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Solar and storage means “game over” for traditional utilities

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Last Friday’s story about the predictions of Stanford University energy expert Tony Seba that solar would displace fossil fuels by 2030 – and how electric vehicles would do the same to liquid fuels – certainly generated a lot of readership, and a big response.

Some questioned whether we should be taking the opinion of just one academic at his word. So we’ve followed up with some quotes from two of the most senior energy chiefs in the US, the world’s biggest electricity market. And the predictions are just as striking.

Jon Wellinghoff, the chairman of the Federal Energy Regulatory Commission (FERC), which regulates utilities in the US, said in an interview last week that solar will “overtake everything”, and said that once storage is brought in to the equation it is pretty much “game over” for traditional forms of generation.

“Solar is growing so fast it is going to overtake everything,” he told Greentech Media on the sidelines of the National Clean Energy Summit in Las Vegas.

He noted that in the next 2.5 years, the US will double its entire cumulative capacity of distributed solar built up over the previous four decades, and the installation cost of solar would continue to plunge from its current level of $4-$5 a watt, to $2 a watt and $1 a watt.

“At its present growth rate, solar will overtake wind in about ten years. It is going to be the dominant player. Everybody’s roof is out there,” he said. “Once it is more cost-effective to build solar with storage than to build a combustion turbine or wind for power at night, that is ‘game over.’ At that point, it will be all about consumer-driven markets.”

That is an extraordinary comment by the head of the US energy regulator, and not one you will hear in Australia, even though the level of penetration of rooftop solar is much higher, the installed cost of solar much lower (Australia has fewer “soft” costs and is already at around $A2/watt), and the retail price of electricity is much higher.

But Welinghoff’s comments fit in with what the heads of his country’s biggest independent generation and utility companies have said about the potential of solar to change the game. That is just starting to dawn in Australia, where the market operator and utilities admit an increasing impact from solar, and state energy ministers are admitting that they are struggling to cope.

In separate remarks to the conference, Wellinghof said that it was clear that electricity markets were undergoing dramatic and profound change.

“Our markets were made up for a very centralised system, very large plants and plants that were distant from loads. We’re moving to a much more distributed system that also has consumers participating as resources with their load. FERC’s primary role is to ensure that all those resources and can get a fair opportunity to participate and get compensated.

“”We’re not picking winners and losers,” he said. “We’re letting the market make those choices but those choices have to be made in a fair and open market. We have to help consumers through that transition; it’s going to be bumpy because we have a traditional utility model that is trying to fit with this new transition and it has implications for rate designs, costs and business models.”

Greentech Media reports that Wellinghoff was a consumer advocate early in his career and has not changed sides. “Even though the FERC oversees wholesale markets, utilities, and other jurisdictional entities at the wholesale level, the consumer needs to be our major concern,” he said.

He said that rate structures need to be formulated in ways that “fully recognize the costs and benefits of distributed resources.” That may mean higher fixed costs than a variable energy rate, he said, but it was also important to note that there is value in distributed solar that can be captured and realized by the distribution utility that is not being paid to PV system owners “because they have not been analyzed, quantified, and monetized.”

Wellinghoff’s comments follow a recent interview with the recently retired US Energy Secretary Stephen Chu, who also said that uilities would have to develop a new business model, one modeled around solar and storage, rather than the traditional model of centralised generation.

He told the San Francisco Chronicle that energy efficiency would mean an essentially flat market for electricity, which meant a shrinking business for utilities. And because solar and storage would continue to lower costs, households could look after nearly 80 per cent of their own energy needs.

“Now, if you’re a utility company, you’re going to be very worried about that,” Chu said.

So I’ve been telling them there’s another business model. It goes like this: We – the utility – would own the energy storage and the thing on the roof and the electronics. We’ll sell you the electricity.”

In a separate interview with NPR he explained it this way:

“They will say, allow us to use your roof, allow us to use a little corner of your garage, and we will equip you with solar power. We own it. We maintain it. We’re responsible for it. You don’t have any out-of-pocket expenses. You just buy electricity at the same rate, or maybe even a lower rate.

“In addition to that, you have, you know, like five kilowatts of energy storage in your home. And five kilowatts – when you’re in a blackout situation and you want to keep your refrigerator going, you want to keep a couple of energy-efficient light bulbs lit at night – that goes a long way.”

