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Consumers to be big winners in solar/storage revolution

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Last week we wrote that some utilities in Australia – particularly those in regional areas – accepted that the future would bring big changes to the way energy was produced and delivered, and that communities would use local renewable energy sources and storage to look after their own needs.

But what if that change came quicker than even these utilities expected? And if that extended into big towns and the suburbs of major cities? And what if it resulted in a reduction in electricity prices for nearly all consumers?

That is the scenario being painted to network operators and the utilities industry by global consulting firm PwC, which says the sector is about to go an unprecedented and rapid transition as dramatic as that which affected other industries.

Electricity utilities, it says, are about to face their “Kodak moment” and the key is the emergence of rooftop solar, and its ability provide a cheap source of electricity, as well other “enabling” technologies such as storage and smart software.

This, says Mark Coughlin, the power utilities leader for PwC, will fundamentally change the nature of the relationship between utility and the consumer. It will effectively shift the power from the utility to the customer, be they households or businesses, and will challenge the very “right to survive” of the traditional utility.

“This traditional utility model where the company controls the ‘electrons’ and the consumer has little choice is on its last legs – this model is struggling to meet customer needs,” Coughlin says.

“Once a household or a business has a solar panel on the roof or some other power source they are no longer a passive consumer.”

solar house

The solar-charged suburban home – new competitor to the traditional utility.

He says that customers are now emerging as competitors to the the utilities. “In as little as the next five years consumers will exert unprecedented control over energy supply, usage, service standards and costs,” Coughlin told the Energy Networks Association conference last week.

Coughlin’s comments, and those of many at the conference, reflect the fact that despite the common view that Australia has cheap energy sources, it does not have a cheap form of delivery of that energy from the centralized power generators to the consumer power sockets.

Hence the emergence of rooftop solar, which is already cheaper than socket-power because it has no delivery costs, and which is starting to challenge some fossil fuel generation, such as rising gas costs, on generation price.

This, coupled with the emergence of battery and other storage technologies, smart meters, and other software that allows energy to be stored and delivered at lower cost on a smaller network, is challenging the traditional business model of the industry.

“Smart grids, smart meters and customer energy management ‘gadgets’are only the beginning of what is possible,” PwC says in a new report Utility of the Future. Already we can control our home electronics and entertainment via our smart phones and tablets – why not our energy usage on a minute-by-minute basis?”

Coughlin says that these technologies – and new financing structures – will open the door to a flood of new entrants to the industry, be they telco, technology providers, financiers and systems managers, and existing utilities will also rush to form new alliances and joint ventures.

In data, this will include the likes of Google and Apple, in finance it will range from huge investors such as Warren Buffett and Macquarie Group. But PwC says it will also come from local sources. “We expect to see small crowd-funded energy companies emerge in Australia within the next three years,” it predicts.

“Customer energy contracts will greatly favour the customer – suppliers will have little choice in the matter!” the PwC report says, noting that changes to the way services are offered are likely to occur within three years.

“This will mark a major, transformational shift for both the utility sector and customers. “ And it will drive benefits to consumers. “In some cases this will see customers paying more for certainty of supply. In other cases we see the distinct possibility that costs will reduce for customers.”

PwC says the biggest challenge will affect the large energy retail businesses, the major brand names which in Australia include Origin Energy, AGL Energy and EnergyAustralia. “The existing shape of the energy retail business will not survive in its current state, given the atrophy of retail growth in traditional markets,” it says.

PwC predicts that the retail market will turn into a “channel fight” focused on costs and choice. The retail sector could be subsumed into other large scale “retail engines” such as data providers and telcos, and other in house service providers. And there is likely to be a big turf war with the network distributor companies over who owns those assets.

“The key will be who has ownership and operational control of distributed generation assets – these will be the swing factor in who can provide the most innovative services for customers.”

Generators will struggle because of the combined impact of falling demand, and rival energy sources, such as rooftop solar. In Europe, nearly $500 billion has been wiped from the value of utility assets – primarily generators – as a result of the impact of new technologies.

PwC says Australian generators are facing the same headwinds – as can be indicated already by the lack of profits, the write-downs, and the closures and the reassignments in the coal and gas industry. This underpins the reasons for the incumbent industry to try and have mechanisms such as the renewable energy target stopped in their tracks.

“Contracting for long-term demand will become increasingly difficult as time passes given viable alternative sources of supply will almost certainly become available within 10 years,” PwC writes.

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  • Stan Hlegeris

    Heaven knows what this means for Queensland, where the government is doing everything possible to delay and deter solar PV while propping up the coal-fired grid.

    If Queensland’s generating assets were held in a listed public company, the companies would long ago have been required to write down the value of those assets to reflect the fact that their current and projected ability to produce revenue is severely impaired.

    The state sets electricity prices based on a guaranteed return on assets employed. Now that the value of those assets is falling fast one would think the price of electricity should also fall sharply. But it won’t–hence the death spiral.

  • http://slickercity.net kristian handberg

    The battle for the customer relationship is underway in North America within the context of the “Connected Home” – refer to http://goo.gl/t9Jrks

  • Brandon

    Gil – Can you please link to the original PwC report quoted? Thank.