacity factors to estimate wind costs. In general, two-thirds of electricity was presumed to come the cheaper of the wind and solar resource. This annual average cost does not account for daily, monthly, or seasonal resource variation.
  7. Using a proxy of 30% of the average residential retail revenue per customer. See earlier chart on Cost of Delivered Electricity.
  8. Using NREL System Advisor Model with default settings for Commercial PV Watts unless otherwise noted. Solar resource for Oxnard, CA, airport; solar installed cost of $1.88 per Watt; battery cost of $175 per kWh; 100% debt for 10 years at 7% interest; real discount rate of 2.5%; 0% property tax. Note: lower costs could likely have been achieved with west-facing (rather than south-facing) solar panels to capture more peak-time sun.
  9. Economic data for Puente taken from the CPUC filing and Utility Dive. Economic data for solar and energy storage taken from the National Solar Jobs Census 2016 (jobs), Solar Energy Industries Association (installed costs), NREL System Advisor Model (levelized cost), Sunrun and GreentechMedia (operations local dollars).
  10. The four horsemen are described in Revelations in the Biblical New Testament, representing four major forces of a divine apocalypse: pestilence, war, famine, and death. They are often used in fictional works to illustrate the coming of apocalyptic change.
  11. The other business model threats are described in detail elsewhere, but included stalled electricity sales growth, the rise of competitive distributed solar, and distributed information technology like smart thermostats.


Ancillary services

Those services necessary to support a steady voltage and frequency of the transmission of electric power from where it is produced to where it is purchased. Such services maintain reliable operations of the interconnected transmission system. Ancillary services supplied with power generation include load following, reactive power-voltage regulation, system protective services, loss compensation service, system control, load dispatch services, and energy imbalance services. [1]


Baseload power generation unit

An electric power plant, or generating unit within a power plant, that is normally operated continuously to meet the base load of a utility; historically, powered by fossil fuel or nuclear energy sources. [2]


Commercial electricity demand charge

An additional electricity billing charge typically calculated by looking at the greatest amount of power (measured in kilowatts) needed by a consumer during “demand intervals” that make up a billing cycle. In most instances, a demand meter measures (and averages) the power “demand” in 15-minute time frames throughout the month and reports this information back to the electric utility. This reported peak-kilowatt level is then multiplied by a specific rate, which determining billed demand charges. [3]

“Coincident” demand charges only bill customers when their peak energy demand coincides with periods of peak energy use on the system at large.


Demand response

An automated or manual response by an electricity customer to reduce energy consumption when the utility asks. It can include an individual delaying when they wash clothes in response to a text alert, a factory shifting production to a different time of day, or air conditioners being cycled automatically by a utility on radio control to reduce demand.


Distributed Energy Resources (DER)

General or umbrella term for a variety of decentralized renewable energy technologies that enable consumers to produce or store electricity locally or even on-site. Common models of DER include but are not limited to solar Photovoltaic (PV) rooftop or ground-mounted arrays on residential and commercial properties, community solar gardens, and battery storage, which may or may not be grid-connected. The scale and ownership models of DER contrast with larger, utility-scale power generation sources that generally include centralized fossil fuel combustion or nuclear power plants connected to consumers through extensive transmission and distribution networks. DER may include energy reduction, as well, as through demand response.


Electric utility

All enterprises engaged in the production and/or distribution of electricity for use by the public, including incumbent and regulated investor-owned electric utility companies; cooperatively-owned electric utilities; and government-owned electric utilities (municipal systems, federal agencies, state projects, and public power districts). [4]


Home energy battery storage

Battery technology that enables storage of electricity produced on-site by solar PV arrays for residential customers. Existing storage technologies are currently made with one of three chemical compositions: lead acid, lithium ion, and saltwater. Storage capacity in kilowatt hours (kWh) among battery technologies vary. Many batteries for home energy storage are now designed to be “stackable,” which allows multiple batteries to be connected to a solar-plus-storage system to supply extra capacity. A battery’s power rating is the amount of electricity that a battery can deliver at one time, measured in kilowatts (kW). Commercially available, proprietary battery systems for home energy storage include but are not limited to the Tesla Powerwall, Sonnen eco, Sunrun Brightbox, LG Chem, and Pika Energy Harbor Smart Battery. [5]



Areas operating independently from the regulated electricity grid with technologies that include on-site power generation, smart electric devices, and energy storage, that are designed to maximize reliability and resilience. Places that have historically operated microgrids include military bases and hospitals, where reliable power is needed in the event of outages on the interconnected electrical grid. [6]


Net metering

A billing mechanism for electricity that credits owners of distributed energy systems for electricity produced, resulting in a “net” payment for electricity consumed or for electricity produced in excess of consumption. Generally used with small, on-site electric generators such as wind or solar energy.

When a customer-generator is both producing and consuming electricity at the same time, the laws of physics dictate that the electricity being produced flows to where it is being used (“net-zero” when producing the same amount of energy as is being used). But what about when electricity is being generated and none is being consumed? In these instances (“net-positive”) net metering allows customer/generators to spin their meter backwards, in effect paying the customer-generator the retail rate for the electricity that they generate but don’t immediately consume. If a customer generates more electricity than they consume over a period of time, they are typically paid for that net excess generation (NEG) at the electric utility’s avoided cost or its wholesale rate. [7]


Peaking power plant / peaking capacity

Generating equipment normally operated only during the hours of highest daily, weekly, or seasonal loads, historically reliant on fossil fuel sources of energy such as liquified gas. [8]


Virtual power plant

A cloud-based or Internet-connected network of decentralized power generating technologies such as heterogeneous DER, including wind farms and solar parks, as well as flexible power consumers and batteries. The interconnected units are dispatched through a central control room but nonetheless remain independent in their operation and ownership. A key objective of this model is to relieve the load on the grid by smartly distributing the power generated by individual units during periods of peak load. Such networks may also optimize trading and selling power on the open market. [9]


Sources for Glossary:

[1] Federal Energy Regulatory Commission (FERC). 2016. “Glossary.” URL: https://www.ferc.gov/market-oversight/guide/glossary. ILSR. 2017. “Report: Choosing the Electric Avenue – Unlocking Savings, Emissions Reductions, and Community Benefits of Electric Vehicles.” URL: https://ilsr.org/report-electric-vehicles[2] FERC, op. cit.[3] Sunpower. 2017. “A closer look at commercial electricity demand charges, and how to lower them.” URL: http://businessfeed.sunpower.com/articles/commercial-electricity-demand-charges[4] FERC, op. cit.[5] EnergySage. 2018. URLs: https://www.energysage.com/solar/solar-energy-storage/what-are-the-best-batteries-for-solar-panels & https://news.energysage.com/tesla-powerwall-vs-sonnen-eco-vs-lg-chem[6] ILSR. “Microgrid Hotspot.” URL: https://ilsr.org/microgrids[7] ILSR. 2011. “Net Metering.” URL: https://ilsr.org/rule/net-metering. SEIA. 2018. “Net Metering.” URL: https://www.seia.org/initiatives/net-metering[8] FERC, op. cit.[9] Yale Environment 360. 2016. “The New Green Grid: Utilities Deploy ‘Virtual Power Plants.’” URL: https://e360.yale.edu/features/virtual_power_plants_aliso_canyon. NEXT Kraftwerke. “Virtual Power Plant.” URL: https://www.next-kraftwerke.com/vpp/virtual-power-plant


Key Links:

(Originally appeared CC at the Institute for Local Self Reliance.)

About the Author