Why consumers won’t need the power industry any more

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The head of America’s biggest fossil fuel generator sees a future of rooftop solar, micro turbines and fuel cells, meaning that most consumers will not need power companies any more and can disconnect from the grid. Even the head of the largest utility in the US says there is a risk that the grid would only be used as a “back-up”.

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The head of America’s biggest fossil fuel generator says the sharp falls in technology costs from rooftop solar and other micro generation means consumers will soon go after the option of disconnecting from the local utility and “won’t need the power industry any more”.

David Crane, the CEO of NRG Energy, the largest provider of energy to US utilities, with investments in gas, coal, nuclear, biomass and renewables, says the industry is being turned on its head by the declining costs of distributed generation, and believes there is not a lot that utilities can do about it.

Crane has long had a progressive view of what’s happening in the energy industry, which is to say that he hasn’t had his head either in the sand or buried in a sea of self interest.

At the MIT Energy Conference in Massachusetts earlier this month, Crane suggested that the falls in the cost of technologies such as rooftop solar and other micro generation meant that consumers could bypass the electricity grid and were perfectly entitled to tell their energy provider to “disconnect that line.”

“Consumers are realising they don’t need the power industry at all,” Crane, said in an interview reported by Bloomberg. “That is ultimately where big parts of the country will go.”

NRG currently supplies all but 1.5 per cent of its energy via fossil fuels, but it has also recognised the potential of the solar revolution, as Crane describes it, and has been offering rooftop solar PV systems directly to customers.

Bloomberg says that NRG is the first operator of traditional, large-scale power plants to branch into running mini-generation systems that run a single building – a move that, as Bloomberg notes, is striking at the core business of utilities that have earned money from making and delivering electricity ever since Thomas Edison flipped the switch on the first investor-owned power plant in Manhattan in 1882.

Crane’s company has been one of the biggest investors in large-scale solar in the US, but it has also bought a distributed solar company and wants to expand that product. He says his company is looking at offering solar leasing products that require no deposit for rooftop systems installed by customers.

Crane also wants to take advantage of the growing underground network of pipes that delivers gas to about half the homes in the country, and proposes providing customers with micro turbines and fuel cells that use gas.

In effect, Crane wants to help customers bypass the local electricity utilities, and disconnect from the network.

“The individual homeowner should be able to tie a machine to their natural gas line and tie that with solar on the roof and suddenly they can say to the transmission-distribution company, ‘Disconnect that line.’ ” Crane said.

And he said that the shift to distributed generation will have more of an impact on utilities than on customers. So much so that utilities now realised that distributed solar is a “mortal threat” to their business.

“They can’t cut costs, so they will try to distribute costs over fewer and fewer customers,” he said in separate comments reported by the Wall Street Journal – an issue highlighted in our report on the pricing forecasts by the Australian Energy Market Commission. This, Crane said, will have a snowball effect because it will increase costs for customers, and will drive more of them toward distributed solar.

Jim Rogers, the head of Duke Energy, the largest utility in the US, says utilities are aware that generating power at customer sites will disrupt their business.

Rogers pointed to the huge deployment of rooftop on solar on homes, commercial buildings and industrial facilities. “All of this is leading to a disintermediation of us from our customers,” he said.

“If the cost of solar panels keeps coming down, installation costs come down and if they combine solar with battery technology and a power management system, then we have someone just using us for backup,” he said, adding that other independent power producers may be evaluating the merits of distributed generation, building many small systems at customer sites instead of a few large ones.

So I have one simple question. Why don’t Australian utilities and generators talk like this? We’ve got more sun! Or is it they simply have the power to protect their vested interests?

NRG Energy itself has been developing numerous solar projects, most of them large utility-scale installations. The company acquired a distributed solar project developer in 2011.

The comments are interesting because the US has installed less solar on rooftops than Australia – in 2012 it amounts to 488MW, exactly half the installations in Australia.

In Australia, however, utilities owners are pretending that it’s not having much impact on their business – just on other customers because of so-called cross-subsidies. In this, they have the implicit support of the pricing regulators.

