DALLAS - Warnings of a "death spiral" for regulated utilities brought on by decentralized power generation are premature, according to Moody's Investors Service.
"Technological developments are inherently uncertain and could be disruptive, but today, we don't see the utility structure being upset on the horizon," analysts wrote in a Nov. 6 report.
"We discount the 'death spiral' scenario, because the electric grid is a critical piece of infrastructure, and consequently, we believe utilities will continue to receive reasonable regulatory treatment," they wrote.
The analysis follows commentary about a potential "death spiral" for regulated utilities caused by small generators of solar, wind or other forms of power who are no longer dependent on a centralized utility grid.
For example, a homeowner with a rooftop solar array could generate sufficient power that she no longer needs to buy power from the local utility. In fact, some distributed generators produce excess power, which utilities are required to purchase, whether they need it or not.
"Distributed generation leads to the so-called death spiral," wrote Travis Miller in a March 4 Morningstar report. "Ultimately, utilities' earnings and cash flows will shrink, making interest and dividend payments less certain. This death spiral ends when investors — equity and credit — are left holding a purse of dormant power plants and copper wires."
In most cases, a complete break with the traditional electric grid would require some form of energy storage system for the solar power, Moody's noted.
"We believe mass grid defection is unlikely in the foreseeable future because the cost of batteries is still an order of magnitude too high," the analysts said. "While we do not rule out the potential for a large decline in battery cost, numerous behavioral or physical barriers make most people unwilling or unable to defect from their utilities."
Across the United States, utilities are working with their regulators to stay ahead of the potential industry transformation caused by distributed generation, Moody's said.
Idaho and Oklahoma are two states where lawmakers are working with regulators on studying the impact of distributed generation.
Hawaii has by far the highest market penetration, with 11% of Hawaiian Electric Company, Inc.'s residential customers with solar power systems.
"The rapid adoption has tested Hawaiian Electric's operations and strained relationships with regulators and customers, a situation utilities want to avoid," analysts said.
"While energy storage is too expensive and impractical for homeowners now, technology will advance to make storage more common in the next decade," they said. "By starting to address the potential impact now, utilities and regulators will have more time to prepare by improving their rate designs and planning."