Clarification appended

Santa Fe resident Amy Bunting is a utility company’s nightmare. Her 20-year-old home on the city’s southeast side is powered by the sun.

She’s not connected to the electric grid, and Public Service Company of New Mexico makes no money off of her.

Like Bunting, a growing number of people are installing solar power systems at their homes and businesses, though most hook into the electrical grid. The number of PNM customers installing solar panels has climbed steadily since 2006 as tax credits, net metering and the dramatic decline in costs have made the systems more affordable.

But whether on the grid or off, industry watchers say these sun-powered systems and other new technologies are changing the game for centralized utilities like PNM.

This trend in customer-owned, distributed power generation has the utility industry scrambling to adjust business models and grid operations across the United States, Europe and Australia. Electricity from rooftop solar systems is cheaper than local utility rates in 42 of the 50 largest cities in the United States, according to “Going Solar in America,” a report released in January by North Carolina State University’s College of Engineering.

“People in the industry say the utility grid is facing the biggest changes it has had since Thomas Edison,” said Jon Hawkins, manager of PNM’s advanced technology group.

Homes and businesses generating their own electricity threaten the centralized utility business model the way the Internet disrupted the music business and digital cameras shook up film companies. Unlike those industries, though, a disruption in the electric utility industry affects every customer on the grid, for better or worse.

While Bunting is a rarity — a city resident who chooses to live off the grid — she may simply have been ahead of her time, some experts say. New, improved and cheaper technology in solar panels, microturbines, small neighborhood grids and fuel cell batteries could ultimately entice more urban dwellers to cut their ties with centralized utility companies like PNM the way cellphone users have kissed landlines goodbye.

The arrival in New Mexico last week of SolarCity, a giant solar financing and installation company chaired by Tesla founder Elon Musk, is shades of things to come.

“The genie is out of the bottle, and it’s not going back in,” said Regina Wheeler, chief executive officer of the Santa Fe-based solar company Positive Energy.

Paying for a grid

Utility companies are responding by searching for new ways to bill solar customers who are connected to the grid, known as “access fees,” as well as adding extra “renewable energy” fees to non-solar customers.

The companies say customers with solar power systems aren’t paying their fair share to help maintain and operate the grid reliably. PNM, for example, maintains more than 14,000 miles of distribution and transmission lines that serve more than a half-million customers.

Unlike Bunting, who has her own battery storage, customers with solar essentially pull power from the grid when the sun isn’t shining, the utility industry says. Without their own storage capability, solar customers use the grid as one giant power backup.

“The costs avoided by distributed generation customers are ultimately passed on to other customers,” said Susan Sponar, a spokeswoman for PNM, referring to the term utility companies use to describe solar customers.

Solar advocates disagree.

“PNM is choosing to undervalue solar,” said Allan Sindelar, founder of Positive Energy. “They are choosing to ignore what other regulatory commissions in other states show as a net benefit to utilities beyond just avoided fuel costs.”

Utilities in at least 13 states including Colorado, Arizona and Texas have completed studies looking at the financial impact on utilities from solar customers using their grids. The vast majority showed a net benefit to the utilities. The Maine Public Utilities Commission, for example, released a study last week that found the value of solar power produced in Maine was 18 cents per kilowatt-hour, but customers with rooftop solar panels only received a credit on their bill worth about 13 cents per kilowatt-hour. The study also found that over a 25 year term, solar could achieve a levelized benefit to Maine’s electric system of 33 cents per kilowatt-hour.

As of March 1, the average across all Maine investor owned utilities for net metering credit to solar customers is approximately 14 cents per kilowatt hour.

Other companies have decided solar customers need to pay more for using the grid.

When Arizona Public Service Company proposed a $50 to $100 monthly access fee for rooftop solar customers, “things got extremely ugly,” said Anne Jakin, a senior policy analyst with New Mexico’s Energy, Minerals and Natural Resources Department, which runs the state tax-credit program for solar customers.

After an outcry from the solar industry and homeowners who had installed solar panels, the Arizona Corporation Commission instead approved a monthly fee of 70 cents per kilowatt, an average of about $5 a month, for new installations.

PNM currently charges all customers a use fee (per kilowatt-hour of power), a fuel cost adjustment fee (for the changing cost of fuel) and a renewable energy fee (for renewable power to meet state renewable energy standards). Those fees are based on how much electricity a customer uses each month. Customers also pay a flat $5 monthly service charge and a “cost-effective energy saving” fee, which covers PNM’s costs for energy-efficiency programs.

On top of those fees, PNM is asking state regulators to approve a fee of $6 per kilowatt for solar customers to access the grid, which the utility says would average about $12 to $18 dollars a month. PNM also has asked to increase the $5 monthly service charge to $12.80 for all customers.

Wheeler said PNM’s proposed access fees would have a greater impact on solar installation businesses than losing the tax credits. “I can sell people solar on their roof at a price cheaper per kilowatt-hour than PNM,” said Wheeler. She said Positive Energy is installing three megawatts of solar capacity per year (a megawatt of solar is enough to power about 400 to 900 homes) for churches, schools and other public buildings. None of them get tax credits.

PNM’s access fees, “would definitely put a screeching halt to the industry,” Wheeler said.

SolarCity is likely to join the battle ahead over PNM’s rate increase request, a company spokesman said. The company filed an antitrust lawsuit against Arizona’s Salt River Project utility in March over a $50 per month solar access fee.

Without a comprehensive study, it is hard to know who is more unfairly treated, the utility or solar owners, Wheeler said.

“PNM has never done a complete study of the costs and benefits of distributed [solar] generation,” Wheeler said. “We need to build a task force at the state level to discuss how to transition New Mexico’s energy grid to meet the future landscape.”

