Published on April 17th, 2014 | by Giles Parkinson


Bernstein: Utilities Have 4 Choices In Solar Revolution (None Are Easy To Swallow)

April 17th, 2014 by  

Originally published on Renew Economy

Can electricity generation companies live off two hours of demand a day? And what if utilities actually tried to slow down the rollout of rooftop solar? If these are questions energy utilities are asking themselves in the current market environment, they may not like investment bank Bernstein’s answers.


Following on from our story last Friday of how the extraordinary plunge in the cost of solar could cause price deflation in global energy markets within a decade, with potential big implications for the liquid fossil fuel industry (oil and gas), we look today at what investment bank Sanford Bernstein says the falling cost of solar means for utilities – both generators and network operators.

Numerous other studies – and even the industry itself – have talked about the threat of the so-called “death spiral” and the need for incumbent utilities to adapt their business models.

The best way to begin this explanation is to revisit the so-called “Peaking Duck” – which is not, as the Bernstein analysts point out, a delicious Asian-Latino poultry dish, but the future of merchant power markets.

Bernstein solarbernstein duck

This graph above documents the impact of solar PV, which generates electricity during the day and so reduces peak power demand from non-renewable sources as adoption increases. The lower lines point to the future, where generators are squeezed out of the market by the proliferation of rooftop solar.

“Instead of high-cost (and high-priced) gas-fired peaking power plants being engaged in the middle of the afternoon when all of the air-conditioners are operating and all of the factories are running, solar addresses that load. California – like Germany and Australia – is already seeing this effect,” Bernstein writes.

Indeed, as we have recently documented, grid operators in South Australia have highlighted the impact of solar in the recent heat waves in South Australia, gas assets are being written down, and demand for peaking power plants in the US are already being dumped in favour of large solar PV farms.

Bernstein points out that by 2020, the installed capacity of solar will be so great that the demand profile will resemble the green line and daytime power demand will have effectively collapsed. (Note, the peaking duck graph was provided by Edison International, a utility fighting the proliferation of solar. See this story for a different take on the “duck” chart).

“For companies selling electricity into merchant or competitive markets like California, this is a disaster,” the Bernstein analysts write.

“Demand during what was one of the most profitable times of the day disappears. With it, the need for part of the merchant fleet disappears too for all but the dinner hour. And that is the issue competitive generators face globally in this 2020-scenario: how to live off demand of two hours a day.”

It’s bad news, too, for regulated distribution businesses, of the type that exists in Europe, Australia and in the US. And given, as we noted in last week’s article, Bernstein identifies the global “addressable market” for rooftop solar as two billion backyards, there can be no doubt that utilities will react. The question is how they can do so effectively.

Historically, for these businesses – usually natural monopolies that have high fixed costs and recover those costs by charging per kilowatt/hour – the loss of volume risks deflating returns. The utilities usually would look to recover this loss of volume by lifting power prices, but that simply increases the incentive for consumers to install rooftop solar PV.

“The response of simply raising prices per kWh is therefore unsustainable,” the analysts note. And they are faced with increasingly unattractive choices.

These are those choices as laid out by Bernstein.

1. Refuse to accept power into the grid that has been generated from roof-top solar systems (or pay a reduced rate for that electricity). These steps are being adopted or proposed in Hawaii and California currently. This merely creates economic incentives for homes and businesses to start thinking about domestic energy storage solutions. (We can see similar things happening in Australia, where utilities are refusing connections or upgrades and/or are forcing consumers to downsize their plans)

2. Second, charge a connection fee to reflect the true value of the service (the ability to buy electricity whenever it is required, rather than the electricity itself). This step is being adopted in Arizona and California. But this step cements the attractiveness of battery storage to time-shift the power. (Again, this is taking place in a haphazard fashion in Australia).

3. Third, admit defeat and become a roof-top solar developer. (German energy giants RWE and E.ON appear to have realised this, as have US companies such as NRG)

4. We cannot think of a fourth option.

As Bernstein concludes:

“The behavior from here seems clear: the solar industry will expand. Retaliatory steps from distribution utilities will increase the market for cost-effective battery storage. This becomes – initially – a secondary market for battery technologies being developed for the auto sector. A failed battery technology in the auto sector (too hot, too heavy, too rigid a form factor) might well be perfect for the home energy storage market…. with an addressable end market of 2 billion backyards.”

