Every six months or so Doug Cox washes his roof so he can make more electricity. The 16 solar panels on the southern face can produce nearly four kilowatts of electricity in the strong Phoenix sunshine—enough to offset much of the power required to cool his home in this hot climate. But the two-year-old system gets dusty, which slows the current flow. “My wife is up there, hosing the soap off as I'm scrubbing,” says Cox, a 37-year-old high school math teacher. “We've even had our five-year-old daughter help us. She's on the ground, and we tell her when to turn the hose on and off.”

The Cox family is part of a growing trend in Phoenix and other sunny locales: homeowners using rooftop solar panels to generate their own power and sell the excess to the local electric utility grid. More than 127,000 homes in Arizona now have rooftop arrays. The Coxes bought their panels outright, after doing the math that proved that the system—with a life of 20 years or more—would pay for the $12,000 cost in roughly six years, through savings on their electricity bill and tax breaks. “Last year, in May, June and July, we had a zero utility bill, which is awesome to see,” Cox recalls. Other months the Cox household produces excess power, which gets sent to the local grid for credits on future bills. “Our meter goes backward,” he says.

To Arizona Public Service (APS), the Phoenix-area utility, however, Cox is a freeloader. By not paying for as much electricity, it says, the family is not covering its share of the cost of maintaining the region's power grid that their home still uses. Each solar home, APS claims, imposes an economic burden that amounts to as much as $1,000 a year on other households without solar panels. To make up the shortfall, APS proposed a surcharge of up to $100 per month for each solar homeowner. And to convince the public why the charge was necessary, APS, backed by utility interest groups, went on an advertising spree. In 2013 it spent nearly $4 million on television, print and Internet ads. Solar power, it seems, is so successful in Arizona that the utility sees it as an existential threat.

Solar customers pushed back, calling the proposed surcharge a “sun tax.” They said the electricity industry needs competition, and they did their best to mount a public relations counteroffensive, including enlisting some unexpected allies. “Why should [utilities] be allowed to hold the monopoly on this power source?” asked Tom Morrissey, former chair of the Republican Party in Arizona. “Why can't we provide for ourselves while easing the burden on the power grid?”

The emerging war between utilities and solar customers reveals a fundamental shift in electric grid economics. Cheap solar panels from China, combined with federal and state incentives, have brought solar from a niche pursuit to a significant force for change in the power industry, significant enough to threaten the utility as it has existed for the past 100 years. This fight between homeowners and industry could wind up reconfiguring the political landscape, uniting environmentalists and Tea Partiers and perhaps dividing the Republican Party. What may emerge could be the beginning of a new business model for the power grid—and a new form of political power in suburbia.

Cheap to Buy, Cheaper to Rent
The U.S. solar war will be won or lost on price, and solar is currently cheap and getting cheaper. Installation companies can buy solar modules in bulk for as little as 60 cents per watt, half the cost of just five years ago. Solar, once all financial factors are included, is now as cheap as grid electricity wherever residential rates are 15 cents per kilowatt-hour or more—roughly 16 percent of the U.S. retail electricity market. More than 100,000 American houses went solar just in 2013, according to the Solar Energy Industries Association. The challenge of solar technology expense has been overcome, says David Crane, CEO of NRG Energy, a nationwide utility that has fossil-fuel and nuclear power but also large solar power plants. All that is left to tip the balance in favor of rooftop systems is what he calls “friction costs.”

By that Crane means the cost of finding a solar panel maker and installer, filing paperwork with state and local authorities as well as the local utility, and installing the solar array properly and safely. Those steps can at least double the cost of a residential system, to as much as $5,000 per kilowatt. A typical home in the U.S. installs four to six kilowatts of panels, offsetting roughly half the home's electricity use.

But the friction cost is coming down, too—in some cases to zero, as far as the homeowner is concerned—thanks to companies that essentially rent and install the equipment, such as SolarCity, Sungevity, Sunrun and Vivint. Utilities themselves sometimes offer something similar, dubbed “community solar.” The contracts differ, but essentially the companies pay to install solar panels on a roof and reap any attendant tax credits and other incentives. Homeowners pay a lease price and a set rate for the electricity, resulting in a total bill that is less than their current electric bill. Most of the leases run for 20 years and include maintenance.

