Mother Jones, March 6, 2015
New York wants to get serious about solar power. The state has a goal to cut its greenhouse gas emissions 80 percent below 1990 levels by 2050, and it’s already among the nation’s solar leaders. New York ranks ninth overall for total installed solar, and in 2013 alone it added enough to power more than 10,000 homes.
While that’s great news for solar companies and environmentalists, it’s a bit of a problem for electric utilities. Until recently, the business model of electric companies hadn’t changed much since it was created a century ago. (The country’s first electric grid  was strung up by Thomas Edison in Manhattan’s Lower East Side in the 1880s, and some parts of it continued to operate into the 2000s.) Utilities have depended on a steady growth in demand to stay ahead of the massive investments required to build power plants and the electric grid. But now, that tradition is crumbling—thanks to the crazy growth of rooftop solar  and other alternative energy sources and some big advances in energy efficiency that have caused the overall demand for electricity to stop growing. Meanwhile, utilities in New York are also required to buy the excess power from solar buildings that produce more than they need—a policy called “net metering”.
The move is part of a larger package of energy reforms in the state, aimed at setting up the kind of futuristic power system that experts think will be needed to combat global warming. The first step came in 2007, when the state adopted “decoupling ,” a market design in which a utility’s revenue is based not on how much power it sells, but on how many customers it serves. (Remember that in most states utilities have their income stream heavily regulated by the state in exchange for having a monopoly.) That change removed the incentive for utilities to actively block rooftop solar and energy-saving technology, because lost sales no longer translate to lost income. But because utilities could still make money by recouping the cost of big infrastructure projects through increases to their customers’ bills, they had an incentive to build expensive stuff like power plants and big transmission hubs even if demand could be better met with efficiency and renewables.
Now, under New York’s most recent reform, a utility’s revenue will instead be based on how efficiently and effectively it distributes power, so-called “performance-based rates.” This, finally, provides the incentive utilities need to make decisions that jibe with the state’s climate goals, because it will be to their advantage to make use of distributed energy systems.
“We want to pay [utilities] for doing things we want, rather than paying for their return on investment for the things they build,” said John Farrell of the Institute for Local Self-Reliance.
The policy puts New York on track for a new way of doing business that many energy wonks now see as inevitable. In the past, the role of electric utilities was to generate power at a few central hubs and bring it to your house; in the near future, their role will be to facilitate the flow of power between countless independent systems.
“We need to plan for a primarily renewable system,” said John Farrell, director of the Institute for Local Self-Reliance, which advocates for breaking up the old utility model as a key solution to climate change. “We want to pay [utilities] for doing things we want, rather than paying for their return on investment for the things they build.”