Still, Lyndon Rive, co-founder and chief executive of SolarCity, one of the leading providers of solar leasing products that accounts for most of the installations in the US, said that most utilities will do “whatever they can” to stop companies like his from increasing their market share.

“They will create fear tactics,” he said. (And we’ve seen plenty of that in Australia). For utilities, said Rive, it’s very hard to get a customer back after losing the customer to a competitor, like his own company.

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  1. Dave Smith 7 years ago

    I think Crane has this back to front, at least as far solar PV is concerned. The advent of intermittent forms of generation (wind and solar) will make us more reliant on an integrated grid, not less reliant.

    Yes, energy storage technology may become cheaper, but that technology can be used to cut networks costs too, and utilities will still have the advantages of economies of scale.

    That doesn’t mean that utilities won’t suffer some stranded costs as technology changes around them. But I don’t expect to see the distribution and transmission networks left to rust anytime soon.

    • Tosh 7 years ago

      Hi Dave,
      there is a long history of companies that were too slow to adapt and got trumped by up-starts.

      Personally, I see diseconomies of scale in network companies and other big org’s. The bigger they are, the slower they innovate and the more costly it is to deploy new products and services.

      I’m betting on a disruptive transition of our energy market, and plenty of assets getting repurposed at the scrap yard…

      • John 7 years ago

        Dave, I support the concept of dis-economies of scale (if that is such a word). There are residential solar outfits that can install rooftop PV for $1.50/Wp. The large-scale generators are at best $1.90/Wp installed and connected. Grid connection costs at the residential level is basically zero unless there is a meter upgrade required. Connection costs at the large-scale level are up to 18% of total costs in Australia. Add the overheads of the corporate world and it seems rooftop is the cheapest way to go. Sad but true.

    • Bo Nygaard Bai 7 years ago

      It all depends on market conditions.

      In a controlled monopoly situation. Consumers, who can, may disconnect to reduce costs. The disconnected consumer gets increased risk of power failure. The consumer who cannot generate on site will have to pay more to maintain the grid.

      In a free energy market, where the price of energy fluctuates freely with supply and demand. All consumers will bennefit from being connected to a smart grid to maximise return on investment and reduce risks.

      You need to legislation to force the creation of the free energy market!

      This video shows how this transformation is under way in Denmark.


      Politics plays a huge role in this.

      • John P Morgan 7 years ago

        Not so.
        The “off grid” homeowner does not suffer from unreliability of supply.
        (I have been “off grid” for more than twenty years and have never had an interruption to supply).
        Not only that, but the “off grid” homeowner also does not suffer from the tyranny of the free – or non free – market.
        Better still, the “off grid” homeowner is not a consumer, he is an independent entity who can choose to run his personal affairs in a manner to suit his view of the world.
        He can also decide to ignore the politics of the situation.
        Since the current raft of conservative governments across the country are determined to suppress the rise of renewables (futile) in the interests of ‘business as usual’, the independent homeowner can enjoy a reliable, low cost experience based on the now low cost solar panels.

  2. Jenny 7 years ago

    At a personal level we are we are simply waiting for the combination the technologies of PV solar, solar hot water, battery storage technology and perhaps fuel cell generators to get to the point that we can go grid independent. Energy efficiency is already a no brainer. The solar energy collecting technologies are already there, battery storage ore even ultra capacitors is pretty close and I’m not sure about fuel cell generators both in terms of cost and because they still use a fossil fuel at the moment.

    Unfortunately if a lot of people do the same then those who are excluded by their economic circumstances, living in rental accommodation, in apartments or in residential parks will carry an even greater burden in funding the poles and wires declining network.

    I am reminded of a quote from Catch 22. Yosarian when asked what if everybody felt that way replied “In that case I’d be a dammed fool to think otherwise.”