Some companies, such as New Zealand network operator Vector, seem to have understood this. Others are much slower to respond. But Australia would certainly be better served with the likes of Wellingham and Chu in key energy roles, and a regulatory environment that was more responsive to the needs of consumers than to the demands of electricity incumbents.

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  • RobS

    “He noted that in the next 2.5 years, the US will double its entire cumulative capacity of distributed solar built up over the previous four decades”
    This is an extraordinary comment from a senior grid administrator, extraordinarily pessimistic, solar output has more than doubled in the past 12 months in the US, a doubling in the next 2.5 years is a more than halving of current growth rates. Ironically even the “extraordinary” comments still display a woeful under estimation of the current trend towards solar power.

    • Giles

      It must be a generational thing. We get the same thing in Australia. Kind of like a dad trying to sound hip to his kids (there, i’s sounding dated already) and then discovering the trend or song they just identified is 5 years old.

      • RobS

        Australian estimates have been hilarious, like the 2010 (I think) energy white paper where estimates for solar price and installed capacity for 2030 have been passed this year, 2013, oops. I notice when they write the new reports they rarely if ever mention how wildly wrong the were a year earlier.

        • Michel Rahme

          2030! In 2030 I will be living in, and building for others, a modern comfortable home completely off the grid!

          • Michel Rahme

            I wonder if the Liberals, through Abbott’s policies, will have delivered a budget surplus by then!

            Actually, I wonder, that if Abbott is elected – a very sad day for Australia as this would be a reflection of the collective conscience of Australians as a whole – will the Liberal/National Party coalition still be in existence in 2030? Considering the huge mistakes they have promised to make regarding clean energy and climate change, I think that may be highly probable!

            In 2030, will we not be a multiparty republic respecting the history of our indigenous, respecting the rights of gay and lesbians to marry, respecting the rights of the terminally ill to euthanisation? Respecting the rights of woman to make their own decisions about their own bodies? Will we not be mostly a clean energy and solar country? Will we not by 2030 be a country of people who respect Science and the processes and methods through which it progresses? I think so!

  • Stan Hlegeris

    It’s so easy to fall behind on the current cost of solar PV. This article suggests that the installed cost in Australia is around “$2 per watt.”

    In my letterbox today I have a flyer from a reputable local electrician offering a 5kW system, fully installed, for $6,895. That’s about $1.38 per watt.

    Sure, this price includes a subsidy arising from the small-scale technology certificates, but even without the STCs the installed cost is already way below $2.

  • Ian Garradd

    The costs also seemed a little out. Currently I am witnessing an 80kW solar PV go onto a factory at $1.36 / Watt- all inclusive…. apparently around a quarter of the cost in the US.

    • Giles

      The recent solar choice survey suggests an average of around $1.70/w. back out subsidies and it gets back to $2/watt. no doubt some cheaper, but watch what you buying.

      • Ian Garradd

        The system mentioned is a premium system with top of line inverters, panels and solar company involved- all tier 1.

        • Giles

          well can you PM me at editor at reneweconomy.com.au. like to know more about that!
          Giles Parkinson
          Editor
          RenewEconomy.com.au
          61 (418 754 651)
          Skype: giles.parkinson2

          • Professor Ray Wills

            lol – a story brewing!

    • Chris Mason

      $1.36 /Watt is not possible.

      • Ian Garradd

        Hi Chris,
        The above price is net price after the STCs, and it is being installed as we speak. at $107 000 k final price (revised) to customer.

  • Rob Campbell

    As far as I can tell, the cheapest coal fired power plant built in Australia recently was Kogan Creek near Toowoomba. That was about $1500/kw of capacity. The more accurate estimate would be between $2000-$2500/KW capacity. I worked on Mt Piper and it cost $3 billion or $2200/kw and that was 1992! The cost of 5KW of solar and 10KWH of batteries is somewhere near $15000, or $3000/KW. If we are to add the fuel and running costs of each into the equation, I sure that solar would overtake the cheapest of coal fired plants in a year or 2. And that’s NOW!
    Excluding the carbon tax lets put coal fired power at 2.6 cents per KWH ($227/year) ,but we should now add the 13 cents for transmission, oh and maybe the retailers margin 10 cents. WOW that means that the year one cost of Coal fired power is actually $4700/KW! So it seems that if we all make small investments and go it alone, allowing for some small interconnectors between properties for diversification, we will be well in front. Now we just need to convince our representatives (who work for us) to make it happen!

