UBS: Utilities face “perfect storm” from renewables, storage

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UBS analysts suggest energy utilities in Europe, north America and Australia are facing a “perfect storm” from the falling costs of renewables, energy efficiency and falling demand, and may not be able to sustain their business models. The analysts suggest the utilities embrace wind and solar, storage and other services if they are to survive.

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A new report from leading utilities analysts at investment bank UBS suggests that energy utilities in Europe, north America and Australia are facing a “perfect storm” from the falling costs of renewables, energy efficiency and falling demand, and may not be able to sustain their business models.

The report – entitled “Can utilities survive in their current form?” – is the latest in a series of assessments, reviews and analysis that point to the severe disruption to the centralized generation model, and the demand and supply dynamics that have governed the industry for the past few decades. To briefly summarise the UBS response to its own question, the answer is No.

UBS says the biggest impact on the current utility model will occur in developed markets, where renewables in general and distributed solar in particular will take more of an already depleted “demand pie.”

This, says UBS, will cause profits to fall and could force utilities, particularly generators, to look at greater exposure to renewables and distributed generation, and to other downstream services. It comes to a similar conclusion on this as the CSIRO Future Grid forum, and echoes some of the strategic decisions currently being mooted German energy giants RWE and E.ON.

“We expect the renewables onslaught to continue and that the going will only get tougher for conventional generators,” the UBS analysts write. “We believe the will need to examine and change their traditional business models to survive the renewables era.”

These new business models could include a greater focus on rooftop solar, energy efficiency, and consumer offerings that combined solar, storage, and electric vehicle infrastructure, as well as energy-efficient appliances.

UBS says the economic for solar panels looks set to work best in Australia, the southwest US, Germany, Italy and, with a time lag, in Spain.

It notes that the combination of decreasing costs of solar and rising electricity bills means that “end-user” grid parity has been achieved in several key European markets, and in Australia and the south-west of US.

This means that consumers can reduce the cost of their bills by more than the cost of the solar system – and rooftop solar systems are having the added impact of pushing thermal generation down the merit order, as Stanwell Corp has testified in Queensland.

“As unsubsidised solar replaces conventional generation … in Europe, the US and Australia by shaving off the peak demand, it has started to reduce pool electricity prices,” UBS notes. And utilisation rates will also fall. This would lead to a 50 per cent fall in profits from conventional utilities in Europe by 2020, based on current deployment forecasts.

UBS says the prices will fall so low that capacity will have to be removed to allow prices to recover. However, that capacity may be superseded anyway by the emergence of storage, potentially another blow to conventional generation.

Interestingly, UBS conducted a survey of 65 utility companies in Europe, Asia, America, Australia and Brazil – and the biggest number of utilities who viewed renewables as a threat where conventional generators in developed markets.

More than 50% of generators thought this way, compared to less than 5% in emerging markets. The percentages were virtually reversed when asked about the opportunity for renewables.

Must be something about sunk investments. Indeed, most developed market generators said renewables would lower their profits, while in emerging markets they thought renewables would increase their profits. UBS noted that the problems for conventional generators in developed markets would likely increase, given that penetration rates are still relatively low.

In Germany, however, households are expected to generate 29 per cent of their needs from rooftop solar by 2020, and commercial businesses up to 18 per cent. In Italy and Spain, commercial businesses are expected to generate more than one quarter of their own electricity requirements.

 

 

 

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13 Comments
  1. Zane Selvans 5 years ago

    Do you have a link to the original report? I’m not finding it at the UBS site, or elsewhere within the Google… Has it not been released yet?

    • Giles 5 years ago

      Sorry, only got a hard copy. UBS keep their reports pretty tight for their clientele.

      • chuckm 5 years ago

        Here’s a new contributor to competition: NAPower.biz/Marcia

        Energy marketers are a real threat to those fat pension schemes for retiring utility execs and they know it.

      • Matthew W 5 years ago

        “As unsubsidised solar replaces conventional generation”

        Where is there a substantial amount of unsubsidized solar??

      • Scott Lathan 5 years ago

        That’s quite a turnaround from 16 months ago, when the company offered this:
        “Governments in many countries are promoting the use of renewable energy. But the contribution from wind, solar and other forms of sustainable energy is not likely to be significant. They release no greenhouse gases, but their ability to produce energy is subject to major fluctuations: the wind does not always blow, nor does the sun always shine. These forms of energy are still expensive, and storing them presents particular problems.
        Fossil fuels will therefore continue to dominate supply also through 2030.”
        http://www.ubs.com/global/en/wealth_management/wealth_management_research/ubs_research_focus.html

        • patb2009 5 years ago

          tipping points are hard to sense.

      • Scott Lathan 5 years ago

        Giles, nowhere but in your report does UBS use the Australian (British) spelling for “unsubsidized” (unsubsidised) and the company always uses periods to abbreviate “U.S.” Seems that either UBS is keeping this information “pretty tight for their clientele” – or possibly this entire article is a fabrication of yours?

        • Giles 5 years ago

          Gee, I hate to spoil a fine conspiracy theory but UBS does use Australian (British) spelling for unsubsidised. Watch out for those giant bats.

  2. Miles Harding 5 years ago

    Giles, another good comment on a familiar topic.

    Speaking of a perfect storm,
    I haven’t seen much of this installed yet: http://www.solarquotes.com.au/blog/commercial-solar-giving-insane-returns-for-small-business/?utm_source=outbrain&utm_medium=affiliate&utm_campaign=contentamplification_highvolume
    – Commercial rooftop PV.
    (not really new news, but the message is getting out, albeit slowly)

    This type of installation is effectively immune to low feedin tariffs because of business hours. The above story indicates internal rates of return in the order of 30%, which should make rooftop solar, even without storage, a no-brainer for many businesses. With this sort of IRR, a financing package would easily make them cash positive on day one.

  3. Matthew W 5 years ago

    “As unsubsidised solar replaces conventional generation”

    Where is there a substantial amount of unsubsidized solar??

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