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Networks concede one-third of consumers could still quit the grid

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In 2013, a report produced by the CSIRO-led Future Grid Forum made the eye-catching observation that by 2030, one-third of Australian electricity consumers – weary of rising retail prices and spurred on by increasingly cheap solar and storage technology – could, conceivably, choose to go off grid.

Two years later, the CSIRO and the Energy Networks Association have released a comprehensive update on that and three other future grid scenarios, as part of the Electricity Network Transformation Roadmap project – the final Roadmap recommendations are due late 2016.

As in 2013, the study models four different electricity market scenarios: one where consumers “set and forget” their energy use; another distinguished by the rise of the “prosumer”; another where people leave the grid altogether; and one with a market of 100 per cent renewables.

And while some key projections have changed – including current solar and battery storage costs being around 20 per cent cheaper than they were forecast to be in 2013 – the “Leaving the grid” scenario” works out roughly the same, as you can see in the table below.

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In an article summarising the project’s key findings, CSIRO chief economist and a lead author of the report, Paul Graham, concedes as much.

“In 2015 these scenarios appear to have stood the test of time. Some of the most radical scenarios – a third of people leaving the grid, 25-45 per cent of electricity generated on site, and 100 per cent renewables – are still plausible.”

But what does that really mean? And if solar and storage prices are falling so much faster than predicted in 2013, shouldn’t this be reflected in larger numbers heading off the grid come 2030?

Graham goes some way to explaining this here: “While the falling cost of solar and batteries has decreased the cost of going off-grid, the projected cost of staying on grid has fallen also, and this is partly due to the expected role of batteries in peak demand management.”

But in an interview with Graham on Thursday, the CSIRO economist told RenewEconomy that it’s a bit more complicated than that.

“We don’t really know how many people will feel comfortable going off the grid,” Graham told RE. “We just wanted to explore a scenario where a lot of people went off grid,” and did so because it was a mainstream option. Screen Shot 2015-12-03 at 1.39.34 pm

“We didn’t want to hide from (that possibility),” he said.

And when you look at the report’s projections on battery costs, you can see why. It predicts that battery storage costs will fall by approximately 60 per cent in the next 10 years, while solar panel costs fall by around 35 per cent.

According to these projections, said Graham, by 2030 battery storage systems would have reduced in cost enough to provide a 10-year pay-back period, which, when you look at the solar model, was when rooftop solar uptake really took off.

But the real message of the report, says Graham, is that “solar is here to stay, and its only going to get bigger.” And the main aim of the CSIRO’s project with the ENA is to work out how to manage this new reality in a way that works for both consumers and the networks – and, presumably, the climate.

According to the report, all four scenarios see significant network expenditure, between $954 billion and $1,136 billion, whether by large utilities or small customers and their agents.

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And the scale of this expenditure, the report says, “highlights the benefits of incentives for efficient investment by all market participants, assistance for customers and robust policy and regulatory frameworks.”

One of the key concerns, for example – and a point that will no doubt be seized upon by certain media outlets – is that a “rise of the prosumer” scenario, where a majority of consumers install solar but remain connected to the grid, could widen the disparity between the electricity bills of customers with and without rooftop solar.

Of course, it makes perfect sense that consumers who invest in solar panels, and generate a big chunk of their electricity free from the sun, are going to pay less for their electricity bills than those who do not – and often cannot – invest in solar.

According to the CSIRO modelling, by 2030, customers with solar panels are expected to be$150-210 better off on average each year. By 2050 that increases to $860-$1140, which – as Graham points out on The Conversation, “is a concern from an equity point of view.”

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But how do you address this gap without penalising customers who have invested in the sort of clean energy technology our grids are going to need if we are to get anywhere near our Paris pledges for emissions reduction?

The tendency is to blame this bill gap on a solar “cross subsidy” – that is, people without solar carrying the more of the burden of paying for the grid than those with solar, even though those with solar could be using the grid just as much.

But in his interview with RE, Graham said researchers really didn’t know what that level of cross-subsidisation was, and conceded it was possible solar households were, in fact, using the grid less, and perhaps even boosting grid efficiency by reducing peak demand.

Again, said Graham, “it’s an incredibly complex issue.” But it could have a rather easy solution. The use of demand tariffs, he said, “would almost completely eliminate” any solar cross-subsidy issues. But as the table below illustrates, this will require fairly major reform.

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And what about the issue of network gold plating: the idea that Australian electricity consumers – solar and non-solar – are paying a huge chunk of their electricity bill to cover the overspending of networks on infrastructure and peak capacity that isn’t being used, thanks to decreasing demand?

RE asked Graham if the Future Grid study had considered factoring in a scenario where network assets were written down.

“I absolutely believe that you should write down assets you’re not using,” Graham said. “But it’s not the case that we’re not using the asset,” he added, “we’re just using it less.”

“This industry absolutely accepts that the change is coming,” said Graham. “There is no point trying to wind back the clock.”

