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Future grid: Networks focus on solar storage for consumers

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New Zealand electricity network operator Vector intends to broaden the rollout of its solar storage package for homes, saying it is clear that rapid developments in costs and technologies mean the nature of the electricity market is changing – and utilities needed to adapt, or face oblivion.

In an exclusive – and remarkable – interview with RenewEconomy, Vector CEO Simon Mackenzie says the success of the solar storage leasing package offered by the company earlier this year is confirmation of a fundamental change in the electricity industry. (You can read full interview here)

So much so, Vector is to expand its solar battery lease offering to larger scale commercial businesses. He expects up to half of all new homes, and a third of consumers overall, to generate, store, and manage their own electricity.

Not surprisingly, Mackenzie speaks of a “new economic reality,” which means that the core of the industry is moving from centralised generation and transmission networks to the consumer. But he says most network operators simply refuse to accept this.

“To be blunt, I think there are a lot of utility operators who are stuck in the old paradigm; that it is a remote generation brought to the market by transmission, connected in by distribution and it’s a one way flow,” Mackenzie says.

“The way we look at it is that consumers now expect … to have the utilities services delivered to them the same as they have banking services, telecommunication or any other type of services, so that they are accessible. They want choice, they want information, they want to choose whether they want to manage it themselves or have it managed for them.”

Vector attracted huge interest earlier this year when it rolled out a leasing option that combined rooftop solar and battery storage and control devices. We wrote about it in June and it has been one of the most read stories of the year.

The Vector offering was for a 3kW solar PV array (Trina), an inverter (Schneider) and a 10.7kWh lithium-ion (Kokam). It will allow householders to use all the electricity produced on their rooftop, provide for nearly half of their total consumption and smooth out the peaks.

Vector offered a $NZ1,999 up-front payment, and leasing options over 12 years that meant that the entire package would amount to a reduction in the household’s electricity bills.

Most readers assumed that the offering was heavily subsidised by Vector, given current estimates of the cost of the various technologies – particularly battery storage. Mackenzie says it wasn’t.

First of all, he notes, there has been no government subsidy for rooftop solar in New Zealand, which is why there are comparatively few rooftop systems, even in a (relatively) sunny city such as Auckland. But when Vector did its calculations, it took into account the network benefits of the installation, rather than just the cost of technology.

“No, it wasn’t heavily subsidised,” Mackenzie says.  “It was just by recognising the network benefits from a regulatory perspective on asset deferral and capital and how that fits with network control, as opposed to trying to load it all on to the customers, as well as the customer, from an affordability perspective, paying an upfront cost.”

This is important because it goes to the two schools of thought about the economics of battery storage. As we highlighted in this article, the cost of battery storage does not (yet) make sense if a consumer bears all the cost. But as we highlighted here, it does make sense if the network benefits are brought into account – and if those benefits are shared between network and consumer.

Mackenzie says that it is clear that the electricity supply industry is moving into the home, and away from the centralised, engineering-on-a-massive scale, planning perspective.

This is the aspect that Mackenzie says utilities don’t get. He says many think they have “done their customers a favour,” simply by stringing a cable to their premises.

“I think that their business models are built on the old paradigm. I don’t think they are customer focused. If you don’t embrace the technology and the consumer space, you will be either substituted by other operators that are in that space, or your business will fade off and become much more intermittent and volatile.”

Mackenzie expects the cost of solar PV will continue to fall – although not as rapidly as the last few years, and the cost of lithium-ion batteries has dropped 50 per cent in the last year, and will continue to fall rapidly. “The economics of those two combined are competing with grid. Grid parity is coming closer as we speak.”

That means that transmission and large generation, which used to be seen as the centre of the industry, is now just moving back to being a “big battery from the outside. The future will be based on what is happening inside the home.”

Mackenzie has solar storage, and LED lights, on and in his home, and it provides 40 per cent of all his home’s energy needs. He expects around one-third of all existing houses in Auckland could have such installations, and nearly half of all new houses. Businesses will also take it up.

The contrast with the attitude in Australia – at least at the top level of network and retail operators – is astounding. While utilities and retailers in Australia assume that households are “bored” by electricity, Vector’s own research suggests that up to 80 per cent of consumers are engaged and motivated, and are actively managing costs, and looking at how they can be more efficient.

“We are seeing different pricing structures, but that is probably not as important as seeing choices in technologies and solutions. So how I see it is that we are at the point of going to a new world order.”

