Rooftop solar has the potential to take away about 7% of retail electricity sales from US utilities, according to a report by Bernstein Research, an independent Wall Street research firm, in early June.
The figure is only 2% if the current 30% investment tax credit for solar equipment drops to 10% after 2016 as currently scheduled and only 1.6% if the credit is eliminated. All three estimates assume that the cost of the average US solar rooftop installation will fall to $2.20 a watt compared to about $4.60 in the fourth quarter 2013. The figure $2.20 is what the average solar system cost late last year in Germany.
Distributed solar generation today is just 0.2% of US electricity supply, leaving significant room for growth under any of the forecasts.
More than 75% of current distributed solar capacity is in five states: Hawaii, California, Arizona, New Jersey and Massachusetts. The fact that the amount of sunlight varies so significantly in the five states speaks to the importance of retail electricity rates and state incentives in driving rooftop installations.
Bernstein estimated the highest possible percentage of distributed solar penetration in the US is 24% assuming universal deployment by all residential, commercial and industrial customers. However, nearly 50% of residential properties may not work for solar because of shade and other physical barriers.
It calculated utility by utility which customers have the greatest incentive to install solar given retail electricity rates and the potential savings. The 11 utilities facing the greatest danger and the percentage of retail electricity sales each could lose are as follows: Arizona Public Service 34%, Public Service Company of New Mexico 31%, Pacific Gas & Electric 26%, San Diego Gas & Electric 25%, United Illuminating Company 25%, Southern California Edison 23%, Northeast Utilities 21%, Hawaiian Electric Companies 20%, Central Hudson 15%, Consolidated Edison 14% and SCANA 14%.
Several of these utilities are protected by state regulatory regimes that decouple the utilities’ revenue from electricity sales. If sales fall below the forecast, then the regulators must allow the utility to increase what it charges per megawatt hour of electricity to stabilize revenues at the target level.
The move to rooftop solar could also affect prices for fossil fuels. According to Bernstein, 7% of US demand for natural gas is at risk as well as 3% of US demand for western coals and 1% of demand for eastern coals.