    • dwj

      Unfortunately Rob, you are comparing apples and watermelons. A coal fired power station will have a capacity factor of better than 80% compared with a rooftop solar capacity factor of less than 20%, so you need at least 4 times as much solar to get the same amount of energy. Also it is not available to the same extent year round, so you need to allow even more overbuild unless you have infinite amounts of storage. A storage capacity of 10 kWh for a load of 5 kW is only 2 hours of storage. Even just for overnight, you would need more than 12 hours of storage (more like 16). Also, only about 70% of the battery capacity is usable. So even assuming you never had a series of overcast days, you would need about 100 kWh to service your 5 kW load. In practice, the solar/battery combination capital cost will be more than ten times as much per kW of load serviced than will the coal power station. Real running costs are a different story.

      • Giles

        Just so you know DJW. Over the past year, the only utility scale solar farm in australia has been operating at a capacity factor of 26-27%. The second biggest base-load coal generator in NSW, Eraring has been operating at 44%. Your estimates of battery storage show a complete misunderstanding of the way storage operates.

        • dwj

          Giles, you know that your reply is a distortion. The fact that a particular coal generator has operated at less than its available capacity is irrelevant. You might as well quote the capacity factor for Northern or Playford. The fact is that it would operate at more than 80% if its output was needed. And, yes if you happen to live in the West Australian desert you might get more than 20% CF but that is hardly a rooftop in Sydney, let alone Melbourne.
          I am fully supportive of rooftop PV, but battery backed PV is in no way a replacement for grid power.

          • Giles

            Well, I guess that is the point that the former Energy secretary of the US, the current head of the utilities regulator, the head of the biggest utility, the head of the biggest generator – are all making. Solar PV IS a substitute for grid power because the whole grid equation, and the need for it, is being redefined by distributed energy, energy efficiency and the like. and will be by storage. We didn’t just make this stuff up, it is coming from the mouths of the people who know this stuff better than all of us.

          • Giles

            and just to amplify a point you made – the capacity would be higher “if its output is needed.” That is the point made by all the guys above – and the experience in Germany as well. A lot of that capacity is not needed any more, and less will be needed in the future.

          • dwj

            I half agree with you about capacity. It is obvious that our demand has been reducing for some time and that is great. However, as we replace fossil fuels in transport, heating etc, the demand will rise again.
            Battery storage is still hideously expensive. Unless you have enough of it to completely detatch from the grid, you still place the same worst case load on the grid as you always did and so it is not saving money for the grid operator. This is crazy and in the end, the owner of the batteries will pay for the batteries and for the grid.

          • Giles

            And if progress stopped right now, you’d be right. But costs will come down and fast. There is a wonderful economic incentive when households in the city are paying the same rate for electricity from the grid as a remote miner with diesel genset.

          • RobS

            You don’t need hours and hours of storage because no one is suggesting we rely on solar alone. We will always have a diverse mix, solar, wind, hydro, geothermal, wave, tidal, landfill gas etc etc. With such a diverse mix of options only tiny amounts of storage 30 mins-1 hour of average demand will be needed to buffer the fluctuating output of some of those forms of generation and allow them to integrate together seamlessly.

          • David Osmond

            You only need a small amount of storage to dramatically reduce peak load. Those $10,000+ per MWh events don’t often last longer than an hour or two. So only a few hours of storage can reduce the worst case load events on the grid – they won’t be the same as before.

          • David Osmond

            In NSW alone, there’s usually about 3GW in difference between average daily demand and average peak demand. So 12 hours of storage could potentially save you 3GW in generating capacity, not to mention the associated reduction in transmission and distribution capacity.

          • dwj

            David, if it was economical to use batteries for peak levelling, the grid operators would do it now; remember $10,000 per MWh is only $10 per kWh. You would need quite a few cycles per year at this cost for it to be worthwhile. At around $300 to $500 per kWh and $200 per kW (for the inverters) the cost of a one hour battery storage is about the same as an open cycle gas turbine (which can generate for as long as you like).

          • Motorshack

            Actually, where I live it is the grid itself that we lose from time to time, and occasionally that outage lasts for a week or two, in the dead of a very cold winter, no less. An outage lasting more than a day happens, typically, one to three times a year. Average it all together, and we lose the grid about two percent of the year, half in short failures and half in the relatively rare multi-day failures (which occur only once every three or four years).