Mackenzie speaks of providing “energy solutions” to the customers – a theme notably taken up by SunPower, when it was discussing its plans with RenewEconomy last month. The attraction to the network operator, such as Vector, is finding the value in the middle, getting revenue from those services, and saving money by reducing the dependence on centralised generation.

“The historic model used to be investing in assets in the ground that were going to be around for 50 years. Now, we are seeing people with solutions that are embedded in their own properties,” he says. “They can manage their own demand, they can manage their energy. So how do we enable their choice, because we can see an opportunity for a revenue stream – largely as a substitute for buying remote generation from the grid.

“By providing that utility through information and control, we can look to add value in that space. Equally importantly, nothing could be worse from a risk perspective than continuing with the same legacy assets, burying cable in the ground. That’s dead capital, or dumb capital. The new technology and devices enable the deferral of capital expenditure – for how long who knows, but probably for a long period of time.”

However, Mackenzie says networks are justified in imposing some sort of fixed charge on consumers to reflect the value of the infrastructure and the service it delivers. “But, that has to be counterbalanced with ensuring that the fixed charges are not linked to the gold plating of networks,” he said.

Most people would agree – whether those fixed charges are represented as a simple fee for access, or represent the “thickness” of the wire – the amount a house can draw down at peak times, as Dane Muldoon suggests in another of our recent series on battery storage.

But because gold plating has already occurred in Australia – and according to Chris Dunstan of the Institute for Sustainable Futures, it is still occurring – perhaps the only palatable solution for consumers is for those networks to take a write-down of those assets.

You can read the full interview with Simon Mackenzie here. It’s compulsory reading – for consumers, energy advocates, policy makers and utilities. And most particularly for the utility owners responsible for the caliber of executives making decisions about the future of their businesses.

You can read full interview with Vector’s Simon Mackenzie here.

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  • Peter

    When will we see this in Australia? The utilities that embrace this approach in my opinion will have a competitive advantage in the long term. Who will be the first….

    • Giles

      Who indeed? Bet you it won’t be state owned one. The irony is that many within the networks recognise this and think along the same lines. The push-back comes from the senior management, the board, and the government owners

  • Lachlan Ridge

    I’m sorry. I really want to access this information but the writing style is appalling! Redundant phrases, split infinitives, redundant adjectives, You SERIOUSLY need a sub editor. The clunky writing is a barrier to receiving good information. I mean this as friendly advice because you have a reasonable product, but it’s just not cutting it! This whole article could have been cut by a third and passed on as much information. Currently it reads like a Green Left Weekly article written by Terry McCrann.

  • bruce mountain

    Yes Giles, very good. This is the issue of our time. Who could want for a more interesting or more worthwhile issue to grapple with. Real competition comes to electricity supply for the mass market.

  • Lachlan Ridge

    Peter, state regulation in many instances prohibits landholders from disconnecting from the grid, or even combining site stored V and grid voltages. I suggest you raise this matter with your local state MP.

  • http://energyinachangingclimate.info/ Martin Nicholson

    Giles, you say the core of the industry is moving from centralised generation and transmission networks to the consumer.

    Yet this proposal states that it will deliver less than half the total demand for the customer – assuming the domestic consumer has enough clear roof space in the right direction for 3 kW of panels.

    The rest has to come from somewhere and my guess will be that it will come from centralised generators. I think it is very premature to call the demise of large centralised generators which are likely to be more cost effective than smaller distributed generators.

    • Giles

      Martin, I’m pretty much quoting Mackenzie, who’s probably in a better position than either of us to make that judgment. I agree with him though, You take that much demand out of the market and you may be left with some centralised generation (i said it is moving, not has moved), but what is left will have to be highly flexible – sorry if that doesnt suit your nuclear fantasies! I suspect that in areas which have more sun than New Zealand – yes they exist – then that percentage will be even higher. I think the essence of what mackenzie is saying is that anyone who thinks that things won’t change are kidding themselves.

      • http://energyinachangingclimate.info/ Martin Nicholson

        I have no difficulty with the essence of Mackenzie’s message. I just don’t share your 100% renewable “fantasies” (your word not mine).

