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Published on August 25th, 2014 | by Giles Parkinson

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UBS: Time To Join The Green Revolution

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August 25th, 2014 by
 
RenewEconomy.

Leading investment bank UBS says the payback time for unsubsidised investment in electric vehicles plus rooftop solar plus battery storage will be as low as 6-8 years by 2020 – triggering a massive revolution in the energy industry.

“It’s time to join the revolution,” UBS says in a note to clients, in what could be interpreted as a massive slap-down to those governments and corporates who believe that centralised fossil fuel generation will dominate for decades to come.

UBS, however, argues that solar panels and batteries will be disruptive technologies. So, too, will electric vehicles and storage.

By the end of the decade, it says, the combination of will deliver a pay-back time of between six to 8 years, as this graph below shows. It will fall to around 3 years by 2030. Right now, the payback is probably around 12 years, enough to encourage the interest of early adopters. You can read more here on Why EVs will make solar viable without subsidies.

UBS solar payback

The UBS report is focused on Europe, where it says that Germany, Spain, and Italy will be leaders because of their high electricity and fuel costs. But it could equally apply to Australia, which has both high electricity and high fuel costs, and a lot more sun – so solar is much cheaper.

UBS forecasts that EVs and plug-in hybrid will account for around 10 per cent of the market in Europe by 2025. “While the initial growth should predominantly be driven by incentives and carbon regulation, the entry into the mass market should happen because EVs will pay off,” it says.

UBS EV“The expected rapid decline in battery cost by (more than) 50 per cent by 2020 should not just spur EV sales, but also lead to exponential growth in demand for stationary batteries to store excess power. This is relevant for an electricity mix with a much higher share of (volatile) renewables.”

In this decentralised electricity world, UBS says, the key utilities’ assets will be smart distribution networks, end customer relationships and small-scale backup units.

Those utilities that are able to move with the times – and the technologies – should be able to extract more value in (highly competitive) supply activities, as customer needs will be more complex.

Those that favour the past face impending doom.

“Large-scale power generation, however, will be the dinosaur of the future energy system: Too big, too inflexible, not even relevant for backup power in the long run,” UBS writes.

The timing of the report is noteworthy, given that what used to be Australia’s cleanest and greenest energy utility, AGL Energy, on Wednesday doubled its bet on coal remaining the dominant fuel in a centralised system. The Abbott government, meanwhile, is betting the whole Australian economy on a similar assumption.

UBS says centralised fossil fuel generation will become “extinct” – and it will happen a lot sooner than most people realise.

“Our view is that the ‘we have done it like this for a century’ value chain in developed electricity markets will be turned upside down within the next 10-20 years, driven by solar and batteries.

“As a virtuous circle, lower battery cost will also spur EV sales, which should bring further economies of scale to batteries, also for stationary applications. Power is no longer something that is exclusively produced by huge, centralised units owned by large utilities.

“By 2025, everybody will be able to produce and store power. And it will be green and cost competitive, ie, not more expensive or even cheaper than buying power from utilities.

“It is also the most efficient way to produce power where it is consumed, because transmission losses will be minimised.

“Power will no longer be something that is consumed in a ‘dumb’ way. Homes and grids will be smart, aligning the demand profile with supply from (volatile) renewables.”

This will put enormous pressure on utilities and centralised generators.

“The closer utilities are to the electricity user (both residential and commercial/industrial), the better they should fare in a decentralised electricity system,” the analysts write.

“We think large-scale power plants are the structural losers from this trend, as they are too big and most of them are too inflexible. ”

It predicts that most large scale centralised plants could be gone within a decade. “Not all of them will have disappeared by 2025, but we would be bold enough to say that most of those plants retiring in the future will not be replaced.”

And it torpedoes the theory that the retirement of some more expensive plants (the merit order effect) will cause a rebound in wholesale prices. “The last survivors will be the low-marginal-cost plants ,” it says. “We believe that what is perceived as an ‘optionality’ in conventional power generation by some investors will never materialise.

“Large-scale power stations could be on a path to extinction.”

Source: RenewEconomy. Reproduced with permission.

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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.



  • Vensonata

    Giles seems to be on to this vision of grid independence. This notion will be appearing more frequently on green sites and on investment sites. It needs a fair bit of math to see clearly so I appreciate these analyses and graphs. At this point it’s just the batteries and the price is about to avalanche.

  • Bob_Wallace

    More than 1 GW -

    “(T)he list of (conventional) power plants for which a decommissioning request has been submitted. This month, the number reached 49 plants with a total capacity of 7,900 megawatts.”

    http://www.renewablesinternational.net/german-utilities-want-to-shut-down-79-gw/150/537/80674/

    At least 246 MW of coal have been decommissioned to date. That number held down by the decommissioning of 10 nuclear plants.

    Germany has essentially reduced its conventional fleet from 107 GW to around 75 while maintaining one of the most reliable grids in Europe.

    .

  • http://www.michaeljberndtson.com/ Michael Berndtson

    Nicely written. No argument from me. One reminder, like all investors do, they hedge investments. Global oil and gas investing doesn’t seem to be slowing down, apparently. Coal is being disrupted at this point in time, in the US, mainly due to natural gas from shale. Yet we still are importing coal, since much of our rail traffic is being dedicated to shale oil from Texas and North Dakota. This year’s UBS global oil and gas conference was in Austin in May 2014 (pdf download available). The overall tone seemed to be pretty rosy from the patch. Investment houses typically have multiple divisions, with varying foci. One word: commodities. Here’s a commodity trading perspective on minerals for EVs and renewables:
    http://www.theaureport.com/pub/na/teslas-gigafactory-the-critical-minerals-impact

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