The idea is to remove the “stigma” that solar is expensive, in the words of Lyndon Rive, CEO of SolarCity. His company expects to deploy at least 500 megawatts of rooftop solar in 2014, close to double its 2013 business. A federal tax credit for solar installation helps, allowing homeowners or their proxies to deduct up to one third of the cost of buying and installing such systems. Various state, local and utility incentives can make the deal even sweeter.

Enticements such as these have made solar power wildly popular in Arizona. More than 15 rooftop arrays are installed on homes in the state every day, according to APS. “When you go down the street, you see every other house has solar panels,” Cox says. The number of these “solar independents” grew from just 4,770 in 2010 to more than 30,000 today, says Marc Romito, APS's manager of renewable energy, which includes large solar power farms and, potentially, community solar. But with homes making their own electricity, utilities lose lucrative customers and confront a dwindling base over which to spread big infrastructure costs, such as building new power plants or maintaining the grid. The cost of maintaining the local grid that supplies electricity—when solar panels do not—amounts to at least $60 per month per household, by APS's reckoning, a cost that solar homeowners avoid paying. As a result, the utility charges its nonsolar customers that extra $60 for each household that goes solar. “This shift in cost could have spiraled out of control,” Romito says, forcing the company to lead the charge against the current setup for solar at home.

The issue is bigger than Arizona; more than 40 states allow property owners to sell excess energy generated by solar panels back to the grid, and most require the utilities to buy it. Although solar installations account for less than one quarter of 1 percent of U.S. electricity supply, if rooftop arrays became as ubiquitous as chimneys, the utilities fear that they could go out of business or exist merely to maintain the grid. Electric companies have not taken that big revenue hit yet, but they see it coming. As a result, utilities in Oklahoma and Wisconsin have also begun putting out propaganda against solar homeowners, and in Hawaii they have succeeded in blocking further solar system connections.

Consumers Push Back
Solar homeowners have fought back, energized by the savings but also by energy independence. In 2013 Arizona homeowners and solar industry representatives ran their own ads touting the benefits of solar, including self-sufficiency, less pollution and increased competition for mini monopolies such as APS. And they dismissed utility fears of solar freeloaders. “We pay a bill just like everybody else,” says Sue Mitchell, a Phoenix-area resident with rooftop solar who has spent 26 years educating Girl Scouts on self-reliance, among other pursuits. Her home system provides about half the power her family needs. Phoenix homeowner Scott McCay, who does not have solar, notes that after a decade of home improvements such as better insulation and more efficient lightbulbs, his electricity use fell by roughly 18 percent, but his monthly bill from APS increased by 33 percent, thanks to rate hikes.

Unlike the utilities, many homeowners also fancy the idea of a decentralized power system that is less dependent on the grid, in which homes largely supply their own energy. How these skirmishes get resolved could reshape how electricity is supplied and how climate-friendly that system will be—first in Arizona and California but then in other parts of the U.S. and the world. Solar booms in Australia, Spain and Germany are causing similar woes, including the near death of some major German power companies. Globally, more than 100 gigawatts of solar power have been installed—enough to power nearly 17 million American homes.

To influence the outcome, the utility-funded research group Edison Electric Institute released a report in January 2013 entitled “Disruptive Challenges.” The report notes that home solar, which it calls “distributed energy resources,” could eventually allow too many Americans to get off the grid, putting their utilities into a death spiral of fewer electricity sales to cover rising maintenance costs. That would drive up electricity prices and, as a result, encourage more people to install rooftop solar. The roughly 3,000 utilities that now control U.S. electricity could be a dim memory in a decade or two, the report suggests.

That point may be overstated. Rooftop solar would struggle to meet all of the U.S.'s electricity demand, particularly in cloudy climes or where electricity from the grid is cheap. Even in places with the most solar homes, such as California and Arizona, the impact on utilities is still small—APS, for example, simply recoups its costs from its remaining nonsolar customers. But in Hawaii, Hawaiian Electric has restricted new solar-at-home connections while it studies the impact of the solar boom on its grid, earning the utility a rebuke from state regulators for delaying tactics and a failure to deal proactively with home-based generation.