        • stu2

          Martin is probably right that the sweet spot for household self-generation is less than 100%. If one sizes the PV array to supply 100% of the households electricity at the height of summer then at Auckland’s latitude you could expect the same array to produce around 25% of the households requirements on an average winters day.
          Over the course of the year the PV system should supply little around 63% of the year round electricity. As I recall Vector had sized the battery to store 50% of the households average daily consumption. In effect this means, even on
          an overcast winters day when the PV array is producing very little power the grid only has to produce the average rather than the peak load. Auckland’s peak
          demand is typically a little less than twice the average demand.

          It seems that VECTOR are utilising the PV+ storage concept in line with the “skinny network” concept recently discussed. If the households array produces more than 100% of households demand then the surplus needs to be exported which means the network needs to be beefed up.
          Whilst less than 100%, a 60% contribution from one source, rooftop PV is hugely significant. The networks generation capacity, whilst downsized by almost 50%, would need to be dispatchable. That doesn’t rule out additional RE contributions from dispatchable renewable resources such as hydro, geothermal etc as well as more conventional sources.

          This model of course works most easily for a market where electricity demand is increasing.

          • Peter Webb

            The only problem with this is that peak electricity demand occurs between 6pm and 7pm when it gets dark and ovens, TVs, lights etc start getting turned on.
            But solar produces zero energy during the peak time. So solar can make no contribution to reducing peak power requirements and hence the total conventional power we need at peak. You could build a million domestic solar installations and it would have no effect on the conventional power generation capability that is needed, as this is determined by peak load which occurs when solar makes no contribution.
            Batteries would smooth the peak, but this occurs quite independently of how the energy is generated (coal, solar, nuclear, whatever). If using batteries to shift demand was cost effective, you could forget solar entirely and charge the batteries overnight (with off-peak power at 8c per kWh) and run them down at peak times (eg early evening) when power is 25c per kWh. Or, more likely, the energy company would do this already – use batteries to reduce peak generation demand. They don’t directly, because it isn’t cost-effective. They may do in the future, as an adjunct to coal power stations. Here again are economies of scale; it is far cheaper to produce one facility which can store 1 GWh, than 250,000 distributed facilities which each store 4 kWh. It’s simply not cost-effective to distribute this infrastructure.

          • JonathanMaddox

            I’m certain that the storage aspect of this package is subsidised, and that it wouldn’t be rolled out at scale at these prices in 2013.

            However pilot projects do frequently lead to bigger things, and subsidies do interesting things to economies of scale.

            I would not be so confident that the economies of scale achievable through mass production (remember that mass-market battery innovation has been driven by mobile phones in recent decades and is now being scaled up for electric cars; stationary power storage is almost an afterthought) and distributed deployment will never, in the aggregate, compete on cost with the economy of scale and aggregation already achieved by centralised power storage and grid distribution.

            There are of course many intermediate scales and technologies between “centralised” and “distributed”, and of course hybrid models, which could also prove competitive in the long run.

      • Peter Webb

        Mackenzie is in a considerably worse position to make that judgement. He is a salesman spruiking his product. Centralised infrastructure will always be more cost-effective, because of “aggregation gains”. This is the principle that not everybody has the same usage patterns, and so by sharing infrastructure we balance peaks and troughs across multiple users. This is why it is not cost-effective for you to build your own airport in your front yard; you only need an airport a couple of times a year, and these are not the same days as everybody else so centralised infrastructure makes sense.
        Even if solar becomes cost-competitive with coal – and it has a *long* way to go before that could happen – centralised solar would be cheaper than individual installations because of aggregation gains and economies of scale.
        McKenzie is just a salesman. He makes lots of claims, but note that none of them are substantiated by actual numbers. If he is prepared to install the equipment at his own cost and then charge you less than the grid for the power, do it. If he is not prepared to do this, then he doesn’t believe his own PR that it is cheaper and you should walk a mile. Funny how all these companies say it is a better deal than grid power but none of them are actually prepared to carry the risk by selling you the electricity rather than the equipment. That’s because they know that it costs more to use solar than it does to use grid power, and they would lose money on every installation.

  • Fairgoforsolar

    Maybe we should invite Vector to set up operations across the ditch here in NSW? Wouldn’t that shake up the market!

    Can you put us in contact with Mackenzie? I’d be happy to volunteer my home/system for any feasability study/

    • Peter

      Yes indeed, not just NSW but the whole country. Competition will get things moving. It’s not a question of if but when!