            The usual response to those failures of the centralized system is for everyone to fire up their own personal 3-5KW gasoline generator until the grid comes back. These small gensets cost anywhere from about $150 to $1,500, depending upon size and quality. And, of course, the cost per KWH is rather high, since they are only used a few dozen hours a year. Obviously the capacity factor sucks as well, as it necessarily must in this approach.

            However, there are a couple of points to note that are relevant to this discussion.

            First, and most obvious, the grid itself is clearly not all that reliable, and in our case it usually craps out precisely when it is least convenient. So, rational people here would laugh hard at the idea of relying exclusively on the grid for vital services. No one here does that, because it obviously does not work.

            Second, the people who pick on the inability of batteries to offer much backup at low price, rarely seem to get into actual hard statistics. It is true that there are plenty of days when the sun does not shine very much, but how often does that happen for more than two days straight? Answer: not that often, even here in a relatively cloudy region.

            So, I seriously suspect that the combination of solar, modest battery storage, and a cheap little gasoline generator will be both lower cost and far more reliable than the grid can ever hope to be.

            Again, it is already perfectly feasible to replace a trillion-dollar grid with a crummy little $150 genset, and this has been true for decades.

            And before you jump on the fact that a cheap genset does not have the durability to run 24/7 for years on end, or on the fact that they are a relatively inefficient way to turn fossil fuel into electricity, keep in mind that they do not need to run more than a few days a year, and for that express purpose they are a very nice trade-off: very low capital cost, tiny fuel cost, high reliability.

            In short, the problem that I see on both sides of this debate is that everyone insists on modeling situations in which only one or two sources of power are available, when in fact many sources are possible, with a wide variety of advantages and disadvantages. Clearly the real solution, in any particular situation, is to combine the right set of power sources, without getting overly narrow-minded about which ones you are willing to use.

            Of course, we all want to minimize both financial and environmental costs, as well as maximizing the reliability of the system, but, again, the key to doing that is consider design solutions that involve three, four, and even five-way hybrids.

            Finally, the problem for the conventional power companies is very simply that their capital costs are just way too high to compete in such a market. The only reason they have stayed in this business this long is that they lacked serious competition, but that era is now over, and will never return.

          • Motorshack

            And by the way, my own personal response to power failures is far simpler and cheaper.

            During the day I just skip anything that needs electricity (showers, cooking, Internet), I dress warmly, and then I spend the day reading next to a window. At night I lie in bed and read by the light of an LED flashlight that can run a week on a few dollars worth of alkaline batteries.

            If I were desperate for power, for whatever reason, I would pay the guy next door to let me plug an extension cord into his 8KW generator for a few hours. However, in five years, during which the grid has failed many times, the question has never actually come up.

          • Giles

            When our grid went out last week in Sydney for a few hours, we used the solar light that had been given to us (and charged up several months previously) by the fine folks at Pollinate Energy. http://www.pollinateenergy.org
            Damn effective. Made us feel quite privileged. Retails (with small solar panel) in the slums of Bangalore for less than $30, pays back the avoided kerosene costs in a few months.

          • Motorshack

            Hence no need for disposable, single-use alkaline batteries.

            It’s probably not significantly cheaper than what I do, at least in the short run, but it is arguably better for the environment, and if you were subject to frequent grid failures it would be much better on both counts.

            Good for you.

          • wideEyedPupil

            1994: “Solar Energy is hideously expensive and will never be anything more than niche…”

            2014 “Battery storage is still hideously expensive”…

            To suggest that if batteries were meeting 95% of domestic demand then the last 5% would require that same grid capacity, maintenance and expense as today belies a failure to understand thin pipe and various other strategies.

      • Michael Doherty

        100k kWh of battery storage for a 5kW system? Oh dear. Oh dear. Oh dear.

        Perhaps, if they wanted to be fully self-sufficient, and they used a whopping 5 kWh each hour every hour of the day. But who uses that amount of energy through the night? That is one power-hungry fridge and security light.

        The battery is simply there to provide electricity for times when the solar panel is not able to provide electricity or the home is not using it. Each Aussie home uses an average of approximately 16.5 kWh per day. So a 100 kWh battery bank could theoretically provide enough energy for nearly 6 average homes (excluding peak-demand limitations).

