By Ken Munson
Greentech Media ran an intriguing piece a couple of days ago about Warren Buffett’s analysis on the effect of renewables on the utility business, part of the Berkshire Hathaway annual report for last year. What caught my interest was a paragraph that pointed out a common viewpoint that the marketplace is a “battle” between those (like Buffett) who want to see renewables used for large-scale generation plants, and others who believe the solution is rooftop solar.
If you look at this as a zero-sum game, though, you’ll soon see that both approaches have significant problems. In fact, you can only create a true viable and profitable future for renewables by pursuing a cooperative, win-win solution.
Let’s look at the problem from the utility side as Buffett would have it. Large-scale (>100 GW) generation plants of any kind are hugely capital intensive; solar and wind are no exceptions. Most utilities in the current economic environment don’t have, or don’t want to commit, those kind of capital resources to a main generating plant. They’d rather build less expensive peaker plants that produce only when demand drives the price up. That only makes bottom-line sense, unless you’re somehow mandated to scrap and replace existing plants. Independent power producers, by the way, face the same economic constraints and will arrive at the same conclusion.
Even if you could ignore that huge capital drain, there’s another major problem with large-scale solar and wind installations that’s out of the control of the utility: Siting. Renewable plants like solar farms require significant amounts of land. It can’t be just any land, either: The very nature of the facility demands an ideal location (solar, for instance, does a lot better in the desert than anywhere else). Now, as much as environmentally conscious consumers want the power they buy to come from renewable sources, those same customers are among the first to oppose large-scale renewable facilities on the basis of possible damage to the local ecosystem. Good luck building your facility in the same decade you propose it (which adds even more to the cost above).
On the other side, while it would be great if we could meet every household’s energy needs with a self-contained rooftop solar or wind system, that’s never going to happen. Very few individual homes or even small businesses have enough “roofprint” to generate sufficient power to meet total need. Even assuming those installations have the latest high-capacity intelligent storage connected to the PVs, just about every consumer will need to get at least some power from the grid. It may be to provide supplemental power to meet their individual demand at times when they can’t generate enough from the array, or to just to recharge the battery. But they will have to rely on a reliable source somewhere out there on the grid.
So this either/or argument is the wrong way to look at the marketplace. The real solution is to build large-scale capacity at utility grade by aggregating those individual rooftop solar + storage systems. If utilities are able to control a wide range of DERs and manage them as if they were a single point of generation, you change the entire game. You wind up with Virtual Power Plants (VPPs) that can use the combined generation and storage capacities out there to put power on the grid and get it to where it’s needed. Each installation becomes a “nano producer” and participates in the market, while the utility applies its expertise to manage the power in aggregate (something the average consumer isn’t capable of doing, and has no interest in doing either).
So, yes, our energy future depends on installing lots more rooftop renewables in order to replicate the generating capacity of those impractical large-scale renewable plants. At the same time, you have to have utilities or independent producers managing this at scale.
For those who argue that what we really should do is get everyone off the grid – that’s a fantasy. Yes, there are cases where a particular installation has just the right combination of factors that it has the generation and storage capacity to operate entirely off the grid (although I’d still consider a backup generator). But for the vast majority of users, the grid remains essential.
So if you look at the future realistically, you’ll see it won’t be a battle where either utilities or solar providers “prevail.” Instead, it is a future where both the solar providers and the utilities have important and complementary roles to play. In this energy future, everybody wins: Solar providers through a booming business; utilities through new and profitable service-oriented business models; customers through lower costs and increased reliability; and the environment through greatly reduced emissions.
Ken Munson is the co-founder and CEO of Sunverge Energy.