Adaptability is the key to survival — both in nature as Charles Darwin observed, and in the business sector. As the solar industry continues to flourish, utility companies across the U.S. are beginning to witness how the traditional electric grid is transforming.

As tens of thousands of residents have solar photovoltaic (PV) panels installed on their rooftops and begin generating their own power, they need less electricity from the utility grid. The issue of net-metering, selling the excess solar energy back to the utility, has sparked a heated debate since utility companies must still incur the costs of maintaining the grid for all users — including the solar homes that are interconnected.

While companies spend their time battling for and against net-metering and state regulators strive to reach a compromise, other disruptive forces are quickly evolving. From battery storage and other renewable technologies to shifting consumer-usage trends and pressure to upgrade the grid, utilities face increasing threats to their centralized service model.

“The critical success factor for U.S. electric utilities will be changed behaviors,” stated Ernst Young Executive Director Dean Maschoff, co-author of the study, From Defense to Offense. The EY report discusses key survival strategies for utilities, such as focusing on the consumer, increasing competitiveness through new offerings, and providing value in connection with distributed generation.

As utility CEOs brainstorm how to modernize their business model, one comprehensive solution is spreading across America: community solar.

Focusing on the Customer

Nine out of 10 people in the U.S. want to harness the sun’s energy, but only 22 to 27 percent of residential rooftops are properly sited to host a solar system, reveals the National Renewable Energy Laboratory (NREL). The remaining 75 percent face obstacles such as tree shading, improper roof orientation, lack of financial ability, or they rent their home.

Community solar enables utility customers to buy or lease panels in a local solar array, or purchase clean energy from the solar facility—and receive credits on their utility bill. The EY report urges utilities to offer differentiated products with more pricing options, and community solar does precisely this. By providing its ratepayers the opportunity to use solar power at the level they feel comfortable with, a utility can satisfy a range of consumer demands.

In southwestern Colorado, the San Miguel Power Association (SMPA) is a rural electric cooperative that serves 10,000 members. “In our service territory we have a really strong desire amongst the membership to move away from large fossil-fuel generation to more distributed, renewable generation [that’s] local,” said SMPA Utility Program Manager Brad Zaporski.

Responding to this demand, SMPA partnered with Clean Energy Collective (CEC) a community solar developer that pioneered the first ownership model in the U.S. At the end of 2012, CEC developed the 1.12 megawatt (MW) Paradox Valley Solar Array — the largest community solar facility in the nation at that time. The 4,700-plus panel array provides a range of solar options for SMPA members. For about $790, anyone with an SMPA electric bill may a single 235-watt PV panel, or enough panels to completely offset their energy usage. Financing options are also available, making solar panel ownership available to more individuals.

“[Community solar] is basically a cooperative; it works perfectly with the cooperative business model,” Zaporski said. “Having a solar facility or any generation facility that the members can own themselves is just a perfect match.”

Increasing Grid Stability and Competitiveness

Americans are consuming a record amount of energy. Retail electricity has increased almost 3 percent per kilowatt hour this year compared to 2013, reports the Energy Information Administration (EIA).

Increasing demands of the antiquated utility infrastructure can threaten grid stability. But, as some power companies argue, so can the excess renewable energy fed back to the grid from rooftop arrays. Community solar can help mitigate the risks of brownouts and blackouts resulting from rising energy consumption and an increase in residential distributed generation.

Competitive pricing is also essential as new entrants enter the market. “Utilities need to do anything they can to minimize the trajectory of their rates without jeopardizing service quality, customer satisfaction or safety. This means reducing or optimizing both OM and capital investment,” advise Maschoff and EY co-authors Gary Paul and Ted Pelecky.

With the community-owned solar option from CEC, utilities are not required to invest any capital to construct the shared solar facilities. Instead, CEC finances its large-scale community solar arrays through a mixture of loans and tax equity. This means utilities can provide ratepayers with a unique solar offering, tailored to meet consumers’ individual energy needs, without spending a dime.

Providing Value in the Shift Toward Distributed Generation

Last year, a solar system was installed in the U.S. every four minutes, according to the Solar Energy Industries Association (SEIA). If the researchers’ 2014 forecast is accurate, a solar array is now installed every 2.4 minutes.

The solar revolution is sweeping across America, with no sign of decelerating.

“I think utilities need to understand that this is happening with them or without them,” said renewable energy strategist Carl Siegrist. “The very culture of what made utilities successful in the past isn’t going to serve them well today.”

Although the explosion of distributed residential systems is requiring utilities to adapt their model, it also provides new revenue opportunities. Having worked for an investor-owned utility (IOU) for years, Siegrist said there is value potential not only for the IOU but for its stockholders and customers as well.

The EY report mentions a range of services that utilities may consider to complement distributed generation, such as energy efficiency reporting, in-home diagnosis and upgrade services. When managed by a third party, community solar gives utilities time to rethink their products and services while their ratepayers enjoy the benefits of distributed generation — without replacing a single roof or chopping any trees.

“It’s obvious to me that a community solar program can be a lower-cost way for [utilities] to use solar to meet whatever needs they have,” Siegrist said. “They have got to feel like they’re continuing to make money for their stockholders, and serve their customers, and keep the rates within reason.”

He adds: “Between a world engulfed in climate change, it’s going to be an economic disaster or a very livable one where we’re transitioning into this clean energy economy. It’s economic success or economic failure.”

The original article was published on the CEC blog.