        With respect to full self-sufficiency, and in a well designed and appropriately sized PV-battery system, the battery simply needs to provide electricity for demand in times when the sun is not there. It also must be appropriately sized to accommodate peak electricity demand (perhaps around 7 or 8pm) – but only for an hour or so. When the sun rises again, the energy not used by the home is used to charge the battery.

        The balancing act is sizing the system and battery at minimum cost with peak load capacity and ability to provide total electricity over the night and non-sunny periods. The latter redundancy in the battery can be costly and sizing for this contingency can add a level of complexity.

        If the LCOE for a battery + system is lower than the retail tariff then this is a no-brainer, and it may not be far off.

        A 10-15 kWh battery and 5kW system would likely be sufficient for most large family homes, especially in combination with energy efficiency measures (combination of products and changed behavior). One thing is for sure, a 100kWh battery bank for a 5 kW system is absolutely ludicrous.

  • Rob Campbell

    The way I see it, a suitably operated 5KW system will generate 25 KWH of electricity a day, say 24. Thats 1kwh per hour of the day. I have assumed that the consumer will use 15 of those 25kwh as they are produced, not always assured but it can be achieved.Our storages (yes we make and sell storage) has a true 10KWH capacity and this can be cycled during the day to make daytime usage follow the output of the PV. In the case of prolonged dreary days, heat and cooling needs are reduced proportionately. Its not an off grid situation by any means but by diversification only a small amount of top up would be required. Melbourne may not meet this criteria but certainly Brisbane. So your assertions are way out, At the minimum the concept is on par.

  • southtpa

    storage? if solar panels were absolutely free and you could out up as many as you had room for there is still a fundamental question. on grid or off grid? if you and everyone else chose on grid you monthly utility charge would approach what you are paying now less the actual cost of fuel. we have a monopoly here so the rate of return is guaranteed. off grid you’ll need three days of stored energy plus a backup generator to get you through hurricane season or a backup generator and no storage. overnight lows are commonly 80 F and heat index well over a hundred. you need AC and refrigeration. the key to solar is STORAGE.

  • EVmarc

    Chou’s model worse possible NOT good for Australia or
    anywhere else
    In California 5 Kw system install cost $4
    watt, $2.80 after fed tax credit out
    pocket cost
    produce my own electricity 6 cents Kwh
    DIY install cost $1.59 w out pocket produce
    for 3 cents Kwh cost produce
    Why would you want to pay utility or lease
    company 15 cents kwh?
    Chou’s model and leases take all the profit
    out of solar producers pocket to utility/lease co. pocket
    The utility gets to charge you 18 cents for
    your power that you produce for 6 cents Kwh
    What a rip
    My out of pocket cost only $7974 how is that
    such a large amount of money?
    Much less than a car, boat swimming pool ya
    never hear what a large out pocket cost just great to get loan on
    BEST model cost you 6 cents produce utility
    buys 8 cents any overproduction
    AND federal Reserve ZERO percent interest loan
    to ALL who buy a solar system
    The too big to fail/jail banks get 85 billion
    a year .15 interest loans every year pretty much free
    Bad idea i guess how terrible if just regular
    citizens get same deal

    Did you get with solar you are producer of
    electricity Chou plan keeps you as a consumer

    Utility should buy from producer
    isn’t that how caterpillarism works?

    ALL solar rules regulation should be geared
    for benefit of solar producers

    game over” Utilities yep good deal

    Battery storage right now using lead batteries doing a shave
    peak TOU method
    1 year payback you use only off peak charge
    batteries at 6 cents Kwh use no 18 cent kwh
    Run the numbers
    Used EV lion batteries will be available in
    7-10 years a 24kwh pack will sell as 18kwh pack will operate in home 20 years
    as have very low power draw. Will help lower cost of batteries but i guess will
    be pretty cheap by then
    Hey you Aussie guys sorry this about US perspective well
    just from a solar producer’s not mainstream
    is EVworks still doing well? sure makes a good BMS

  • http://www.revolution-green.com/ Ken

    First time visiting this site. Great article by the way. I run http://www.revolution-green.com and have had a huge interest and following for solar technologies. New breakthroughs in solar power seem to come out every day that make it both efficient and durable. The real roadblock now is storage technology. Some have proposed storing solar energy as hydrogen. If they can get past Faraday’s law and the safety concerns, solar and would easily phase out traditional power plants.