Solar plus Storage will mean “Game Over” for Traditional Utilities

by Giles Parkinson

RenewEconomy (August 26 2013)

Last Friday’s story about the predictions of Stanford University energy expert Tony Seba that solar would displace fossil fuels by 2030 – and how electric vehicles would do the same to liquid fuels – certainly generated a lot of readership, and a big response.

Some questioned whether we should be taking the opinion of just one academic at his word. So we’ve followed up with some quotes from two of the most senior energy chiefs in the US, the world’s biggest electricity market. And the predictions are just as striking.

Jon Wellinghoff, the chairman of the Federal Energy Regulatory Commission (FERC), which regulates utilities in the US, said in an interview last week that solar will “overtake everything”, and said that once storage is brought in to the equation it is pretty much “game over” for traditional forms of generation.

“Solar is growing so fast it is going to overtake everything”, he told Greentech Media on the sidelines of the National Clean Energy Summit in Las Vegas.

He noted that in the next 2.5 years, the US will double its entire cumulative capacity of distributed solar built up over the previous four decades, and the installation cost of solar would continue to plunge from its current level of $4-$5 a watt, to $2 a watt and $1 a watt.

“At its present growth rate, solar will overtake wind in about ten years. It is going to be the dominant player. Everybody’s roof is out there”, he said.

Once it is more cost-effective to build solar with storage than to build a combustion turbine or wind for power at night, that is ‘game over’. At that point, it will be all about consumer-driven markets.

That is an extraordinary comment by the head of the US energy regulator, and not one you will hear in Australia, even though the level of penetration of rooftop solar is much higher, the installed cost of solar much lower (Australia has fewer “soft” costs and is already at around $A2 per watt), and the retail price of electricity is much higher.

But Welinghoff’s comments fit in with what the heads of his country’s biggest independent generation and utility companies have said about the potential of solar to change the game. That is just starting to dawn in Australia, where the market operator and utilities admit an increasing impact from solar, and state energy ministers are admitting that they are struggling to cope.

In separate remarks to the conference, Wellinghoff said that it was clear that electricity markets were undergoing dramatic and profound change.

Our markets were made up for a very centralised system, very large plants and plants that were distant from loads. We’re moving to a much more distributed system that also has consumers participating as resources with their load. FERC’s primary role is to ensure that all those resources and can get a fair opportunity to participate and get compensated.

“We’re not picking winners and losers”, he said.

We’re letting the market make those choices but those choices have to be made in a fair and open market. We have to help consumers through that transition; it’s going to be bumpy because we have a traditional utility model that is trying to fit with this new transition and it has implications for rate designs, costs and business models.

Greentech Media reports that Wellinghoff was a consumer advocate early in his career and has not changed sides. “Even though the FERC oversees wholesale markets, utilities, and other jurisdictional entities at the wholesale level, the consumer needs to be our major concern”, he said.

He said that rate structures need to be formulated in ways that “fully recognize the costs and benefits of distributed resources”. That may mean higher fixed costs than a variable energy rate, he said, but it was also important to note that there is value in distributed solar that can be captured and realized by the distribution utility that is not being paid to photovoltaic system owners “because they have not been analyzed, quantified, and monetized”.

Wellinghoff’s comments follow a recent interview with the recently retired US Energy Secretary Stephen Chu, who also said that uilities would have to develop a new business model, one modeled around solar and storage, rather than the traditional model of centralised generation.

He told the San Francisco Chronicle that energy efficiency would mean an essentially flat market for electricity, which meant a shrinking business for utilities. And because solar and storage would continue to lower costs, households could look after nearly eighty per cent of their own energy needs.

“Now, if you’re a utility company, you’re going to be very worried about that”, Chu said.

So I’ve been telling them there’s another business model. It goes like this: We – the utility – would own the energy storage and the thing on the roof and the electronics. We’ll sell you the electricity.

In a separate interview with NPR he explained it this way:

They will say, allow us to use your roof, allow us to use a little corner of your garage, and we will equip you with solar power. We own it. We maintain it. We’re responsible for it. You don’t have any out-of-pocket expenses. You just buy electricity at the same rate, or maybe even a lower rate.

In addition to that, you have, you know, like five kilowatts of energy storage in your home. And five kilowatts – when you’re in a blackout situation and you want to keep your refrigerator going, you want to keep a couple of energy-efficient light bulbs lit at night – that goes a long way.

Some companies, such as New Zealand network operator Vector, seem to have understood this. Others are much slower to respond. But Australia would certainly be better served with the likes of Wellingham and Chu in key energy roles, and a regulatory environment that was more responsive to the needs of consumers than to the demands of electricity incumbents.

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