Bernstein: Four scary choices for utilities in face of solar onslaught | RenewEconomy

Bernstein: Four scary choices for utilities in face of solar onslaught

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Can generators live off two hours of demand a day? And what if utilities actually tried to slow down the rollout of rooftop solar? If these are questions energy utilities are asking themselves in the current market environment, they may not like investment bank Bernstein’s answers.

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Can electricity generation companies live off two hours of demand a day? And what if utilities actually tried to slow down the rollout of rooftop solar? If these are questions energy utilities are asking themselves in the current market environment, they may not like investment bank Bernstein’s answers.


Following on from our story last Friday of how the extraordinary plunge in the cost of solar could cause price deflation in global energy markets within a decade, with potential big implications for the liquid fossil fuel industry (oil and gas), we look today at what investment bank Sanford Bernstein says the falling cost of solar means for utilities – both generators and network operators.

Numerous other studies – and even the industry itself – have talked about the threat of the so-called “death spiral” and the need for incumbent utilities to adapt their business models.

The best way to begin this explanation is to revisit the so-called “Peaking Duck” – which is not, as the Bernstein analysts point out, a delicious Asian-Latino poultry dish, but the future of merchant power markets.

Bernstein solar bernstein duck

This graph above documents the impact of solar PV, which generates electricity during the day and so reduces peak power demand from non-renewable sources as adoption increases. The lower lines point to the future, where generators are squeezed out of the market by the proliferation of rooftop solar.

“Instead of high-cost (and high-priced) gas-fired peaking power plants being engaged in the middle of the afternoon when all of the air-conditioners are operating and all of the factories are running, solar addresses that load. California – like Germany and Australia – is already seeing this effect,” Bernstein writes.

Indeed, as we have recently documented, grid operators in South Australia have highlighted the impact of solar in the recent heat waves in South Australia, gas assets are being written down, and demand for peaking power plants in the US are already being dumped in favour of large solar PV farms.

Bernstein points out that by 2020, the installed capacity of solar will be so great that the demand profile will resemble the green line and daytime power demand will have effectively collapsed. (Note, the peaking duck graph was provided by Edison International, a utility fighting the proliferation of solar.  See this story for a different take on the “duck” chart).

“For companies selling electricity into merchant or competitive markets like California, this is a disaster,” the Bernstein analysts write.

“Demand during what was one of the most profitable times of the day disappears. With it, the need for part of the merchant fleet disappears too for all but the dinner hour. And that is the issue competitive generators face globally in this 2020-scenario: how to live off demand of two hours a day.”

It’s bad news, too, for regulated distribution businesses, of the type that exists in Europe, Australia and in the US. And given, as we noted in last week’s article, Bernstein identifies the global “addressable market” for rooftop solar as two billion backyards, there can be no doubt that utilities will react. The question is how they can do so effectively.

Historically, for these businesses – usually natural monopolies that have high fixed costs and recover those costs by charging per kilowatt/hour – the loss of volume risks deflating returns. The utilities usually would look to recover this loss of volume by lifting power prices, but that simply increases the incentive for consumers to install rooftop solar PV.

“The response of simply raising prices per kWh is therefore unsustainable,” the analysts note. And they are faced with increasingly unattractive choices.

These are those choices as laid out by Bernstein.

1. Refuse to accept power into the grid that has been generated from roof-top solar systems (or pay a reduced rate for that electricity). These steps are being adopted or proposed in Hawaii and California currently. This merely creates economic incentives for homes and businesses to start thinking about domestic energy storage solutions. (We can see similar things happening in Australia, where utilities are refusing connections or upgrades and/or are forcing consumers to downsize their plans)

2. Second, charge a connection fee to reflect the true value of the service (the ability to buy electricity whenever it is required, rather than the electricity itself). This step is being adopted in Arizona and California. But this step cements the attractiveness of battery storage to time-shift the power.  (Again, this is taking place in a haphazard fashion in Australia).

3. Third, admit defeat and become a roof-top solar developer.  (German energy giants RWE and E.ON appear to have realised this, as have US companies such as NRG)

4. We cannot think of a fourth option. 

As Bernstein concludes:

“The behavior from here seems clear: the solar industry will expand. Retaliatory steps from distribution utilities will increase the market for cost-effective battery storage. This becomes – initially – a secondary market for battery technologies being developed for the auto sector. A failed battery technology in the auto sector (too hot, too heavy, too rigid a form factor) might well be perfect for the home energy storage market…. with an addressable end market of 2 billion backyards.”