The bigger challenge for utilities—and one that solar at home and energy efficiency may exacerbate—is the slowdown in growth of electricity use nationwide since 2000. Because many, though not all, utilities make much of their profits by building new power plants, transmission lines and other grid infrastructure such as smart meters, their prevailing business model faces a transformation in the next decade or more—one that may be helped or hurt by solar power at home. New incentives and new business models, such as community solar, will need to be invented or come to the forefront to ensure a reliable electricity supply in the U.S.

The promised independence that this self-generated power would provide has brought together some unlikely allies. Georgia Power, a subsidiary of the Southern Company utility, attempted to block solar power development. That caused the local Tea Party, led by activist and grandmother Debbie Dooley, to form what she called the “Green Tea Coalition” with local environmentalists from the Natural Resources Defense Council, Sierra Club and other groups. Their goal: to encourage solar rooftops in the state. “Solar is a natural fit for conservatives,” says Dooley, who professes amazement at conservatives who claim to be in favor of a free market but support a government-mandated monopoly like local utilities. “The bottom line is that energy has to compete on a level playing field,” she says. “Let the consumer decide.”

As a result of this unlikely alliance, the Georgia Public Services Commission—an all-Republican committee that regulates the utilities in the state—voted to require Georgia Power to include more solar in its future plans.

A schism of sorts is forming within the Republican Party, too. Libertarians and Tea Partiers like Dooley who support a homeowner's property rights have sided against other conservative groups such as Americans for Prosperity and think tanks like the Heartland Institute, both supported by oil magnates Charles Koch and David Koch. Grover Norquist of the Republican group Americans for Tax Reform has decried the Georgia Green Tea alliance and other conservative outfits that support solar at home, arguing that they have been co-opted by a solar industry that is actually a form of what Norquist calls “crony capitalism.”

Still, property rights and self-reliance seem to be issues that most Americans can support. “Customers in Arizona are going solar because they now have control of their own energy,” Rive notes. That outlook has led to “solar rights” laws in purple Midwestern states such as Wisconsin and Iowa. The laws prevent local municipalities, homeowner associations, or the like from prohibiting home solar—as has been the case in Arizona.

One large part of the conundrum is exactly how much a utility loses when a home goes partially off the grid, in terms of how much it must pay for the power that home sells back to the grid, a rate that is determined by state regulators. When APS launched its antisolar salvo, the company argued that it pays too high a price for homemade electricity—the same 11 cents per kilowatt-hour it charges regular customers. The publicly traded company also says solar homeowners should be charged additional fees to pay for their share of the upkeep of power lines and other infrastructure that their homes still use. APS urged the state commission that oversees electricity to allow the charge. As in most cases related to electricity, regulators constrained the moves of both the utility and homeowners.

Not all solar proponents sided with homeowners. James Hughes, CEO of the largest solar panel maker in the world, Arizona-based First Solar, supported APS in its “cost shift” fight. On the other hand, Barry Goldwater, Jr., a former congressman who heads the group Tell Utilities Solar Won't Be Killed, argued that APS was attempting to discourage solar at home to save its revenues rather than finding ways to profit from this new reality.

Utilities might actually be underpaying solar homeowners, according to an analysis run by one of their own: Austin Energy in Texas. The municipal utility concluded that it should pay solar homeowners three cents more than the retail electricity rate, for savings in avoided transmission losses and the ability to delay building large power plants to meet otherwise rising demand, which can require multibillion-dollar investments. Those factors translate into electric bill savings for even nonsolar homeowners. A similar analysis for the Nevada Public Utilities Commission found that solar homeowners in that state were not raising costs for their neighbors.

But APS argues that solar at home saves only on fuel costs, not deferred or reduced maintenance of the grid. “Because of the intermittent nature, solar does not reduce transmission and distribution costs at all,” Romito says, noting that this is based on real experience in Flagstaff and Phoenix, not just studies conducted on paper.

Thus far the regulator that governs Arizona utilities, the Arizona Corporation Commission (ACC), seems to agree—in a small way. It decided in November 2013 to impose a charge on solar homeowners of 70 cents per kilowatt of installed solar, or an average of $5 per month. That charge is almost enough to eliminate the financial benefits of leasing solar arrays. “It's hard to make things work in Arizona now,” Rive says, although APS has seen no decline in homes looking to connect new solar systems.

