Rooftop Solar: Does it really need the grid?

Just over a week ago we reported on the anticipated moves by network operators in Western Australia and Queensland to ditch their reliance on poles and wires in favour of new technologies that would supply and store energy locally.

In Australia’s remote and distant outback, the development of micro and mini-grids – based around solar and battery storage – seems a logical step to take, even an economic one. But the bigger question for network operators around the world is whether those in more populated areas, even in the cities, will look to adopt similar measures.

At what point, for instance, will the ability of homeowners to buy the necessary equipment for power generation from their Home Depot Store in the US, or from Bunnings in Australia, challenge the future viability of the networks?

And at what point will it become possible for communities to pool resources and decide that it will be cheaper to look after their own electricity needs rather than stay on the grid. According to some groups in Australia, that point may not be so far away.

There are two technologies that will make this possible. The proliferation of rooftop solar, and its continued cost decline, is well documented. The second key element is battery storage.

As analysts from investment bank Bernstein noted in a recent report, the easiest way to dismiss battery storage and (by implication) distributed solar, has been to observe that efficient, low-cost energy storage has always been at least two years away… and to believe that it always will be.

But as the experience with solar PV has shown, this can change with the combination of capital, scale and motivation. Whether it be the mandated 1.3GW of energy storage in California, the 170,000 plug-in vehicles in the US, Tesla’s planned gigawatt battery storage plant, or the pull factor of frustrated consumers, the scale, the capital, and motivation is now at hand.

That will not just empower, quite literally, households and businesses, it will also remove the ability of distribution companies and retailers to dictate terms – and tariffs – once the sun goes down.

Competitively priced storage is likely to help put peaking power plants out of business, because there will effectively be no peak. But the bigger question is what happens to the grid, and the business models of the utilities that depend on it. How can it morph into what most see as inevitable – a plug-and-play facility – and how does it price its services?

The Bernstein analysts have provided a fascinating account of a recent conference they hosted in the US that introduced conflicting views of how this will play out.

David Crane, from NRG, the largest privately owned generation company in the US, believes that the grid is going the way of the post office; still trying to deliver letters as more and more people choose email and other forms of social media and technologies to deliver their communications.

The key to its future is in cutting costs, and making a gradual change of its business model, over the years. He recently wondered why the modern grid should be built around a hundred million wooden poles and wires. He says investing in centralised generation and distribution is futile. (His company owns more than 40GW of centralised generation, it should be pointed out).

Crane says the inevitable advance of distributed generation, the ability of consumers to meet their needs with a visit to Home Depot, and his preferred model of tying only to the gas grid (to meet the greater need for home heating in the US), means that the best option for the grid in the future is to act as a backstop source of reliable power.

But is that the future of the grid – just to act as a backstop?

Ted Craver, the CEO of Edison International, a California-based power distribution company, naturally has a different view. He told the Bernstein conference that utilities will remain a critical piece of the electricity puzzle.

He has several reasons for saying so: One is that many people simply won’t have the option to take their homes or even their communities off-grid, particularly those who live in apartment buildings, or the owners of shopping centres and office buildings. Even those who can provide a lot of their electricity from rooftop solar cannot meet the pre-dawn and post-dusk demand requirements (until the arrival of storage).

The second is the start-up loads of electric motors, such as those used for air conditioning and pool pumps, can be twice as high as the load of those motors when operating. Rather than double the size of their PV systems, and inverters, residential customers will find it more economic to draw power from the grid.

The third is that utility-owned assets will be needed to transport renewable power from remote locations to load centres, and even distributed solar would require grid upgrades to accommodate changes in voltage, as would the widespread deployment of plug-in electric vehicles, whose charging load is comparable to that of an average home.

According to Craver, the grid will need to evolve to a “plug and play” system capable of sensing and accommodating two-way electricity flows while maintaining constant grid voltage.

The problem arises on how to price that service. As utilities respond to the growing adoption of solar, they will seek to cover their fixed costs – but this in turn only enhances the attractiveness of distributed solar generation as an alternative to grid-supplied electricity, likely accelerating adoption and further eroding utility sales and revenues.

“The utilities thus face a vicious cycle where the growth of distributed solar generation forces rate increases that accelerates the growth of distributed solar,” the Bernstein analysts note. The utilities paint this as a growing cross-subsidy from those of their retail customers who lack distributed solar generation to those that do.

One option could be for the electricity utilities to embrace distributed solar distribution themselves – as the German energy giants RWE and E.ON are now proposing to do. As the Bernstein analysts suggest, utilities could one day achieve economies in customer acquisition, panel procurement, installation, maintenance and even financing that would make it difficult for competitors to match – such as the Home Depots or a local phone or cable company is offering energy (distributed power and storage) as a service along with broadband.

“How regulated utilities fare in the medium term will depend in large part on their ability to cushion the revenue impact of the growth of distributed solar generation,” the Bernstein analysts write.

“For those utilities with the highest retail electricity rates, and therefore the greatest expected penetration of distributed solar, this will require a rapid restructuring of their residential and commercial electricity revenues in favor of fixed connection charges.

“To the extent regulated utilities are successful in preserving their base revenues, while passing through to their customers the savings from avoided fuel and purchased power costs, it will be the revenues of competitive generators that fall by the wayside …. it is the competitive generation industry that will be squeezed between stagnant power demand and rising renewable supply.”