SolarCity reaches out to rival utilities

Bill Loveless | Special to USA TODAY

When you think about disruption in the U.S. electric power industry, one of the first companies that comes to mind is SolarCity.

Since its founding in 2006, the San Mateo, Calif.-based business has become the number-one installer of solar panels on residential roofs, and a villain in the eyes of some utility executives who see SolarCity and its competitors potentially cutting deeply into their electricity sales.

So, it may come as a surprise that SolarCity is reaching out to utility companies and grid operators to form partnerships.

"I'm very interested in finding a utility that we can work with that wants to solve problems, not prevent change," SolarCity's co-founder and CEO, Lyndon Rive, said in an interview. "It would be learning for both of us."

What SolarCity has in mind is an arrangement that would enable utilities to draw on solar power from homes and other structures where and when it's needed, thus smoothing out peaks in demand. Utilities could also use their access to distributed solar systems to help regulate voltage on their systems.

The potential for collaboration becomes especially appealing as batteries come down in price and become prevalent fixtures with rooftop solar systems, Rive said.

In fact, SolarCity sells a new Tesla Motors battery that can be combined with a home rooftop solar system to provide backup power in case of a blackout.

SolarCity's chairman is Elon Musk, the CEO of Tesla and Rive's cousin.

So, what's stopping these kinds of partnerships from forming?

To some extent, it's resistance from utilities to companies like SolarCity, which lease solar systems to homeowners and provide power for less than utilities charge, according to Rive.

Moreover, in many states, utilities are required to compensate homeowners for solar power they generate but don't use.

But just as big of an obstacle, if not more so, are state policies that discourage utilities from entering into the kind of collaborations that SolarCity envisions, he said. Under those policies, utilities make a guaranteed rate of return on their investments in new infrastructure, but not on money that they pay to third parties for services.

"It's so inefficient. Currently, neither party wants to budge," Rive said of solar providers and utilities. "Neither side wants to show its cards."

That said, SolarCity is looking to budge, seeking policy changes that will make such partnerships possible, starting in California and New York, states known for challenging old-fashioned ways of providing energy.

"They understand that the future of the grid is not one-way delivery, but two-way delivery," Rive said. "That means the utility would deliver services to the home, and the home would deliver services to the utility."

Rive raised the idea of collaborations at a recent meeting of the National Rural Utilities Cooperative Finance Corporation in Chicago, saying he hoped to strike such a deal in a year or so.

Did he find any takers?

"One of the rural co-ops reached out to me to discuss this further," Rive said. "We're going to have that call."

A more challenging task for SolarCity is finding candidates among big utilities which, unlike nonprofit co-ops, have profits and shareholders to worry about.

Has SolarCity heard from any of them?

"There was one discussion, and it looked like it would have some traction," he said. "But then it went cold."

An official with the Edison Electric Institute, the trade group for investor-owned utilities, said he was not familiar with SolarCity's pitch for partners, but didn't necessarily rule it out.

"I think utilities are exploring partnerships with entities throughout the states," said Richard McMahon, EEI's vice president for energy supply and finance. "It's a discussion and negotiation between a utility and whoever the vendor is."

But McMahon also cautioned that any such arrangement with SolarCity would have to take into account various issues, such as whether SolarCity's systems are appropriately situated for a utility's needs, and if a utility's payments for SolarCity services would conflict with the payments it makes to homeowners for excess solar power.

Still, Rive said he's not discouraged.

"Why would they do it? There's no incentive for them to do that now," he said of utilities. "But this change should start happening over the next year to two years."

Loveless – @bill_loveless on Twitter – is a veteran energy journalist and television commentator in Washington. He is a former host of the TV program Platts Energy Week.