Investing Daily Article of the Week

by David Dittman, Australian Edge

The question of whether distributed generation, including the installation by households and businesses of rooftop photovoltaic solar power systems, represents a threat or an opportunity for traditional power providers was addressed by the Edison Electric Institute, the association that represents all US investor-owned electric utilities, in January 2013 white paper.

That study, Disruptive Challenges: Financial Implications and Strategic Responses to a Changing Retail Electric Business, described rooftop solar as a “disruptive challenge” that could squeeze revenue and profits as households and businesses defected, leaving companies forced to maintain grids that serve all customers.

The potential threat is growing.

According to recent research out of Deutsche Bank AG (Germany: DBK, NYSE: DB), declining system costs, customer acquisition costs, financing costs and rising volumes will drive scale benefits sufficient to pull rooftop photovoltaic (PV) solar power to “grid parity” in 50 US states by 2016, up from 10 states right now.

This significant milestone – the term “grid parity” describes the point in time at which an alternative energy source generates electricity for the same cost as the electricity available on a traditional utility’s transmission and distribution system – would set the stage for a dramatic increase in the uptake of rooftop solar in the world’s biggest economy.

Deutsche Bank offered this forecast as part of its first report on Vivint Solar Inc (NYSE: VSLR), which debuted on the New York Stock Exchange on Oct. 1, 2014. Vivint, the No. 2 rooftop solar PV installer in the US, is on track to at least double its sales during each of the next two years.

During 2013 approximately 1 gigawatt (GW) of rooftop solar PV capacity was installed in the US. And residential solar grew by 45 percent in the second quarter of 2014 compared to the second quarter of 2013.