Later this week we will look at what happens – and how – if solar really does go mainstream.

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  1. Alen 6 years ago

    Bring it on, and I hope (fingers crossed) it’ll happen happen before 2020!

  2. sean 6 years ago

    4. Encourage deployment of PV by promising to pay live wholesale market rates, and make a profit by selling to industrial/commercial consumers – without the huge amount of distribution hardware usually required. Encourage demand growth by offering cheaper rates when infrastructure isnt being used to capacity.

  3. Bob_Wallace 6 years ago

    5. Build a late night EV charging market by assisting the sales of EVs and supplying them with wind-generated electricity which would be cheaper than storing one’s own solar in batteries and charging from them.

    6. Get storage in place before it gets well established at the end-user level. Get plenty wind on line. Give end-users a decent price for their contributed solar and a decent price for non-sunny hour electricity. Be the storage and backup for people who install solar. And the regular old utility company for the majority, who likely won’t.

    I really doubt most people are going to install solar. Those who do (without storage) are likely producing 4x to 5x as much as they use during the sunny hours and sending their surplus to the grid. As more rooftops get solar the price of electricity (with TOU billing) will drop to the point at which rooftop solar won’t pay for itself and installations will stall.

    Utilities will be power brokers during the sunny hours, buying from end-user solar and selling to the majority who don’t have solar.

    Now, getting there. Going to have to take a large bath and write off useless thermal plants. Invest in nighttime generation and storage. Start ‘buy an EV’ campaigns and possibly offer some sort of sweetener in order to create a market. Perhaps start installing street side and parking lot charging for those who don’t live in private residences.

    • Ronald Brakels 6 years ago

      That’s one of the interesting thing about rooftop solar in Australia. It doesn’t matter if the wholesale price of electricity drops to zero, distribution costs are so high here people can still save money by installing rooftop solar. And so people have an incentive to keep installing it even if wholesale electricity prices regularly drop to zero during the day. After all, why pay 30 cents a kilowatt-hour for electricity when you can make it yourself for under 10 cents? Even if the electricity you send into the grid is only worth a pittance you still come out ahead provided you use a third of the electricity you generate yourself and that’s not particularly difficult, you just make sure your system is not too large and/or shift your demand to the day.

      Electricity retailers could discourage the installation of rooftop solar by lowering prices during the day, but that would mean they would have to lower prices during the day, and for some reason they haven’t volunteered to do that. Can’t imagine why. And any attempt to lower prices in the day and compensate by raising them at night would just drive people to install energy storage.

      So what will happen is, we will continue to install a lot of point of use solar, our current system of electricity retailing will implode, and then after that our grid will be used to distribute normally very cheap daytime electricity, and will be used to sell expensive, but not more expensive than a battery bank or diesel generator, electicity at night. We know from past experience that if we’re not expanding our grid and if we let remote areas take care of themselves, that we can run our existing grid at quite a low cost, much like many other countries do.

      • Bob_Wallace 6 years ago

        What are people doing to load shift? For example, are many people using timers to turn on their washing machine during the day?

        Any sales of combination washer/dryers that would do their job in the sunshine and have a clean load of clothes ready to fold/hang when people get home?

        Seems like there would be a thriving load/time-shifting industry.

        • Ronald Brakels 6 years ago

          Doing the clothes washing, turning on the dish washer, and getting the house nice and warm/cool during the day are all things people are doing to maximise their self consumption. It is possible to get home energy management systems, but a lot can be done with minor changes to routine, setting timers that a lot of appliances come with nowadays, and sometimes just buying a timer that an appliance can be plugged into if it doesn’t have one built in.

          And just having rooftop solar can make people a lot more energy conscious than they used to be and thinking about ways they can save energy.

          As for a combination washer/dryer I’ve never seen such a beast. Of course in Australia we do most of our drying on the line, but plenty of people have dryers for rainy days/laziness and a minority because they live in an appartment.

  4. Jonathan Prendergast 6 years ago

    4. Electrify the economy. Use electricity for transport (EV’s, trains, trams), heating, hot water, cooking, industrial processes. Switch us over from gas, oil, diesel to renewable electricity.