  • Domenic

    Say a $2000 system provides 2kw peak reduction per system. A 60 Megawatt substation costs around $14,000,000 (lasts 50yr plus). 60MW worth of home storage and pv would cost $60,000,000 (if priced at the unbelievable $2000) and lasts around 10-20yr. How are these costs even justified?

  • Domenic

    You forgot to mention the $70 monthly fee for 12 years after the initial upfront cost. About $210 added to the quarterly bill. Say Mackenzie currently pays 26 cents per kwh and uses 24kwh per day. That’s $561 per quarter before the installation and now uses 40% less and pays $336 per quarter after. Then add the $210 from the monthly payments and he incurs a $546 quartly bill. He would save $15 per quarter which would be absorbed by the $2000 initial payment. If correct he’s now worse off by $20 per quarter.

  • Diego Matter

    “The Vector offering was for a 3kW solar PV array (Trina), an inverter (Schneider) and a 10.7kWh lithium-ion (Kokam). It will allow householders to use all the electricity produced on their rooftop, provide for nearly half of their total consumption and smooth out the peaks.”

    Here we go again! No mention of Energy Efficiency at all. Vector is just replacing the existing wasteful energy demand with a different electricity generating model – PV with battery storage. If 10.7kWh is nearly half of the total daily consumption, the usage of an average household would then be 23kWh per day, an outrageous amount if I dare say! That’s 8400kWh per year.

    We have to shift the perception that 23kWh per day on average is considered normal.

    This value should be more around 6 to 7kWh average per day for an energy efficient household. That translates to 2200 to 2550 kWh per year.

    My view is that it is not possible, or at least very hard, to transform the energy system without Energy Efficiency measures. Looking at 23kWh usage per day and trying to figure out to generate as much renewable electricity looks like a daunting task.

    That’s what Dick Smith suggested in his documentary Ten Bucks a Litre. He made the same mistake as Vector and was not investigating Energy Efficiency. And that’s the same mistake conservative politicians make when they say it’s not possible. They simply lack the vision and the will, especially the will to apply physics and get dirty with the nitty gritty details. I know they like ribbon cutting ceremonies better, but hey they can’t celebrate them at every household, can they. That’s only possible at big coal stations. But I suggest the could hold ribbon cutting ceremonies at every “500MW Saved Energy Efficiency Milestone “. But again, who would pay for these events? Numerous reports show that Energy Efficiency is the cheapest abatement possible.

    The problem is, there is simply not enough unshaded space for PV on our roofs to generate on average 23kWh electricity per day for a wasteful household. Even Dick Smith could see that…

    But that is changing when you look at only 10kWh, or even 5kWh per day. An easy feat!

    There is more than enough space for PV on our roofs for 10kWh per day.

    A 3kWp solar system is producing around 12kWh per day average (3kWx4 peak hours – 4380kWh per year), and a 1.5kWp system 6kWh average per day (2190kWh per year). That means that these systems would generate more than what is used – for every household out there. The rest can be used to charge your electric car in the future or is simply replacing coal power in the grid, and it is also lowering the wholesale price of electricity generation.

    You think such low usage values are not possible. Think again!

    We use 9kWh per day of which 4kWh is the pool pump, and it’s not even an efficient pool pump. Numerous other examples show the same result.

    Therefore I urge readers to check the following sources to start their own Energy Efficiency endeavour.

    Here is a good and easy start. Check off all items on the list when done:
    http://apps.ergon.com.au/calculators/ElectricitySavingActionPlan.aspx

    I guarantee, you will end up at or much below 10kWh/day per household. Your solar system will shine in a whole new light!

    Other good efficiency portals are:
    http://www.energyrating.gov.au
    http://www.livinggreener.gov.au
    http://www.csiro.au/Outcomes/Energy/Saving-energy-in-your-home.aspx
    http://bze.org.au/buildings

    Another thing to mention is:
    You can only manage what you can measure, meaning that you have to measure the usage of every appliance in your house to find energy wasters/standby wasters. Even better is a whole house energy meter because you will also find hard wired appliances wasting (standby) electricity, like air-cons. Some meters also show solar production figures as a bonus. Theoretically a house should use ZERO watts when nobody is at home. How do you know that? Buy a whole house energy meter.

    You can buy power meters here (I’m not affiliated in any way):
    http://steplight.com.au/monitor/wireless-real-time-home-electricity-display

    And talk and blog about your successes. Global warming doesn’t stop without your help.

    Good luck and welcome to an energy efficient future!