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Published on October 8th, 2013 | by Giles Parkinson

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Electricity Utilities Could Lose Half Their Market To Solar And Storage

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October 8th, 2013 by
 

Originally published on RenewEconomy

Within a few days of each other, Queensland network operators Ergon Energy and Energex produced annual reports that gave nearly diametrically opposed views of the current state of the play in the electricity market and its future.

Both have been impacted by the proliferation of rooftop solar – both during the generous subsidies and since. But where Energex saw solar mostly as a threat to its business model, as increasing numbers of customers installed modules on their rooftops and consumed fewer electrons from its $10 billion poles and wires business, Ergon saw opportunity.

Or perhaps Ergon saw the inevitable – given that its $12 billion poles and wires business is one of the most far-flung in the world, and customers are already paid a subsidy of $850 each to keep prices down.

Ergon raised the possibility that customers with solar and batteries could serve themselves for less cost and without the grid. In reality, it will probably happen much earlier than that, particularly if the state subsidies are ended. That is why Ergon, like Vector in New Zealand, is less interested now in investing in traditional “poles and wires” and more interested in distributed generation and other “smart solutions” that herald the arrival of game-changing technologies.

The opposing positions of Energex and Ergon, despite their common shareholder is, in many people’s view, a perfect illustration of the sort of choices and challenges being thrust in front of utilities – network operators and generators – in Australia and across the world.

Solar, as UBS asserted earlier this year, is becoming a no-brainer for customers across the world, and as energy industry leaders such as Stephen Chu and Jon Wellingham have suggested in recent months,utilities will have no choice but to develop a new business model.

Citi recently analysed the state of play in a special report on utilities in the US. It noted that solar has become a polarising topic – some utilities were embracing the change, and some were trying to pretend it didn’t exist. But, as Citi noted, solar is here to stay and only just at the beginning of its growth cycle.

“The perception of solar as being inefficient and requiring material subsidies is no longer accurate,” Citi says, adding with a degree of understatement that this concept “is not being fully appreciated” by the utility sector.

“Solar is already competitive at a domestic level in many countries, and becoming increasingly so due to its extremely rapid “learning rates”,” Citi adds.  “And, this is just the beginning. Solar’s technological nature means that it will keep getting cheaper as we begin to approach parity, while conventional fossil fuels are more likely to increase in production costs – this dynamic is not being fully appreciated in the power sector.”

By 2016, Citi says, solar will be “cutting it” in most parts of the world, stealing share of new electricity demand, stealing demand from previously installed generation, and doing most of it at the most valuable ‘peak’ part of the demand curve.

To what extent this will occur, however, may come as a shock to utilities and energy analysts.

In its new Energy Darwinism report released this week, Citi says the combination of solar, energy efficiency and new technologies could reduce the “addressable” market of utilities in developed countries by up to 50 per cent. Most utilities in Europe, the US and Australia have been experiencing falls in demand in the last few years, but most are assuming that this will rebound. Not so, says Citi.

Using Europe as an example, Citi says the potential for demand reduction is substantial and overall electricity consumption could decline by more than 20 per cent across Europe just through energy efficiency.

The move to more distributed energy and micro-generation will also take volume market share away from centralised generation and utilities. It notes that solar industry predictions – which may be conservative – that 15 per cent of European electricity demand will be covered by solar PV by 2030.

Citi says that adding other forms of distributed energy such as combined heat and power (CHP) means that the decentralised market could account for one third of the overall utility market in the next couple of decades.

Here’s how Citi says it could play out:

Distributed resources (solar, CHP, wind) both for households and industry could cover 30-40% of the eventual demand

Renewables (onshore wind, offshore wind, biomass,hydro) to constitute a big portion of centralised energy that could cover 30-40 per cent of eventual demand. (This is Europe, so in countries such as Australia and the US, utility-scale solar will play a more prominent role).

Conventional generation (nuclear, combined cycle gas and coal) to cover some of the base-load demand as well as provide back-up to the system, but covering as little as 20 per cent and a maximum of 40 per cent of eventual demand.

Citi says the pace of change may vary from country to country, depending on natural resources, economic activity and technology bias. But it notes that even France, currently served 75 per cent by nuclear, could have as little as 50 per cent centralised generation by 2025-2030. France has a lot of catching up to do in energy efficiency (its households use nearly 50 per cent more energy than German households, for instance), so rapid changes could take place in little more than a decade.

By 2025-30, Citi says, the end result will probably look “revolutionary” versus the utility model of 2000s. “Utilities in developed markets are ..  likely to have to evolve into a new type of company,” it says.

citi-utilities-cut

It could, suggests Citi, result in a split between “centralised back-up” and localised grids – possible even at the level of multiple streets. The centralised companies may have to revert to what it calls the old regulated rate of return model (something that Australia is yet to evolve from). Read more about that here.

ergon-dylanThat may make it interesting for utility owners such as the Queensland government, which wants to merge Energex and Ergon and install a single management. It will be interesting to see which point of view has primacy when the entities are merged by the conservative government.