“What we are trying to work out is how do we manage this? We need to make sure we don’t build any more network than we need. We need to give people incentives to manage peak demand.”

So far, you could argue that the networks haven’t done so well on either of those counts. But as Graham notes, it’s not all down to the networks.

“This is a shared responsibility,” he told RE. “The whole sector needs to create some value for customers to manage demand. They need to think, what benefit do they actually get for that?

At the same time, Graham notes, the path future consumers take will not be all about rate of return and cost benefit, but more about keeping up with the Joneses.

“The electricity industry is moving into a sort of consumer goods space. Price matters a bit, but it’s not necessarily the main driver.”

“You have a spectrum of customers, ranging from the vulnerable – those who struggle to pay the bill each quarter, to the tech savvy, who want to be in complete control of how they consume electricity.

“It’s not a matter of one size fits all.”

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  • trackdaze

    If they are smart the utillity and retailers will realise that the only way to counter grid defection is to fairly price exports to the grid from solar and battery.

    Constantly trying to recover status quo income from businesses and residential in higher fixed costs will only see the death spiral continue.

    With battery costs set to reduce by 2/3rd over the next ten years if not before and solar by another 1/3rd. They have to start evolving fast.

    • Jacob

      I thought that after the Powerwall launch, the grid will cut prices but they have not.

      So they want to be sidelined like Kodak was.

      • trackdaze

        They’ll wait and see the uptake of power wall and other storage devices. Unfortunetly I suspect their first reaction as maxg suggests will be to recover rather than adapt.

        Interesting too how the network (and its regulator)will look at the 100kw power pack. Will they see the potential?

      • Math Geurts

        In my opinion it is preferable to keep the connection, but you are free to leave. “A theoretical example would be a disappointed consumer whose power-limited Tesla Powerwall trips off because it can’t simultaneously power the HVAC, refrigerator, and flatscreen TV, even though it has the energy to do so”

        http://www.greentechmedia.com/articles/read/comparing-energy-storage-its-not-that-simple?utm_source=Daily&utm_medium=Newsletter&utm_campaign=GTMDaily

        • Jacob

          The air con would have to be bloody big to trip the Powerwall and the house should be having at least 2 Powerwalls anyway.

  • MaxG

    You will see, the utilities will lobby the government for to either to stop this or slow it down.

    • RobS

      Which will likely work until the number of people interested in defecting outnumbers the 2PP difference between the political parties, ie once there are enough people being barred from defecting to sway the result of an election the electoral impact of preventing defection will overwhelm the lobbying power of the utilities.

  • Ian

    Households, and businesses do not owe the electricity grid anything. It’s a utility or a commodity. Something that has been useful up to this point but maybe not so useful in the near future. It’s like an old pair of running shoes, once a favourite but now thrown in the Vinnies recycle bin at best or the tip at worst. It’s not a parent or an elderly relative who requires loyalty and support when old and unwell. It’s certainly not a lord, king or pope that requires the absolute obedience from its subjects. It is a business that gains or loses customers based on its competitiveness and its product.

    We need to restate the headline : Networks concede that their relevance and market share in electricity supply will reduce by a third.

    • Math Geurts

      Conclusion: it is wise to keep the old shoes and repair them when necesary.

      • Ian

        Whatever

  • Math Geurts

    “I absolutely believe that you should write down assets you’re not using,” Graham said. “But it’s not the case that we’re not using the asset,” he added, “we’re just using it less.”

    • Chris Fraser

      Perhaps using it less now, add a few EVs later on and see.

  • Math Geurts

    “The recent growth in PV installations has sparked a growing number of news reports and press releases that argue that solar PV has already achieved “grid parity” or will reach grid parity in the near term (BusinessGreen.com staff, 2009, Parkinson, 2014,Richard, 2014 and Shahan, 2014). Many of these articles reference an October 2014 market research report by Deutsche Bank’s Vishal Shah and Jerimiah Booream-Phelps in which they argue that “…more than 10 US states are currently at grid parity and nearly all 50 states would be at grid parity by 2016 timeframe” (Shah and Booream-Phelps, 2014). Such news coverage typically neglects to report that this claim is based on the existence of the ITC and other policy mechanisms aimed at supporting the deployment of such renewables.”

    • Actually, the Deutsche Bank and other reports do factor in ITC.

      • Math Geurts

        Of course: by taxing, tax credits and non-taxing, all kinds of “parity” can be reached everywhere. The real interesting question is whether stand-alone solar with batteries and whatever addition you want will be be cheaper or more satisfying than using an existing grid. At the end the question is whether solar on free roofs + batteries will are cheaper than grid connected solar with grid storage.

        And also of course: don’t build a new grid to nice remote locations where there is no grid. No complaining please.

  • Jeff P

    “weary of rising retail prices and spurred on by increasingly cheap solar and storage technology” – and doing the right thing by taking steps to disconnect their lives from dirty power sources.