Growing trend

Santa Fe has long had solar advocates. It had some of the first passive-solar homes, designed to use the sun’s natural heat and light. The region was home to some of the early solar photovoltaic inventors in the 1980s. By the time Bunting built her solar house in 1995, it was a proven, if still expensive, technology.

Bunting’s energy-efficient 1,777-square-foot house was built of pumice and adobe with insulated south-facing windows and brick floors. She has natural gas for heating and cooking, usually cooks in a solar oven and uses a wood stove for extra heat.

Bunting’s house first had a 700-watt solar system and a bank of eight batteries to store electricity. A solar heat-exchange system warms her water. The total cost was $15,000. She received no tax credits.

Bunting didn’t intend to go off-grid, but PNM wasn’t accustomed yet to working with rooftop solar. The company’s process to approve an interconnect was arduous, so Bunting decided to live without the grid.

Positive Energy’s Sindelar said in those early solar days, most people putting in rooftop solar lived in the country and intended to stay off-grid. Now almost everyone adding solar power is also connecting to a utility grid. “In that respect, Amy was a pioneer. She chose to live in a comfortable, middle-class home in the city, but off-grid,” he said. “Her house is still the only off-grid solar home that I know of in the city.”

Bunting’s system, like the solar industry as a whole, has evolved and improved.

In 2008, Bunting hired Sindelar to add a ground-mounted 1,000-watt photovoltaic system and added new deep-cycle batteries. He mounted a cup-holder-sized digital meter on her wall that allows her to track her battery storage at a glance the way a smartphone user can check a little icon for remaining power. Bunting runs a regular refrigerator, computer, small flat-screen TV, lights and all the powered comforts of a modern home.

Her 1.7-kilowatt system built today would cost between $20,000 and $25,000, without subsidies, but it would operate more efficiently, Sindelar said. And she could qualify for up to 40 percent in federal and state tax credits.

From 2009 to 2014, the total capacity of installed residential solar power systems in the state increased from 319 kilowatts to 25,370 kilowatts, according to Mark Gaiser, of the state’s Energy Conservation and Management Division. “It is one of the few areas in the construction industry that has continued growing,” Gaiser said. It takes a 2- to 3-kilowatt solar power system to power an average home over a year.

Meanwhile, the average cost per watt for installed solar power systems declined from $4.34 to $1.60 in the same time period.

Prior to 2005, PNM alone had about 50 solar customers connected to the grid; today about 4,700 PNM customers have gone solar.

Santa Fe County residents spent $4 million on 125 solar power systems in 2014, while Bernalillo spent more than $8 million on 321 systems, according to information Gaiser gathered from solar installers. The fastest growth in distributed solar generation in the last three years has been in Doña Ana County around Las Cruces. “It’s driven by the high cost of electricity there,” Gaiser said.

Gaiser said the $3 million cap available in state tax credits annually for solar power systems has been maxed out since 2011, with dozens of applications waiting in line. Federal and state tax credits are set to expire at the end of 2016 unless Congress and the New Mexico Legislature renew them.

Losing the tax credits would slow the adoption of customer-owned solar power, but not stop it, Sindelar and Wheeler predict. “The threat to utilities is legitimate, huge and it can’t be stopped,” Sindelar said. “It can only be slowed by the political climate. It is not a technological challenge.”

Disruptive technology

Right now, the amount of customer-owned solar power online is not a technical problem for PNM. But it could become one, Hawkins said. His job is to track the new devices, batteries and systems that can impact PNM’s grid operations.

Too many customer-owned solar systems on one feeder line into a community or neighborhood, without a way to store and manage the power, could produce voltage that’s too high or too low. Too much power could melt a line. How much is too much? “It all depends on where the distributed [solar] generation is hooked into a line,” Hawkins said.

While utilities are prepared for peaks and valleys in power — even their power plants sometimes have unplanned outages — it is harder to adjust for a lot of variability generated on the customer end of the line without a much smarter grid.

PNM doesn’t yet have the capability to track the power produced moment by moment on customer-owned solar systems. The technology exists, but like all new gadgets, fully integrating customer-owned power into the grid will cost money.

The National Association of Regulatory Utility Commissioners and the Edison Electric Institute, an association of investor owned utilities including PNM, have warned that new technologies, renewable energy and distributed generation will force utilities to adapt or go the way of Kodak. The financial risks of these “disruptive challenges include declining utility revenues, increasing costs and lower profitability potential, particularly over the long-term,” said a 2013 report from Edison Electric Institute.

The problem is how to change the business model without suffering pushback from customers.

Wheeler said now is a prime opportunity for PNM and other utilities to find new sources of revenue and capitalize on distributed generation, rather than fighting against it. “With any of our businesses, when we have to adapt to new technology, or change our methods, it sucks,” Wheeler said. “It is certainly not easy. But it is necessary.”

Back at her off-grid house, Bunting said it makes her sad to look out her windows and see the new houses that have been built in her Santa Fe neighborhood without simple passive-solar designs or solar power. “It’s so simple. We have so much sun. I don’t understand why people don’t take advantage of it,” she said.

Contact Staci Matlock at 986-3055 or smatlock@sfnewmexican.com. Follow her on Twitter @StaciMatlock.

Clarification: The estimated value of solar in 2015 is 18 cents per kilowatt- hour. The study also found that over a twenty five year term, solar could achieve a levelized benefit to Maine’s electric system of 33 cents per kilowatt-hour.

As of March 1, the average across all Maine investor owned utilities for net metering credit to solar customers is approximately 14 cents per kilowatt- hour.