Why Consumers Won’t Need The Power Industry Any More

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Reposted from RenewEconomy:

Image Credit: Thomas/CleanTechnica
Image Credit: Thomas/CleanTechnica

The head of America’s biggest fossil fuel generator says the sharp falls in technology costs from rooftop solar and other micro generation means consumers will soon go after the option of disconnecting from the local utility and “won’t need the power industry any more.”

David Crane, the CEO of NRG Energy, the largest provider of energy to US utilities, with investments in gas, coal, nuclear, biomass and renewables, says the industry is being turned on its head by the declining costs of distributed generation, and believes there is not a lot that utilities can do about it.

Crane has long had a progressive view of what’s happening in the energy industry, which is to say that he hasn’t had his head either in the sand or buried in a sea of self interest.

At the MIT Energy Conference in Massachusetts earlier this month, Crane suggested that the falls in the cost of technologies such as rooftop solar and other micro generation meant that consumers could bypass the electricity grid and were perfectly entitled to tell their energy provider to “disconnect that line.”

“Consumers are realising they don’t need the power industry at all,” Crane, said in an interview reported by Bloomberg. “That is ultimately where big parts of the country will go.”

NRG currently supplies all but 1.5 per cent of its energy via fossil fuels, but it has also recognised the potential of the solar revolution, as Crane describes it, and has been offering rooftop solar PV systems directly to customers.

Bloomberg says that NRG is the first operator of traditional, large-scale power plants to branch into running mini-generation systems that run a single building – a move that, as Bloomberg notes, is striking at the core business of utilities that have earned money from making and delivering electricity ever since Thomas Edison flipped the switch on the first investor-owned power plant in Manhattan in 1882.

Crane’s company has been one of the biggest investors in large-scale solar in the US, but it has also bought a distributed solar company and wants to expand that product. He says his company is looking at offering solar leasing products that require no deposit for rooftop systems installed by customers.

Crane also wants to take advantage of the growing underground network of pipes that delivers gas to about half the homes in the country, and proposes providing customers with micro turbines and fuel cells that use gas.

In effect, Crane wants to help customers bypass the local electricity utilities, and disconnect from the network.

“The individual homeowner should be able to tie a machine to their natural gas line and tie that with solar on the roof and suddenly they can say to the transmission-distribution company, ‘Disconnect that line.’” Crane said.

And he said that the shift to distributed generation will have more of an impact on utilities than on customers. So much so that utilities now realised that distributed solar is a “mortal threat” to their business.

“They can’t cut costs, so they will try to distribute costs over fewer and fewer customers,” he said in separate comments reported by the Wall Street Journal – an issue highlighted in our report on the pricing forecasts by the Australian Energy Market Commission. This, Crane said, will have a snowball effect because it will increase costs for customers, and will drive more of them toward distributed solar.

Jim Rogers, the head of Duke Energy, the largest utility in the US, says utilities are aware that generating power at customer sites will disrupt their business.

Rogers pointed to the huge deployment of rooftop on solar on homes, commercial buildings and industrial facilities. “All of this is leading to a disintermediation of us from our customers,” he said.

“If the cost of solar panels keeps coming down, installation costs come down and if they combine solar with battery technology and a power management system, then we have someone just using us for backup,” he said, adding that other independent power producers may be evaluating the merits of distributed generation, building many small systems at customer sites instead of a few large ones.

So I have one simple question. Why don’t Australian utilities and generators talk like this? We’ve got more sun! Or is it they simply have the power to protect their vested interests?

NRG Energy itself has been developing numerous solar projects, most of them large utility-scale installations. The company acquired a distributed solar project developer in 2011.

The comments are interesting because the US has installed less solar on rooftops than Australia – in 2012 it amounts to 488MW, exactly half the installations in Australia.

In Australia, however, utilities owners are pretending that it’s not having much impact on their business – just on other customers because of so-called cross-subsidies. In this, they have the implicit support of the pricing regulators.

Still, Lyndon Rive, co-founder and chief executive of SolarCity, one of the leading providers of solar leasing products that accounts for most of the installations in the US, said that most utilities will do “whatever they can” to stop companies like his from increasing their market share.

“They will create fear tactics,” he said. (And we’ve seen plenty of that in Australia). For utilities, said Rive, it’s very hard to get a customer back after losing the customer to a competitor, like his own company.

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Giles Parkinson

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.

Giles Parkinson has 596 posts and counting. See all posts by Giles Parkinson