Later this week we will look at what happens – and how – if solar really does go mainstream.

Check out our new 93-page EV report, based on over 2,000 surveys collected from EV drivers in 49 of 50 US states, 26 European countries, and 9 Canadian provinces.

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About the Author

is the founding editor of, 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.

  • CsabaU

    I thought people did that in 2012 also….

  • CaptD

    Does anyone have a chart like the use for the story that shows nuclear going to generation zero when all CA reactors ere off line and/or now that San Onofre is being decommissioned?

    In my opinion, CAISO has been reluctant to produce that updated chart.

  • CaptD

    RE: #2 “This step is being adopted in Arizona and California”

    Perhaps but only at a glacial pace, as Utilities Regulators allow Utility to continue to profits from their “Solar Ripoff”.
    The CA Utilities (which also in the case of SCE own part of the AZ Utilities want their cake and and eat it too!

    In CA they are making it almost impossible for ratepayers to install Solar on their rods AND install one or more batteries to store the energy they generate, instead of pushing it into the Grid for the Utility to profit from when they sell it at a huge markup over what the Utility pays the Solar generator/ratepayer.

    Why Should Electric Avenue Be A One Way Street?

    What advice do those that promote clean energy have for those trying to maximize their use of renewables when their very own Utilities give them the cold shoulder, in what can only be described as Utility profit protectionism?

    SolarCity Freezes Energy-Storage Program as Grid Connections Lag


    SolarCity Corp. (SCTY:US), the biggest developer of US rooftop solar panels, halted efforts to install and connect systems that include batteries for power storage because California’s utilities are reluctant to link them to the electric grid.


    Working together MUST MEAN fair reimbursement for all energy pushed into the grid and that is where the Utilities have failed the publics trust by refusing to pay their customers (that generate their own energy and push it into the Grid) the same amount per Kw as they pay themselves when these Utilities push the energy they generate into the Grid. I use the term Energy Inequality to describe this Utility ripoff, which only benefits the Utility shareholders instead of all those that generate their own energy!

    • Bob_Wallace

      The CA utilities were just told to quit their stalling on end-user battery hookups.

      • CaptD

        Bob – Until we hear that Solar City and any others are now reversing their decision to install in CA it all is just so much talk, since everyone got the hint….

        IMO: The CPUC should have fined the Utilities instead, which would have sent all those involved a far clearer signal.

        • Bob_Wallace

          “UPDATE: SolarCity resumes applications as California regulators clear way for net-metered solar-battery systems

          California regulators have just issued a rebuke to utilities, and a thumbs-up to customers and companies that want to connect hundreds of now-stalled battery-backed solar PV projects across the state.

          On Tuesday, the California Public Utilities Commission issued a proposed decision that would exempt most storage-solar projects from extra utility fees and interconnection studies (PDF). Instead, it would require utilities to treat them as regular old net-metered solar systems, as long as they meet certain requirements.

          Tuesday’s proposed decision makes it clear that CPUC agrees with SolarCity and its customers, not the utilities”

          • A Real Libertarian

            Bob, links.

          • Bob_Wallace

            The GTM link? Or the mess up higher I cleaned up?

          • A Real Libertarian

            The mess.

          • CaptD

            Awesome Bob – Thanks
            Happy Earth Day

  • tmac1

    Time to short the utilities? Long on solar and wind would be good investment advice

    • Bob_Wallace

      Investment banks are talking about stranded assets.

      Warren Buffett is investing in regulated utilities.

      I’d say one would need to sort the sheep from the goats….

  • TCFlood

    Just doing my usual intuition check on the data and arguments presented. The demand time series include utility scale PV for a typical day in California, while the decreases in demand represent demand reductions from increasing distributed PV generation only (rooftops and parking lots). Is that correct?

