Reading the solar industry news, industry watchers can be found giddily talking about transformations in how we fuel our households and industries. As the cost of solar power nears what is known as "grid parity" — when solar can generate power at a lower or equal cost to that purchased from the grid — forecasters are predicting that solar is set to grow exponentially over the next five years.

This suggests we are entering a new energy paradigm in household utilities. But for this to happen, this transformation in demand for rooftop panels must be accompanied by a much more challenging transformation in the underlying infrastructure that distributes that power through our neighborhoods.

The winners and losers from net metering

The growth of rooftop solar panels in urban districts of the U.S. is impressive. While the bulk of the predicted 119 percent growth in solar over 2016 will come from from the utility-scale segment, we are also seeing a quiet revolution in smaller-scale projects. Research suggests residential solar capacity may be growing 70 percent year on year.

The mechanism of net metering — whereby utilities let consumers sell surplus power generated by solar panels back into the grid — can be a key incentive for investing in panels for your home. However, this scaling up of household solar is not without its challenges, and its popularity varies state by state.

At one end of the scale, California currently accounts for 40 percent of distributed photovoltaic (PV) capacity in the U.S. And Hawaii — where grid electricity costs are some of the highest in the country, and where policymakers are hoping to achieve 100 percent renewables by 2045 — is facing a glut of home-brewed solar so large that it has overloaded their grid. People have started to referring to the sunny island as a "postcard from the future."

At the other end of the scale, local utilities in Nevada last year successfully lobbied the Public Utilities Commission to cut back on state net-metering payments, causing the swift exit of prominent rooftop solar providers. They argued the costs of net metering fall unfairly on both utility companies and nonsolar customers.

Such stories highlight the challenge of facing up to the accompanying transformation we need toward more flexible grid infrastructure. Faced with disruptive technological change, utility companies will have to adapt (and possibly transform) their business models for the 21st century.

The new model must be designed for a "networked grid" where we increasingly face a two-way flow of electricity, not only from the grid into peoples' homes, but also from those homes back into the grid. This will have dramatic implications for rate design as well as for engineering.

In a typically bureaucratic and slow-moving sector, these constraints, unaddressed, could mean the difference between exponential solar growth and a plateau.

Going off-grid

An alternative many households are considering is going off-grid altogether. Not selling surplus energy back to the centralized grid, however, means developing viable "solar and storage" solutions. This is the logic behind the recent $2.6 billion merger behind Elon Musk's Tesla (and its Powerwall home battery system) and Solar City, the solar company he co-founded.

The off-grid route is being taken up by disillusioned Hawaiians frustrated by a backlog of permit applications to connect their rooftop panels to the grid. Elsewhere, some communities and institutions are joining together to form "microgrids" — local energy grids that can operate autonomously from the central power source. Some enthusiasts have even posited microgrids as the key to strengthening local communities.

The regulatory challenge

Much will depend on policy and how the regulatory landscape evolves, which solar companies are taking bets will evolve in their favor. Notably this partly revolves around the fate of President Barack Obama's solar investment tax credit (ITC) once it starts winding down from the end of 2019.

At the state level, Hawaii's Grid Modernization Act would ambitiously guarantee that "any person, business or entity can make a safe and reliable interconnection on the Hawaii electric system in a timely manner and for a reasonable cost" with grid upgrade costs shared across the system. In New York, utilities and solar companies jointly agreed on a landmark Solar Progress Partnership, which is hoped can serve as a model for other states on distributed energy solutions.

The outlook

Once exponential solar growth becomes a reality, the disruption to business models will force large, stubborn utility bureaucracies to transform themselves. Exactly how the relevant factors will play out is uncertain — there will inevitably be opposition, and the results of November's elections will have big implications for federal support of renewables.

But as solar panel costs drop, the demand from households is unlikely to let up. The challenge has been laid down for the utilities.