  5. Jonathan Prendergast 6 years ago

    Large scale Solar PV may reduce peak to 2 hours in a day, but not to 730 hours in a year. No doubt Solar PV is reducing revenues to generators and network owners, but as much as suggested across all 365 days in a year.

  6. Ian 6 years ago

    Here’s a 4th option: government sponsored electricity demand. Previously when there was a need for electricity supply, government created utilities to meet that need. When communication became important roads were built, postal services created and a telephone utility was formed. Well now, we need to get rid of excess electricity, we need to find work for growing numbers of people near their homes. Maybe we need to encourage manufacturing and industry. Its really pathetic that huge energy corporations with budgets in the millions have to rely on mums cooking dinner or heating their bath water to use their product. No wonder they are in such trouble.

  7. sethdayal 6 years ago

    Yup, even in CA they occasionally get two month long no sun climate events. It would add two bucks a kwh using the cheapest imaginable storage to cover for that so my advice – let the halfwits do without electricity when it happens. Let them freeze in the dark – Schadenfreude.

    • Bob_Wallace 6 years ago

      Where in California would that be?

      I’ve lived in all parts of CA over the last 40 years and have never seen that many sunless days.

      I’d love to see the data on which you’re basing your claim.

      • sethdayal 6 years ago

        Look as we both know Bob, you push the Big Oil agenda. As such facts mean nothing to you.

        Folks need to keep in mind the more you disagree with Bob the more he uses his influence on these sites to give you the boot. One fellow even posted under the handle “booted by bob”.

        No matter I many times I post this Bob, like the Everready Bunny will keep coming back with the same comment.

        “The intense rainstorms sweeping in from the Pacific Ocean began to pound central California on Christmas Eve in 1861 and continued virtually unabated for 43 days.”

        Google “megastorms-could-down-massive-portions-of-california”

        And while I mentioned this to you numerous times Bob, to other readers look up Tambora which wiped out sunshine world wide for almost two years. Wouldn’t that be great in a solar powered world.

        • Bob_Wallace 6 years ago

          “Look as we both know Bob, you push the Big Oil agenda.”

          What bullshit.

          A guy on a different blog got banned for posting climate change denier stuff. That blog does not permit denier posting. While someone else actually banned him he decided I did it. I really don’t care. If he steps over the line again he’ll get banned again.

          Tambora did not “wipe out sunshine”. It attenuated sunshine. And since we wouldn’t build a 100% solar grid we’d need to engineer a 100% renewable grid to give us a safety margin for those extremely unlikely event.

          • sethdayal 6 years ago

            You are full of it Bob. I’ve seen you get others banned right after you threatened them – everybody’s a Denier if Bob disagrees with them.

            In fact, you are yourself a warming denier since you reject the science that tells us we may only have a few years to make drastic cuts in GHG’s like France did in the 1980’s, preferring your Big Oil junk science which has us matching Frances record in 2050 at the earliest.

            Since from your numerous posts on the subject showing you couldn’t tell a solar panel from a storm window, I’d suggest you look at solar panel specs you see attenuated means close to none when parasitic losses are included.

            The subject here is the contention that utilities will go broke because everybody will switch to solar + battery. In that case there will be no renewable grid available to save us.

          • Giles 6 years ago

            Thanks Mark. That’s enough from you. You started with a personal attack and you finished with one. We don’t countenance that here – back to Forbes with you and your support for the Concas of this world.

        • Investor4822 6 years ago

          Bob is the most realistic and rational mind in this and other discussions around the web. I always benefit from and enjoy his comments more than the original articles..

    • Alen 6 years ago

      Easy solution for that scenario, have distributed network with more technologies than just PV or solar thermal, e.g. Wind, wave or micro hydro ..etc. every high renewable energy scenario pushes for exactly this, and as the AEMO 100% renewable study found the more technologies you have the cheaper it gets.
      Schadenfreude towards the utilities indeed.

      • sethdayal 6 years ago

        Actually not so much, as your alternatives all require large utility investments which our 100% corrupt politicians, won’t allow utilities to recoup. Note solar thermal is not a home based alternative either unless you are referring to space/water heat. In any case none of your alternatives meet the definition of distributed.

