After having it on my desktop for ages, I recently took a look at a Rocky Mountain Institute and Cohn Reznick report on The Economics of Grid Defection — in other words, when does it make sense to go off the grid in various parts of the US for those in the residential or commercial sectors?
It’s an interesting report, so I recommend having a close look. If you’re not the report-perusing type, here are just a couple of key graphs I pulled out of the report and the report conclusion:
Rising retail electricity prices (driven in part by rising utility costs), increasing energy efficiency, falling costs for distributed energy technologies such as solar-plus-battery systems, and increasing adoption of distributed energy options are fundamentally shifting the landscape of the electricity system. Our analysis shows that solar-plus-battery systems will reach grid parity—for growing numbers of customers in certain geographies, especially those with high retail electricity prices—well within the 30-year period by which utilities capitalize major power assets. Millions of customers, commercial earlier than residential, representing billions of dollars in utility revenues will find themselves in a position to cost effectively defect from the grid if they so choose.
The so-called utility death spiral is proving not just a hypothetical threat, but a real, near, and present one. The coming grid parity of solar-plus-battery systems in the foreseeable future, among other factors, signals the eventual demise of traditional utility business models. Furthermore, early adopters and kWh sales decay will make utilities feel the pinch even before the rapidly approaching day of grid parity is here, while more aggressive technology improvements and investments in demand-side improvements beyond our base case would accelerate grid parity. Though utilities could and should see this as a threat, especially if they cling to increasingly challenged legacy business models, they can also see solar-plus-battery systems as an opportunity to add value to the grid and their business. When solar-plus-battery systems are integrated into a network, new opportunities open up that generate even greater value for customers and the network (e.g., potentially better customer-side economics, additional sizing options, ability of distributed systems to share excess generation or storage). The United States’ electric grid is in the midst of transformation, but that shift need not be an either/or between central and distributed generation. Both forms of generation, connected by an evolving grid, have a role to play.
Having conducted an analysis of when and where grid parity will happen in this report, the important next question is how utilities, regulators, technology providers, and customers might work together to reshape the market—either within existing regulatory frameworks or under an evolved regulatory landscape—to tap into and maximize new sources of value offered by these disruptive opportunities to build the best electricity system of the future that delivers value and affordability to customers and society.
The implications of these disruptive opportunities on business model design are the subject of ongoing work by the authors and their institutions, covered in a forthcoming report to follow soon.
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