    Judging from the approximate areas, the decrease in demand from 2012 to 2013 is a little less that half a percent. That sounds high but plausible. between 2012 and 2020, they are predicting a drop in demand of a little over 20% that they are attributing to increases in DG PV. Wouldn’t that be nice!

  • dgaetano

    Most of you probably have this link, but here’s California’s actual day to day data (same source they used for the chart in the article):

    Click on “Daily Renewables Watch” for the day you want and get a colorful chart showing the power breakdown for that day. Click on “Today’s Outlook” at the top and watch in real time.

    This only shows utility solar, residential solar changes the system demand and isn’t directly tracked.

  • sault

    It would be interesting to see what happens when the midday “saddle” starts to dip below the “baseload line of 18GW. Cali has hardly any coal power plants (although we get some coal-generated electricity from out of state) or nuclear plants but it has a whole lot of gas capacity from back in the Enron days. Utilities might be sad to see their games with peak midday electricity pricing come to an end, but they probably don’t mind writing off some of those “peaker” plants either. However, when solar starts eroding their sales from baseload plants, we’ll probably see a lot more pushback from them. We’ll also see more pushback from companies that are making the big bucks off natural gas right now like Koch Industries and their frackin’ allies.
    On another note, CAISO seems to think that they will not add any wind power between now and 2020. Does this prediction have any basis in reality or is it just wishful thinking on their part?

    • Bob_Wallace

      The Kocks won’t have all that much luck in CA. We’ve got a very heavily Democratic legislature. Not much chance of them finding enough fellow travelers to get their anti-renewable bills passed.

      We don’t have a lot of ‘always on’ generation. We’re down to one nuclear plant, seven not-that-large coal plants (three of which are cogeneration plants) and are terminating out of state coal contracts.

      We could have Wyoming wind coming on line before 2020.

    • TCFlood


      I think maybe the answer to your last question is that the decrease in demand in the duck is for distributed generation which they are predicting will be mostly PV. I think wind is generally sold to the grid from utility scale farms and so in that sense is not a disruptive technology for the utility.

    • Ronald Brakels

      If fossil fuels aren’t sourced in California, then fossil fuel interests probably won’t have a lot of local power, although they can still make trouble.

  • Bob_Wallace

    Might I point out the difference between 2012 (Actual) and 2013 (Actual)?

    It looks like California solar is already breaking the duck’s back.

    Then look at the projected drop to 2014. This year. There’s solar on that there grid and she’s a-growin’.

  • Will E

    true James

    and the Solar Industry will not expand. it will explode.
    as will Wind Turbine Power, endless supply.
    It will be a landslide in favor of Solar and Wind for the benefit of all,
    consumers will have to pay no more energy bills, slow down climate change,
    co2 reduction, cleaner air and so on
    and wind delivers base load.

    I see no way out for utilities, because they are paid by customers that buy the electricity, when demand stops, the utilities have no money, and no investors willing to invest in their business.

    • James Van Damme

      They can get out of the coal-burning business, and make loads of money moving energy from the windmills, sunny PV farms and storage to the folks that need it. The grid will not go away.

  • JamesWimberley

    AEMO, the Australian network operator, conservatively calculated a grid need for 6 hours of despatchable generation or storage a day to cover the sunless evening peak with a safety margin. It doesn’t take much demand management or local storage to cut this a lot.

    Question. In the duck chart, how much of the flat base demand at night reflects real user needs and how much is simply an artefact of the old baseload model, with nuclear and coal plants running anyway because they can’t easily be turned off, and the electricity more or less given away? What is there apart from aluminium pot lines? Opponents of wind and solar repeat the mantra “they can’t do baseload”: but they need to show there is such a thing as baseload demand.

    Bernstein suggest that home storage can use second-best car battery technologies. The link is much closer than that. The car batteries themselves will be reused in houses and shops after their recharging capacity falls below guarantee, or they are swapped out for more powerful ones. Tesla, Honda and no doubt other EV car-makers are all looking into the battery secondary market with solar installation partners like SolarCity.

