Can adoption of rooftop solar panels trigger a utility death spiral? A tale of two U.S. cities

Abstract The growing penetration of distributed energy generation (DEG) is causing major changes in the electricity market. One key concern is that existing tariffs incentivize ‘free riding’ behavior by households, leading to a cycle of rising electricity prices and DEG adoption, thereby eroding utility revenues and start a death spiral. We developed an agent based model using data from two cities in the U.S. to explore this issue. Our model shows worries about a utility ‘death spiral’ due to the adoption of rooftop solar, under current policies and prices in the U.S., are unfounded. We found, consistently for a number of scenarios, that, while the residential segment is impacted more heavily than the non-residential segment, the scale of PV penetration is minimal, in terms of overall demand reduction and subsequent tariff increases. Also, the rate of adoption would probably be smooth rather than sudden, giving the physical grid, the utility companies, and government policies enough time to adapt. Although our results suggest that fears of a utility death spiral from solar systems are premature, regulators should still monitor revenue losses and the distribution of losses from all forms of DEG. The concerns should lead to a more focus on tariff innovations.