From Semiconductors to Green Power: Borrego CEO Mike Hall (Part 7)

SM: What is your prognosis on solar? Are we going to have grid parity in 2012?

MH: I think we will have grid parity on the retail side, the distributed generation side, which is systems on houses and office buildings. I think that people will then challenge the whole premise. Is it fair for solar to be competing on the retail side? Should it have to compete on the wholesale side like everyone else? That will be another challenge.

SM: How will that play out?

MH: That is a really good question. I don’t know. I think we will see widespread adoption in the end. There are just a lot of things that need to change to lubricate the system to allow widespread adoption to allow grid parity in terms of costs.

The biggest thing is that a decoupling needs to happen in which the utilities are compensated for the energy they sell. They need to be compensated for the number of customers versus the amount of energy. They need to be motivated to reduce the amount of energy their customers are using. That seems like a big process, but it needs to happen. If we are expected to compete against the utility companies, then you can forget it.

SM: Some states mandate that utilities dedicate a certain portion of their portfolio to alternative energy. How big of an impact will that have?

MH: That will have a tremendous impact. Right now states are into establishing standards that must be met, but they are not putting enough teeth behind them. In theory they are great, but if there is no penalty for not meeting a standard then it is not practical. Right now it is really tough to pass penalties. Utilities would have to raise electricity rates, and nobody wants to raise rates right now.

SM: Your recommendation is twofold: first, decoupling and second, putting together policies under which a specified percentage of the portfolio has to be alternative energy.

MH: You have to mandate. In the short term, for solar, we need a special solar distribution mandate because we are not there to compete with wind. They are still closer to wholesale prices than we are. New Jersey and Arizona have carved out and recognized that there is value in distributed generation. We are going to have a specific piece of the pie for that.

If they do the RPS with teeth and they do the decoupling, everything else is just details. The costs structure will get there to compete with retail.

SM: How will decoupling work?

MH: The idea is that instead of letting utilities be compensated for the energy that they are selling, they make money on the number of customers. This is a reverse incentive and results in their pushing for customers to use less energy. Their motivation is to reduce the amount of fossil fuels used to power the grid.

SM: The cost structure and pricing structure need to change.

MH: Exactly, because they get to charge based on how much they sell. It is culturally a very significant change for them, and they are huge companies. Cultural change is as heavy a lift as anything else. Theoretically, it is the right way to do it.

SM: There is a fundamental business model problem that must be addressed.

MH: It is, but that is not something I am going to deal with! I completely agree. Solar can’t go on every other house until utilities are incentivized. Utilities are too important. When they cry, they are heard.

SM: Good story. Thank you for sharing.

This segment is part 7 in the series : From Semiconductors to Green Power: Borrego CEO Mike Hall
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