Which would it choose? Given the track record of the conservative government, and the stunning ignorance of some of its advisers, one fears that it will be Energex. Perhaps it won’t be because Ergon has seen the future and feels something should be done about it. Maybe the the official reason will because Ergon Energy CEO Ian McLeod channelled Bob Dylan without government authorisation.

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About the Author

is the founding editor of RenewEconomy.com.au, an Australian-based website that provides news and analysis on cleantech, carbon, and climate issues. Giles is based in Sydney and is watching the (slow, but quickening) transformation of Australia's energy grid with great interest.



  • Tony P.

    Here in sunny Southern California where the California Solar Initiative has been actively promoting and subsidizing Solar PV for over 20 years, we’re dealing with many of the same issues as elsewhere, but more proactively. There is (and has been for some time) a program to support Self-Generation that is technology agnostic. For the last 2 years or so the California Electrical Commission (CEC – we’ve got more acronyms than most) has studied and begun implementing an energy storage program that treats utilities and consumers alike on a level playing field. The energy storage program will be subsidizing $MM for technology agnostic storage platforms integrated at all levels of distribution in order to collect sufficient data to then determine policy, and is set to run for more than 5 years. It’s not surprising that this methodic determination of government policy and regulation has been so effective.
    As to the customer load served by the three big IOUs (Investor Owned Utilities) in our state, Southern California Edison (SCE) has Los Angeles at the center of its service area and recently noted that LA residences currently hold 10% of the plug-in vehicles (both pure electric and hybrid) that have been sold in the US.
    That said, SCE reports that at the current penetration level there was very little that had to be done to accomodate the additional load (one PEV = approx. 4X a typical household load) and we’re definitely in 2 car garage country. Given the rate of EV adoption here (highest in the nation), that would mean an increase in total electrical load by about 8X over the next 15 to 20 years. There is simply not enough rooftop area for consumers to produce the solar PV (even at 100% conversion efficiency) necessary to support the coming total household load.
    So what are the electrical utilities complaining about? The next 20 years are going to see an unprecidented growth in demand that cannot be met by solar PV in an urban or even suburban area. There will be plenty of need for a grid as well as major generation (hopefully moving towards renewable) and bulk energy storage units outside of (sub)urban areas to support that increase in load.
    The situation is slightly different in Australia due to the much lower population density (about 10% of the US, but in the same geographic area), but with about 75% of your population still residing in major cities. You have the same passion for the environment that California does and the rest of the world will be following suit.
    BTW, in 2003 I bicycled self-contained (Eco-travel) from Cairns to Brisbane to Sydney to Melbourne (with many diversions up and down the Great Dividing Range) and along the Great Ocean Road, so I’m fairly familiar with where and how the majority of Australia’s population lives and those urban areas along with the various size townships in between. And I loved the many different roadsigns in the wide open spaces for keeping drivers alert, particularly “Don’t Sleep and Drive”.

    • Bob_Wallace

      (one PEV = approx. 4X a typical household load) and we’re definitely in 2 car garage country

      Average annual miles per US driver = 13,000.

      Average miles driven per day = 35.6.
      Average electricity usage per EV mile = 0.3 kWh.
      Electricity required for single day’s driving = 10.7 kWh.
      Average residential daily electricity usage = 30.9 kWh.

      Two average EVs would use 30% less electricity than an average residence, not 800% more.

      • Bob_Wallace

        And thinking a bit more about how much roof area would be required to charge an EV…

        First solar panel that popped up was a Sharp 250. 250 watt in a 64.6″ x 39.1″ package. 19.2 watts per square feet.

        To charge the average EV one needs 10.7kWh.

        In an area like San Diego with 5.5 avg solar hours per day that would take a 1.9 kW array. Upsize it 20% to more than compensate for inverter and charger inefficiency and it’s 2.3 kW, 2,330 watts.

        At 19.2 watts per square feet it would take 121.7 square feet of roof space to generate the electricity to charge an EV. About the size of bedroom.

        In the less sunny Northeast with 4.2 average solar hours per day it would take a 3,050 watt array and 160 square feet of roof area.

        Two EVs and household power in the SW = ~11.5k array and 600 square feet.

        Two EVs and household power in the NE = ~15k array and 780 square feet.

  • http://www.you-read-it-here-first.com/ John Bailo

    Cheap solar hydrogen generators would really impact the storage side of the equation. In fact, storage impacts not only the traditional grid, but solar itself.

    I think you’d still want a grid for redundancy though (say a storm blows off your panels). In that case, a hydrogen fuel cell becomes a standard, the solar makes the hydrogen and you’re interconnected by a minigrid of pipes to load level. That means you can get by with maybe less solar panels per roof, or else, just have a “neighborhood” energy generator to serve a few blocks or a town.