Solar proponents vow to keep fighting. “We didn't do enough to uncover the true effects, both positive and negative, of distributed rooftop solar,” argues Dillon Holmes of Clean Power Arizona, an advocacy organization for renewable energy in the state.

And APS expects to continue the fight at the commission in 2015, when it will make a decision on new electricity rates. “We applaud the ACC for cutting through the rhetoric and focusing on how the cost shift impacts nonsolar customers,” said CEO Don Brandt in a statement on the ruling. But the current policy “falls well short of protecting the interests of the one million residential customers who do not have solar panels.”

The same sentiment is rising across the U.S. and abroad, even in those nations that are solar energy leaders. Germany and Spain are considering fees on solar power for access to the grid to ensure maintenance of this critical infrastructure.

Backup Plan
Such charges could slow solar's growth, which is why the outcome in Arizona could have national and even international implications—for the solar power industry and for climate change. Solar panels on rooftops result in far less global warming pollution than electricity from burning coal and use less water compared with the cooling needs of a nuclear power plant.

Solar power may prove a strong force, even if federal tax credits end for good in 2016, when they are slated to expire. If module prices drop to 50 cents per watt, then solar power will become as cheap as other sources of electricity in all 50 states. SolarCity is building a new factory in Buffalo, N.Y., to churn out one gigawatt of solar panels a year—volume manufacturing that could help bring cost down. The U.S. Department of Energy has invested $87 million in projects that could reduce the cost of a solar module and its installation to 50 cents per watt each. And a survey by the National Association of Home Builders found that more than half of home construction firms plan to offer houses with solar panels by 2016. The Edison Electric Institute projects that solar at home could be cheaper than the grid in as much as one third of the U.S. by 2017.

Some solar homeowners want to distance themselves even further from their utilities. “I'm looking to get batteries and go completely off the grid,” says Jerry Dieterich, a Phoenix general contractor who leases a 6.4-kilowatt system for his roof. Solar panel manufacturer SunPower has partnered with KB Home to offer rooftop systems with battery storage in 150 California communities. SolarCity serves more than 100 different homebuilders and has partnered with electric automaker Tesla to provide a solar and battery package. And a Rocky Mountain Institute analysis suggests that solar systems paired with batteries could compete on cost with the grid by the 2020s.

In the end, this spread of solar could transform not only the American electric utility but also make the bucolic lifestyle of the suburbs sustainable in a novel way. Solar at home—perhaps paired with an electric car in the garage or a battery bank in the basement to store electricity generated from sunshine for use at night or on a cloudy day—could reduce the profits of the companies that operate the grid, although the grid is unlikely to disappear. A fuel cell or small generator running on natural gas could also facilitate the switchover. “This is not just a solar conversation,” APS's Romito notes. Future electricity regulation “needs to consider every available technology, whether fuel cells, or battery storage, or the next thing that's going to come on a changing system.”

In other words, renewable power at home is about freedom, which is why the solar war is realigning local and maybe national politics. “How shockingly stupid is it to build a 21st-century electricity system based on a system of 130 million wooden poles?” asked NRG's Crane at a summit in February. Within a generation, he said, the grid could be “an antiquated backup system.”

Given that prospect, utilities are doing “everything they possibly can before solar becomes too big for them to stop,” Rive says. Instead, he and others argue, utilities should embrace solar and even try to lead to avoid becoming low-revenue grid tenders.

That utility transformation has begun. “We recognize that our customers really want to have rooftop solar,” Romito says. To provide a new option, APS has proposed a plan to install and maintain solar power on 3,000 homeowners' roofs in exchange for a $30 credit per month to each household for 20 years.

Similarly, rules can be changed to enable utilities to make money from cutting electricity use. Already many people and businesses have made improvements that reduce consumption, such as tightening up ducts, replacing leaky doors and windows, installing Energy Star appliances and adding insulation. “I tell people that the thing to do is to get your house tight, get it energy-efficient first,” Dieterich explains. Then install solar for control over power production. As Dieterich says about his own rooftop solar: “It has done nothing but made me money.”