In late May, the investment company Barclays took a bold step, issuing a downgrade of the bond rating for the entire U.S. electric utility sector. The firm downgraded the sector to “underweight,” a term that advises investors to go light on the total percentage of their portfolio invested in utility sector bonds. It is a surprising downgrade, since utility sector bonds are usually considered safe.
The reasoning is straightforward and somewhat surprising, but it is positive for solar power proponents. In simple terms, Barclays believes the combined growth of residential solar power and electrical- power storage pose a legitimate threat to the business model of utilities and the grid distribution system. As the new technology becomes less expensive and more widely used, homeowners will become less reliant on grid-distributed power.
Barclays feels the utility sector has not adequately prepared for this change. It also asserts that the current pricing of bonds for this market does not adequately reflect this trend.
As proof, Barclays notes that the trend is underway in Hawaii, where storage for residential electricity consumers is competitive with the price of utility grid power. It predicts the same for markets in Arizona, California and New York in the next few years.
In its report, Barclays characterizes its sentiments: “In the 100-plus-year history of the electric utility industry, there has never before been a truly cost-competitive substitute available for grid power. We believe that solar plus storage could reconfigure the organization and regulation of the electric power business over the coming decade.”