        On the other hand in a world powered by dirt cheap clean and green nukes, every group of 100K citizens would have its own nuke plant at a small fraction of the cost. Sounds pretty distributed to me.

        • Alen 6 years ago

          I was not purely talking about rediential technologies, and how you claim these are not distributed I don’t fully understand. We’re are talking about 100’s and 10’s of MW for two of the technologies above, not 1000’s as a typical centralised coal-fired generator. Community scale networks, with reliable base load from a microhydro generator, residential PV add heatpumps (aircon/boiler), energy efficiency improvements all at the home level, and you should have more than enough power to cover you. Wind, wave, geothermal, biomass etc. all to supply any businesses with larger demand, not to mention the potential for these to add PV or other technologies to their business. Demand management can go a long way to keeping demand curve steady and balance the peaks.

  8. azaredaniel 6 years ago

    We need sustainable energy policies, Ban Fracking and implement a California Residential and Commercial Feed in Tariff.

    Roof top Solar is the new mantra for Solar Leasing Companies with Net-Metering which allows them to replace One Utility with Another, we need to change this policy with a Residential Feed in Tariff that will level the playing field and allow all of us to participate in the State mandated 33% Renewable Energy by 2020.

    Alliance for Solar Choice is a group of Solar Leasing Companies that with Net-Metering enable One Utility to Replace Another SLC, Why should a Hard Working, Tax Paying, Voting, Home Owning Citizen not be able to participate in the State mandated 33% Renewable Energy by 2020 ? We need a Ca. Residential Feed in Tariff and a National One.

    The Utilities, The Big Boys (Solar Farms in the Desert) and Third party Leasing Companies all fight over the Renewable Portfolio Standards, allocating a percentage of the electrical generation to Renewable Energy for the State, No one is Fighting for the Hard Working, Tax Paying, Voting, Home Owner. We can change that.

    Globally we are emitting 31 -35 Billion tons of Green House Gases annually, in the United States we emit over 7,075.6 million tons a year, here in California we emit 446 million tons of Carbon Dioxide a year, 1,222,000 Toxic Tons a Day.

    “Tell the California Public Utility Commission: No new dirty gas plants!
    Every year, more than 70,000 California kids are rushed to the hospital because they can’t breathe, due to air pollution in Calfiornia.

    Unfortunately the Governor and the Public Utilities Commission (PUC) are considering huge new gas-fired power plants to replace the San Onofre Nuclear Generating Station. Dirty gas plants will make our Air, Water and Soil, worse and just aren’t needed.

    We can’t sit by and let our Air, Water, and Soil, get dirtier and our kids even sicker, when we’ve got cheaper, cleaner, safer options like Renewable Energy.” Sierra Club.

    California, there is enough Residential Solar to power 2.25 San Onofres, couple that with a Residential and Commercial Feed in Tariff and we can solve some of these environmental and electrical generating problems.

    The Southwest is in the midst of a record drought, some 14 years in the making, which means the water supply for many Western states – California, Arizona, Utah, Nevada – is drying up. Last month the Bureau of Reclamation announced they’re cutting the flow of water into Lake Mead, which has already lost 100 feet of water since the drought began.

    What happens if the Southwest drought does not end soon ?

    Will we keep using 3 to 6 million gallons of Clean Water per Fracked well, to extract natural gas ?

    This petition will ask the California Regulators and Law makers to allocate Renewable Portfolio Standards to Ca. Home Owners for a Residential Feed in Tariff, the RPS is the allocation method that is used to set aside a certain percentage of electrical generation for Renewable Energy in the the State.

    The State of California has mandated that 33% of its Energy come from Renewable Energy by 2020.

    The state currently produces about 71% of the electricity it consumes, while it imports 8% from the Pacific Northwest and 21% from the Southwest.

    This is how we generate our electricity in 2011, natural gas was burned to make 45.3% of electrical power generated in-state. Nuclear power from Diablo Canyon in San Luis Obispo County accounted for 9.15%, large hydropower 18.3%, Renewable 16.6% and coal 1.6%.

    There is 9% missing from San Onofre and with the current South Western drought, how long before the 18.3% hydro will be effected ?

    Another generator of power that jumps out is natural gas, 45.3%, that is a lot of Fracked Wells poisoning our ground water, 3 to 6 million gallons of water are used per well.

