Quick Take:  We’ve talked a lot about the dangers utilities face if they ignore disruptive technologies such as solar + storage. Here’s another challenge. They could end up paying more for the cost of capital. Some analysts think utilities are blind to the coming realities and they are warning investors to stay away. – Jesse Berst

 Barclays has downgraded the corporate bond market of the entire U.S. electric power sector. It sees long-term challenges from solar energy – challenges that are not being recognized and priced in by the bond market.

Barclays believes that solar + storage could become the first truly cost-competitive substitute for grid power. They think regulators and utilities may fall behind the adoption curve. And may fail to re-imagine the role utilities should play in the future.

“Over the next few years, we believe that a confluence of declining cost trends in distributed solar photovoltaic (PV) power generation and residential-scale power storage is likely to disrupt the status quo,” said the Barclays team as quoted by Barron’s. “Based on our analysis, the cost of solar + storage for residential consumers of electricity is already competitive with the price of utility grid power in Hawaii. Of the other major markets, California could follow in 2017, New York and Arizona in 2018, and many other states soon after.”

And it’s not just residential rooftops

Centralized solar plants will also play a role. They are becoming more efficient just as capital costs are dropping dramatically. Solar plant builder Abengoa says that concentrating solar + storage will compete with natural gas by 2020 to provide baseload power.

Meanwhile, solar leasing companies have become a magnet for investors, according to SustainableBusiness.com. Sunrun raised $150 million in its fifth round, Clean Power Finance $200 million, Sungevity $70 million, and SolarCity, $500 million. One reason for the optimism: The U.S. is on pace to double its solar installed base by the end of this year, according to Solarbuzz.

“Technological change creates precisely the environment where slower-moving incumbents and their regulators can fall behind the curve, risking credit volatility, or disrupt the regulatory compact, possibly leading to unexpected losses for bondholders,” warns Barclays.

Jesse Berst is the founder and Chief Analyst of SGN and Chairman of the Smart Cities Council, an industry coalition.