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Feb 25, 2014

Will the Electricity Grid Become Optional?

A new RMI report identifies when and where solar-plus-battery systems could enable affordable customer defection from utilities

 

Download The Economics of Grid Defection

For years, low-cost solar-plus-battery systems were seen as a distant possibility at best, a fringe technology not likely to be a threat to mainstream electricity delivery any time soon. By far, the limiting factor has been battery costs. But thanks to a confluence of factors playing out across the energy industry, the reality is that affordable battery storage is coming much sooner than most people realize. That approaching day of cheaper battery storage, when combined with solar PV, has the potential to fundamentally alter the electricity landscape.

While grid-tied solar has seen dramatic recent cost declines, until recently, solar-plus-battery systems have not been considered economically viable. However, concurrent declining costs of batteries, growing maturity of solar-plus-battery systems, and increasing adoption rates for these technologies are changing that. Recent media coverage, market analysis, and industry discussions—including the Edison Electric Institute’s January 2013 Disruptive Challenges—have gone so far as to suggest that low-cost solar-plus-battery systems could one day enable customers to cut the cord with their utility and go from grid connected to grid defected.

But while more and more people are discussing solar-plus-battery systems as a potential option at some point in the distant future, there has been a scarcity of detailed analysis to quantify when and where. Until now.

The Economics of Grid Defection

Today, Rocky Mountain Institute, HOMER Energy, and CohnReznick Think Energy released The Economics of Grid Defection: When and where distributed solar generation plus storage competes with traditional utility service. Seeking to illustrate where grid parity will happen both first and last, the report considers five representative U.S. geographies (NY, KY, TX, CA, and HI). These geographies cover a range of solar resource potential, retail utility electricity prices, and solar PV penetration rates, considered across both commercial and residential regionally-specific load profiles.

The report analyzes four possible scenarios: a more conservative base case plus more aggressive cases that consider technology improvements with accelerated cost declines, investments in energy efficiency coupled with load management, and the combination of technology-driven cost declines, energy efficiency, and load management. Even our base case results are compelling, but the combined improvements scenario is especially so, since efficiency and load management reduce the required size of the system while technology improvements reduce the cost of that system, compounding cost declines and greatly accelerating grid parity.

 The results of the report show:

  • Solar-plus-battery grid parity is here already or coming soon for a rapidly growing minority of utility customers. Grid parity exists today in Hawaii for commercial customers, and will rapidly expand to reach residential customers as early as 2022. Grid parity will reach millions of additional residential and commercial customers in places like New York and California within a decade (see Figures 3 and 4 above).
  • Even before total grid defection becomes widely economic, utilities will see solar-plus-battery systems eat into their revenues. Factors such as customer desires for increased power reliability and low-carbon electricity generation are driving early adopters ahead of grid parity, including those installing smaller grid-dependent solar-plus-battery systems to help reduce demand charges, provide backup power, and yield other benefits. These early activities will likely accelerate the infamous utility death spiral—self-reinforcing upward price pressures, which make further self-generation or total defection economic faster.
  • Because grid parity arrives within the 30-year economic life of typical utility power assets, the days are numbered for traditional utility business models. The “old” cost recovery model, based on kWh sales, by which utilities recover costs and an allowed market return on infrastructure investments will become obsolete. Utilities must re-think their current business model in order to retain customers and to capture the additional value that such distributed investments will bring.

The results are profound, especially in geographies like the U.S. Southwest. In this region of the country, the conservative base case shows solar-plus-battery systems undercutting utility retail electricity prices for the most expensive one-fifth of load served in the year 2024; under the more aggressive assumptions, off-grid systems prove cheaper than all utility-sold electricity in the region just a decade out from today (see Figure ES3 below).

A Call to Action

Millions of customers representing billions of dollars in utility revenues will find themselves in a position to cost-effectively defect from the grid if they so choose. The so-called utility death spiral is proving not just a hypothetical threat, but a real, near, and present one. The coming grid parity of solar-plus-battery systems in the foreseeable future, among other factors, signals the eventual demise of legacy utility business models.

Though utilities could and should see this as a threat, they can also see solar-plus-battery systems as an opportunity to add value to the grid and their business models. The United States’ electric grid is on the cusp of a great transformation, and the future of the grid need not be an either/or between central and distributed generation. It can and should be a network that combines the best of both.

Having determined when and where grid parity will happen, the important next question is how utilities, regulators, technology providers, and customers might work together to reshape the market—either within existing regulatory frameworks or under an evolved regulatory landscape—to tap into and maximize new sources of value that build the best electricity system of the future the delivers value and affordability to customers and society. These disruptive opportunities are the subject of ongoing work by the authors, covered in a forthcoming report to follow soon.

Join the Discussion


Showing 1-10 of 11 comments

February 26, 2014

Interesting scenario, and your conclusions indicate a more rapid change than I had been thinking....but moving off of the existing grid infrastructure is truly starting now, and will not be held back. I think adoption is in reality going to take longer than you assume, but this was a thought provoking article.


February 27, 2014

Thanks for your comment, Richard. You're right that a small number of early adopters are moving off the grid already (see, for example, the report's Figure 13, about cumulative off-grid solar PV installations over time). As for adoption rates and whether customers would actually defect, it's important not to conflate our economic analysis of when and where solar-plus-battery systems could reach grid parity with actual rates of customer adoption/defection. The latter is a separate issue.