    • Bob_Wallace

      Are there cheap hydrogen generators or is this wish-thinking?

  • Andy Bochman

    Loved the article Giles – many thanks. I tend to look at everything from a cyber and energy security point of view, and am exploring the cyber security ramifications, both pro and con, of increasingly decentralized power gen. This piece shows the clear fork in the road and how folks of good intent are still choosing opposite paths. Will be interesting – and maybe a little fun – to watch how this plays out. Andy in Boston.

  • Will E

    the government and utilities will have no say no more in this.
    I was in Australia 2 years ago, going from Perth to Broome and there is so much sun and so much wind in Australia and solar panels are so cheap, the Aussis themselves will install it with no subsidies involved smart ass they are.
    and make the profits for themselves.
    Will E, Netherlands

    • Bob_Wallace

      Add in the fact that electricity is very expensive in Australia.

      And that as coal plants are shut down due to low demand utility companies are likely to attempt increasing prices to cover their losses.

      And that end-user storage is starting to appear. The ability to produce and store ones electricity for less than grid costs will keep solar installations booming.

      • Ronald Brakels

        All up I paid 42 cents a kilowatt-hour on my last electricity bill. With current exchange rates that’s about 39.5 US cents a kilowatt-hour.

        • Bob_Wallace

          At current AU installed solar prices and storage in lead-acid batteries costing about 20c/kWh it’s already cheaper to make and store ones own than to purchase.

          • Ronald Brakels

            Yep. And with new rooftop solar now getting eight cents (or sometimes zero cents) for each kilowatt-hour they export to grid someone with rooftop solar paying the current average of about 28 cents a kilowatt-hour will now break even with 20 cent a kilowatt-hour storage. We will go for maintenance free battery chemistries rather than lead-acid, but fortunately these now pretty cheap too.

          • Bob_Wallace

            Have you any real world costs for non-lead acid battery storage?

            I see people making claims based on batteries they buy from China via eBay, but I’m wondering about more “mainstream” solutions.

          • Ronald Brakels

            I’m afraid I don’t have any info at the moment. I once saw the price of solar inverters plus storage in Europe but I neglected to take note of the website. And we have a problem in Australia. Other countries that we’d normally expect to do all the work for us such as Germany and Japan have decent solar feed-in tariffs and so they they don’t have a huge market for storage right now and so aren’t rushing to develop low cost systems for their own markets that we can use. And it’s not as if we can be expected to do something ourselves for our own benefit. That’s not what Australia is about. Australia is about 2% of the population ripping stuff out of or off the land, whether ore or crops or cows, and flogging it off overseas for manufactured goods while everyone else provides services to each other. Here in Adelaide there’s almost no industry, it’s just full of people servicing each other all day long. Now this isn’t necessarily a bad thing, but it would be nice if someone with Japanese experience could arrange for a company in Japan with access to manufacturing capacity in China to produce home storage systems for the currently unique Australian market. It’s almost enough to make me consider speculating about thinking about making a plan to ruminate upon doing something about it myself. But then I lie down and have a Bex and the feeling passes.

          • Bob_Wallace

            “Here in Adelaide there’s almost no industry, it’s just full of people servicing each other all day long.”

            Back on the farm we used to talk about the bull servicing the cows. Perhaps if you restricted servicing to the nighttime hours you could make some progress….

          • Ronald Brakels

            I’m not sure we’re willing to make that sacrifice.

          • Bob_Wallace

            I understand.

          • Ronald Brakels

            Today I asked a man how much for a hybrid solar inverter/battery with 6 kilowatt-hours of lithium-ion storage. He told me he’d do me for $3,500. Assuming a ten year life span and one cycle a day and a 5% discount rate that comes to 20.8 cents a kilowatt-hour. A money saver for many grid connected Australians with solar. And since this includes an inverter which might cost say $500 the cost of storage is actually about 17.8 cents which means that someone with the now common 8 cents a kilowatt-hour feed-in tariff can turn a profit with this system. And costs will be coming down further. Looking at electric car battery packs we know they can do better. Home energy storage in Australia is going to start taking off now and gain a lot of momentum over the next few years.

          • Bob_Wallace

            I should be able to hear the whaling and rending of garments from the coal industry all the way up here….

          • Ronald Brakels

            They still can’t cope with the fact that rooftop solar exists and their response to that was to see that feed-in tariffs were cut so much it makes sense for people to install energy storage. I’m wondering what sort of self harm they’ll do in response to home energy storage.

          • A Real Libertarian

            Imprisonment? Multimillion dollar fines? It’s they do in Spain.

            Oh, almost forgot…
            We must protect the free market from competition! To rebel against the aristocracy is commie heresy!

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