    • Ronald Brakels

      Where I am grid electricity is 33 cents a kilowatt hour while the solar feed in tariff is 7.6 cents. This means a lot of the value of a home energy storage comes from not having to dip into grid electricity when there is sudden high household demand or a cloud goes over the panels. As it only takes a couple of kilowatt-hours to get this advantage there might be two main types of home energy storage. One would be small energy storage systems that can be either built into solar inverters or simply plugged into a suitable inverter and which take up little space and are easily installed. And larger, ex-electric car battery pack systems that have more capacity but which take up more room and which are a bit more difficult to install.

      • Newsflash

        Nuclear energy in the us $0.022.

        • Ronald Brakels

          Excellent to hear! I look forward to seeing these 2 cent reactors build all over the world. Do the British know? They’ll be so relieved to be saving themselves 14 cents a kilowatt-hour. They were starting to look REALLY stupid.

        • Bob_Wallace

          From some paid off reactors.

          From some paid off reactors the cost of electricity is $0.05/kWh or more. That’s why they are being shut down.

          From a new reactor with capex and finex bills to service the cost of electricity would be >$.011/kWh.

        • Bob_Wallace

          Here’s some news for you. These are German prices. Do remember that Germany has much poorer solar and onshore wind resources than does the US. Better resources = cheaper electricity (more generation per panel/turbine).

          “The study by consultant Prognos AG – commissioned by Agora Energiewende, which is a think-tank owned by the Mercator Foundation and European Climate Foundation – has concluded that newly built solar and wind plants with natural gas as a backup can deliver power that is one-fifth cheaper than nuclear backed by gas.

          “New wind and solar power systems can generate electricity up to 50% cheaper than new nuclear power plants,” said Agora Energiewende’s executive director, Patrick Graichen. “Wind and solar systems will dominate the power system in increasingly more countries. The battle for the cheapest CO2-free power mix is decided.””

      • SA power

        That price is out of date, last year new price is now.

        Summer 31 Mar 2014
        with gst.
        300 kWh/qtr cents per kWh 35.607

        700 kWh/qtr cents per kWh -38.764

        1,500 kWh/qtr cents per kWh -43.758

        2,500 kWh/qtr cents per kWh -47.146

        Renewable working to keep the price low.

        • Ronald Brakels

          It certainly is. Including inflation renewables have basically halved wholsesale electricity prices.

          • SA power

            Update daily Supply charge up too, Cent per day 78.166 SA. GST

            Cent per day 114.169 VIC.

            Right I don’t disagree could be so benefiting from that halved wholesale electricity prices.
            Seem that the end user price index been more than adjusted doubled as a result, or just not passed on. Just maybe I miss the point, so if renewable wasn’t in place those price I quoted be doubled.

  • John Ihle

    Utilities will likely come up with something. How ’bout this option; create structures whereby utilities FACILITATE partnerships and subsequent investment in clean energy through and with their ratepayers, rather than third party finance.

  • CsabaU

    Anyone that has an explantion why the “ducks head” increased so much in 2013 compared with 2012 (supposed to be actual data), and is expected to increase further? That evening peak energy demand is a real problem.

    • Bob_Wallace

      Both 2012 and 2013 are labeled as actual data. What comes to mind is that it might be additional AC demand. Perhaps use popped up a lot from ’12 to ’13.

      If so, or if there was any sort of new load that showed up in 2013 then it would make sense to use that higher demand for future year projections.

      Duck’s going to get a haircut as we switch from incandescent light bulbs.

      • Ronald Brakels

        I know that 2013 was an uptick year in US energy consumption. Whether that was due to an improving economy or the weather or both I don’t know. And I have to agree with Bob about the duck getting a haircut. More efficient lighting, TVs, refrigerators, air conditioners, more insulation, etc. have cut electricity use in Australia and seem likely to do the same in the US.

        • Bob_Wallace

          Not much of an uptick in electricity production. From 4,042,019 to 4,045,855 million kWh. 0.09% increase.

          As for the haircut, I suspect another trim is on the way now that people have figured out that pointing panels toward the setting Sun extends the solar day.

          • jeffhre

            A lot of homes in my area have panels facing east simply because there is not enough roof area to have them all facing south. Could be more of a slight change in business as usual, rather than a wholesale change in hours of generation.

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