Unnatural Monopolies: Why Utilities Don't Belong in Rooftop Solar Markets

Abstract

Electric utilities throughout the country are seeking for ways to address the growing threats that distributed solar energy technologies pose to their long-term stability. In particular, a small number of utilities have recently begun pursuing an “if you can’t beat ‘em, join ‘em” sort of response to the rapid rise of rooftop solar. This type of strategy is manifest in a handful newly-proposed projects that would essentially allow utilities to compete as producers in private rooftop solar markets. What are the potential long-term consequences of allowing utilities to compete directly against rooftop solar energy companies? And what sorts of considerations should inform policy decisions relating to this trend? This article applies basic microeconomics framework that has long served as the primary theoretical basis for utility regulation itself to analyze new policies that permit regulated utilities to enter into distributed solar energy markets. The article ultimately argues that regulated electric utilities should not be permitted to compete directly in markets for rooftop solar installations and that policies that actively guard against these “unnatural monopoly” problems will promote greater economic efficiency as innovation continues to transform electricity markets in the coming years.

Keywords: Solar Energy, Utility Regulation, Rooftop Solar Energy