Pete Bronski
Editorial Director


February 28, 2014

There are excess and shortages in each home and company every minute. When we all work together with a smart GRID it is good for everyone. We can also combine Renewables to cover 24/7 with Solar, Wind and Geo-Thermal along with existing hydro and new V2G Vehicles to GRID.

Alone we can't balance supply and demand. Together we can all help each other and get paid for it. The Environment will win along with US.


February 28, 2014

Jim,

Absolutely. Grid defection introduces its own set of considerations, including over-sizing systems to account for individual peak demand, rather than more efficiently sharing distributed resources as part of a connected smart grid. We'll explore some of the opportunities around grid-connected solar-plus-battery systems in a forthcoming companion paper to The Economics of Grid Defection.

Pete Bronski
Editorial Director


March 1, 2014

Here's a VERY successful crowd-funded project promising delivery THIS APRIL for integrated solar/battery/inverter 25, 100 and 500-watt units: http://www.indiegogo.com/projects/solar-liberator?c=pledges My laptop has replaced my TV, radio, tape recorder, clock, phone, newspapers, magazines, many books, etc. My laptop needs about 60 watts, a mini-fridge about 90 watts, and the charger for my electric bike 60 watts. Add a few light bulbs and a minimalist can live in comfort with less than 250 watts. Who needs a typical American home wired for 10,000 watts or more?


March 1, 2014

Aloha Peter, Thanks for pointing out the viability of going off grid today in Hawaii. Electricity rate have skyrocketed from 1996 (the year I moved to our off grid farm to now 2014). Today on Maui the rate is about .42/KWH. There are many factors which moved me to an off grid lifestyle. In the beginning PV was $7/watt and today PV modules can retail shipped to Maui at under $1/watt. This is a big improvement. There is so much corruption and blockades today thrown up by our corrupt utility and state of Hawaii it makes more sense than ever to smash the electric meter. I encourage folks to cut the cord and have independence from our local utility. High voltage power lines are super dangerous and we don't want them anywhere near our house. Did you hear about the Iraq war vet named Dallas how had his face and eyes burned off by high voltage lines while painting a church steeple. There is a better way with the sodium ion batteries but the cost is way high. Batteries like the Aquions show promise. Redox batteries like Edisons, and Zinc Iron are expensive but available. We still use flooded lead acid L16's(8 wired at 24 volt). But I am looking at these as options. For me I won't even consider L ions because of the fire risk. Our L16's are approaching 5 years old and will need replacing in a year or two at a cost of $2000 or so. The Aquions have a very low amperage so in order to run an Outback FX 3048 you'd need at least 20 S10 stacks or two M100 packs with 24 S 10 stacks in them in order to run it at full power.
The tech is here today so cut the cord.
Franklin Russell Smartroofsystems.com


March 3, 2014

Evan,

The degree to which Solar Liberator surpassed its fundraising goal is very impressive, and the approach to low-cost plug-and-play solar is intriguing. But what are your thoughts on the integrated Li-ion battery? While Solar Liberator claims 25 years for the PV module, they only say 5 years for the battery. Do they specify number of charge cycles and depth of charge during that time period? This seems like an especially promising technology in off-grid developing world areas (see, for example: http://blog.rmi.org/blog_2013_12_16_Innovative_Third_Party_Financing_Makes_Solar_Affordable_For_All). I wonder, though, how big (or small) the minimalist market is the U.S.

Pete Bronski
Editorial Director


March 6, 2014

Advanced microgrid "Net Positive Energy" buildings and integrated EV transportation systems are already being designed and built at very little initial upside cost. https://www.honestbuildings.com/sol-built-alpha#.UoVFKyizKph
When one considers the many benefits of energy independence, energy resiliency, and emissions reductions are factored in we have actually already moved well beyond cost parity. All that is now needed is education, political will, and a tremendous amount of retrofit and new development to effect this shift, equalling a massive employment opportunities. Appraisal reform is also very much needed in order to include the life cycle cost and environmental benefits of these projects. IN this way, both conventional and new funding sources will open up to finance these societally beneficial projects, and investors are rewarded by the appropriate increased value the projects represent.


March 14, 2014

Rainwater is free. If you have one small Photovoltaic panel, you can split rainwater (with a small amount of electrolyte added) into "HHO." You don't need to separate the Hydrogen and Oxygen into different storage tanks. You can either store HHO as a gas, or you can run the HHO directly from your splitter into a burner, and use the energy as it is provided thru the single supply line. HHO is a perfect fuel that can be used to heat your home. It can also be used for any welding application (be sure to use the very best welding goggles and make sure they are rated to protect you for this particular type of flame). This flame burns so as to adjust its heat to the material being welded. The fact that we are not using this amazing technology for all our energy, or at least a large fraction of our energy, is testimony to our ignorance as a species. Hopefully, readers of this blog will carefully consider this technology. It isn't new, but most "hydrogen energy" discussions talk about "using hydrogen as a fuel" which implies that you must separate the hydrogen from its ideal combustion gas, oxygen. There may be good reason to do this for tank storage, but for immediate splitter to burner usage, without mass storage, the single supply line of HHO, with a backflash preventer unit included, is ideal and safe.


March 14, 2014

I should just add that if you are fortunate enough to have polluted rainwater, you may not need to add any electrolyte for your rainwater electrolysis to HHO fuel system. (Looking on the positive side of things here, as usual.)

Thank you for creating all the great, mind-expanding blogs and for all the great work of RMI.org, both public and behind the scenes. It's amazing, incredibly urgent and effective work that you folks do. Compliments!

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