    If Fracking is safe why did Vice Pres Cheney lobby and win Executive, Congressional, and Judicial exemptions from:

    Clean Water Act.

    Safe Drinking Water.

    Act Clean Air Act.

    Resource Conservation and Recovery Act.

    Emergency Planning Community Right to Know Act.

    National Environmental Policy Act.

    “Americans should not have to accept unsafe drinking water just because natural gas is cheaper than Coal. the Industry has used its political power to escape accountability, leaving the American people unprotected, and no Industry can claim to be part of the solution if it supports exemptions from the basic Laws designed to ensure that we have Clean Water and Clean Air” Natural Resources Defense Council.

    We have to change how we generate our electricity, with are current drought conditions and using our pure clean water for Fracking, there has to be a better way to generate electricity, and there is, a proven stimulating policy.

    The Feed in Tariff is a policy mechanism designed to accelerate investment in Renewable Energy, the California FiT allows eligible customers generators to enter into 10- 15- 20- year contracts with their utility company to sell the electricity produced by renewable energy, and guarantees that anyone who generates electricity from R E source, whether Homeowner, small business, or large utility, is able to sell that electricity. It is mandated by the State to produce 33% R E by 2020.
    FIT policies can be implemented to support all renewable technologies including:


    Photovoltaics (PV)

    Solar thermal




    Fuel cells

    Tidal and wave power.

    There is currently 3 utilities using a Commercial Feed in Tariff in California Counties, Los Angeles, Palo Alto, and Sacramento, are paying their businesses 17 cents per kilowatt hour for the Renewable Energy they generate. We can get our Law makers and Regulators to implement a Residential Feed in Tariff, to help us weather Global Warming, insulate our communities from grid failures, generate a fair revenue stream for the Homeowners and protect our Water.

    The 17 cents per kilowatt hour allows the Commercial Business owner and the Utility to make a profit.

    Commercial Ca. rates are 17 – 24 cents per kilowatt hour.

    Implementing a Residential Feed in Tariff at 13 cents per kilowatt hour for the first 2,300 MW, and then allow no more than 3-5 cents reduction in kilowatt per hour, for the first tier Residential rate in you area and for the remaining capacity of Residential Solar, there is a built in Fee for the Utility for using the Grid. A game changer for the Hard Working, Voting, Tax Paying, Home Owner and a Fair Profit for The Utility, a win for our Children, Utilities, and Our Planet.

    We also need to change a current law, California law does not allow Homeowners to oversize their Renewable Energy systems.

    Campaign to allow Californian residents to sell electricity obtained by renewable energy for a fair pro-business market price. Will you read, sign, and share this petition?

    Do not exchange One Utility for Another (Solar Leasing Companies) “Solar is absolutely great as long as you stay away from leases and PPAs. Prices for solar have dropped so dramatically in the past year, that leasing a solar system makes absolutely no sense in today’s market.

    The typical household system is rated at about 4.75 kW. After subtracting the 30% federal tax credit, the cost would be $9,642 to own this system. The typical cost to lease that same 4.75 kW system would be $35,205 once you totaled up the 20 years worth of lease payments and the 30% federal tax credit that you’ll have to forfeit when you lease a system. $9,642 to own or $35,205 to lease. Which would you rather choose?

    If you need $0 down financing then there are much better options than a lease or PPA. FHA is offering through participating lenders, a $0 down solar loan with tax deductible interest and only a 650 credit score to qualify. Property Assessed Clean Energy loans are available throughout the state that require no FICO score checks, with tax deductible interest that allow you to make your payments through your property tax bill with no payment due until November 2014. Both of these programs allow you to keep the 30% federal tax credit as well as any applicable cash rebate. With a lease or PPA you’ll have to forfeit the 30% tax credit and any cash rebate, and lease or PPA payments are not tax deductible.

    Solar leases and PPA served their purpose two years ago when no other viable form of financing was available, but today solar leases and PPAs are two of the most expensive ways to keep a solar system on your roof.” Ray Boggs.

    • Chris M 6 years ago

      Is that the longest post ever?

  9. Chatteris 6 years ago

    Interesting perspective on slowing demand from South Africa where we still have a highly centralised distribution system, but where there is immense potential for decentralisation through the use of climate-friendly energy (CFE – I hope the acronym will take off!).

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