  3. Tosh 7 years ago

    gas! that’s not energy independance!

    why aren’t we talking about this in Oz? that’s a great question…

    We are just about to commence a piece of work which will help address that issue. We will write up highlights for reneweconomy when we can and will obviously be promoting the work far and wide.

    check in at http://www.energyforthepeople.net and we’ll provide more details and updates as we go.

  4. Martin Nicholson 7 years ago

    So I think what Crane is saying is consumers can swap from the electricity grid to the gas grid! Gas prices will rise like electricity prices so the consumer may not be much better off.

    Most consumers outside the major cities don’t even have access to the gas grid. Bottled gas is extremely expensive – much more expensive than electricity for heating and cooling.

    Worse for the environment, is the switch from a possibly clean source of zero carbon, large scale electricity, to burning a fossil fuel called natural gas.

    I know we are all hoping that one day, on-site electricity storage, large enough to survive the longest period of cloudy days, will be small enough and cheap enough to put into the consumers premises. I for one, who lives without access to the gas-grid, will be staying connected to the electricity grid until there is a cost effective viable alternative for reliable power.

    • pat b 7 years ago

      Germany is demonstrating that you can get to 50% of electricity production via renewables, which will make large baseload plants un-economical.

      I suspect we are crossing a tipping point where we may see 80% of the residential and commercial properties putting in renewable energy production and supplementing with small NatGas generators.

      It’s hard to get to 100% but it’s easy to get to 80%

      • Concerned 7 years ago

        Pat b,fine For part of the day,who provides for the rest of the day.I have lived there,cobber it is cold and dark,and not windy for days .

    • John P Morgan 7 years ago

      It is already happening in rural OZ.
      There are many homes running on PV, small wind and even micro-hydro. Some use LPG in small amounts to ‘fill in the gaps’ but essentially these homes are ‘off grid’ and operate at modest cost and relatively low emissions.
      This I know because I have installed a lot of these very systems.
      My own installation is now fully PV thanks to the recent collapse in module costs. My old genset is pensioned off.
      As they say: The future is already here.

  5. Craig Allen 7 years ago

    So we are rapidly approaching the end point wherein fossil generators who refuse to adapt can only survive if they get laws enacted that mandate that every household pays a base rate for electricity regardless of whether they have a connection (as is the case for water in most of Victoria).

    I’d like to see an analysis of how feasible this is as an outcome. With so many households switching to solar, and with the same about to happen for businesses, will the political backlash be enough to prevent it? Perhaps if laws are enacted before a significant portion of households go off-grid with their own storage, then the generators and their political cronies might get away with it.

    • Tosh 7 years ago

      Hi Craig, we will be looking at exactly this sort of thing in some work we are about to kick off (just waiting for contracts to be finalised). Feel free to contact me at [email protected] if you are interested


  6. pat b 7 years ago

    if micro -generation becomes cheap enough, even rental housing will get it, the landlords will rent their rooftops to a installation company which will create an in-building power utility and sell power to the residents, and even single family homes may lease their roofs to a solar leasing agent who has a deal with the property owner.

    Not quite as cheap as ownign your own, but we may see it happen

  7. Ross McNeilage 7 years ago

    Perhaps we should be getting David Crane to ring both Gary Gray and the CEO of Origin Grant King, and give them a good talking to. Neither of them will listen to the people of Australia, lets bring in a heavy hitter from overseas, that usually seems to work!

    • Tosh 7 years ago

      Australia loves a good international celebrity speaker! Bring him out!

  8. Jim 7 years ago

    Electricity from wind power can now be supplied more cheaply in Australia than power from either coal or natural gas — and solar and other forms of renewable energy aren’t far behind. A recent study shows that electricity from a new wind farm costs $80 per megawatt hour in Australian dollars, compared to $143 per megawatt hour from a new coal plant or $116 per megawatt hour from a new baseload gas plant. More details at:


    • Ben 7 years ago

      Steady on. That “recent study” is not publicly available, and we have no idea what assumptions produced the results.

  9. Arjan 7 years ago

    Giles, are we currently allowed to tell the utility to ‘disconnect that line’ here in Australia?

