Barclays: Solar is about to disrupt the utility industry

The corporate bond analysts at Barclays are now talking about the new paradigm of solar and energy storage becoming the first existential threat to the utility business in a hundred years.

In Hawaii, as we’ve discussed, solar is already cost-competitive with the traditional grid and consumers are making the switch faster than the electric company can change pricing to account for it. It would make sense for the revolution to begin there – Hawaii has no coal or nat gas, it’s got to source its power feedstock from elsewhere, which makes it more expensive. In the meantime, the island chain is literally drenched in sunlight.

Barron’s has the comments from the Barclays credit research team – which I believe have much wider ramifications beyond utility bond pricing…

Electric utilities… are seen by many investors as a sturdy and defensive subset of the investment grade universe. Over the next few years, however, we believe that a confluence of declining cost trends in distributed solar photovoltaic (PV) power generation and residential-scale power storage is likely to disrupt the status quo. Based on our analysis, the cost of solar + storage for residential consumers of electricity is already competitive with the price of utility grid power in Hawaii. Of the other major markets, California could follow in 2017, New York and Arizona in 2018, and many other states soon after.

In the 100+ year history of the electric utility industry, there has never before been a truly cost-competitive substitute available for grid power. We believe that solar + storage could reconfigure the organization and regulation of the electric power business over the coming decade. We see near-term risks to credit from regulators and utilities falling behind the solar + storage adoption curve and long-term risks from a comprehensive re-imagining of the role utilities play in providing electric power.

I’ve been a bull on the solar equities for over a year now. Not sure if I’m ready to make the leap yet and become a bear on the electric utilities. Many of them are trying to incorporate more via large scale projects as we speak. If they can do so at competitive value propositions versus the rooftop option, they should be fine over time. In most cases.


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