    • Giles Parkinson 7 years ago

      I believe so. But i’m not certain that is true for all locations. Anyone else help out with this?

      • Arjan 7 years ago

        I have the impression that we are not as entitled to make choices in these matters here as in the US. Until recently we weren’t allowed to install water-tanks within the town boundary for example, presumably to protect the investment in town water supplies. I also resent the way net metering is determined for PV: we pay full grid-rate for power used at night, but the day-time power generated by PV is paid for at a lower rate. I had thought that net metering meant you only paid for the overall (i.e. net) amount drawn from the grid each quarter. These changes make a difference to the economics at a household level. As soon as storage is affordable, I will get off the grid as quickly as I am allowed to!

        • Jenny 7 years ago

          What is even worse in Queensland is the proposal to move to gross metering paid at around a third of the current retail price while all power consumed, INCLUDING THAT THAT COMES THEIR OWN SOLAR PANELS is charged at full retail. Even with nett metering I would rather put my surplus power into batteries rather than selling it grid so that it can be marked up 200% and sold to my neighbors. With gross metering it is an absolute no brainer.

          • Alastair 7 years ago

            That proposal was hosed, inside 24 hours Campbell Newman had backed off because marginal electorates are chockers with solarPV on rooftops.

            Well what used to be marginal seats and maybe they’ll return one day (hopefully when the ALP gets real about climate change *action*, renewable energy * incentives/drivers/FiT* and it’s problematic relationship with the mining and fossil fuel export industries via the ALP union base/underbelly)

      • Warwick 7 years ago

        Stop paying the bill…I’m sure they’ll help you with your disconnection… 🙂

        • Peter 7 years ago

          I love the civil obedience factor . 🙂 its how I plan to disconnect

          • Arjan 7 years ago

            The only potential problem here is whether that puts you in breach of a contract. If so, are you then liable for penalties such as accumulating “network access” fees or other dubious sleeping costs associated with running a massive network? They may have to pursue you through small-claims court, but they might also be able to send in the debt collectors… I guess for me the underlying unknown is the nature of the relationship between supplier and customer and what rights/responsibilities each has.

    • Tosh 7 years ago

      Hi Arjan, where there is not an established connection, we certainly can. Lots of people live off the grid so to speak. This requires approvals from referral authorities (like your local council).

      Undoing an existing connection is likely to be tricker.I know plenty of people that want to do it, but no-one that has been through the process yet. My guess is that network companies will do what they can to continue charging you, given they have already sized and built a network that connects to your home.

      But when push comes to shove, its not clear to me yet who would win – the customer or network company?

      Something to look into….

      • Arjan 7 years ago

        So we need a test case to be mounted, perhaps in each state as these things seem to be state-run. Know any candidates and lawyers wanting to take it on pro-bono?

        • Tosh 7 years ago

          working on it!

        • John P Morgan 7 years ago

          The Victorian government privatised the state’s electricity assets in the nineties. Since then, the distribution networks are owned by private companies.
          Surely this means that electricity is now a ‘discretionary’ product – like soup or milk.
          The homeowner can choose to buy the product or not.

          Not so with water. The various water authorities are statutory bodies owned by the government so consumers have no options.
          With electricity, surely they do.

  10. Dave Johnson 7 years ago

    Let’s try a page from Gandhi’s play book. He did not usually fight directly with the Raj. He just did not play their game.

    So, just keep finding ways to cut your electrical usage as much as possible. That will squeeze the power company far harder and far faster than it will the customer. It sounds too stupid to be worthwhile, but the customer will hardly notice a 20% cut in usage, while it will destroy any profit in the connection for the supplier.

    Then take Warwick’s suggest, and just “forget” to pay the bill for a few months.

    Everyone seems to think that the big corporations are all powerful because they can bribe politicians lavishly, but the legislature is just a big talking shop – if no one actually plays the game that they define. After all, they are just pushing around pieces of paper on a table.

    Do you really think storm troopers will show up at your door if you get efficient about your electrical usage? Won’t happen.

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