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Oct 5, 2015

How Solar-plus-Battery Systems Insulate Customers from Rising Retail Electricity Prices

 

In the face of rising retail prices for grid electricity, investing in solar-plus-battery systems can insulate grid-connected customers from those increasing prices and effectively lock in a peak price that won't continue to climb, according to a recent analysis by RMI. The result for customers across diverse geographies will be substantial savings relative to what they would have paid for a full-fare utility bill. For utilities and regulators this will be challenging—and present an opportunity. 

RMI’s April 2015 report The Economics of Load Defection analyzed five U.S. markets out to 2050. It found that investing in combinations of solar and batteries will enable individual customers to contain electricity costs regardless of how high retail grid prices rise. Solar prices and battery prices are dropping and the trend is expected to continue for both. “The customer can now choose to install a solar system to lower their price. As the price goes down, they have the ability to install an even larger system to self-supply more power,” says Bodhi Rader, a senior associate with RMI’s electricity practice and coauthor of the report. In essence, customers can buy a smaller “starter kit” now and expand or upgrade periodically, as grid electricity prices rise and solar and battery systems grow steadily cheaper.

Solar-only systems are still exposed to rising retail electricity prices and favorable export policies and compensation from their utility; they export surplus daytime generation to the grid and buy back electricity at night when solar panels aren’t generating. But, Rader says, “where things really get game-changing is when you add in the batteries. Now you can directly use all the solar power you generate.” With batteries, a customer can store the solar system’s daytime surplus to use later and self-consume a greater percentage (up to 100 percent) of the output of the rooftop PV. Solar-plus-battery-system owners only require grid electricity during extended periods of bad weather or at times of very high demand, almost entirely insulating them from rising grid prices. 

Economic in Every Market

RMI’s analysis looked at five electricity markets out to 2050 (see figure below). The markets—Westchester County, NY; Louisville, KY; San Antonio, TX; Los Angeles, CA; and Honolulu, HI—have varying grid electricity prices and solar resources. Even so, “you see solar-plus-battery systems having an economic advantage even in the parts of the country that have the lowest electricity prices, because entrepreneurs and innovators are driving the costs of these technologies down,” says Leia Guccione, a manager with RMI’s electricity practice and another of the report’s coauthors. “Solar is going to be incredibly competitive in 2020 and beyond,” she adds.

The cost of electricity to grid-connected solar-plus-battery owners rises little over time, and what little rise they see is mostly due to the portion of their load that they must continue to meet with grid electricity. So in sunny Los Angeles and Honolulu, the monthly cost to a solar-plus-battery owner will barely rise in the 20 years between 2030 and 2050. Customers in those markets who rely entirely on the grid, meanwhile, will see their monthly costs rise from $192 to $348 and $702 to $1,269, respectively, over the same period. (Honolulu suffers from some of the highest grid electricity costs in the country and customers there are leaders in solar PV adoption as a result.)

Likewise, the difference between the cost of grid-connected solar-plus-battery systems in the two markets is largely due to the price difference between the portions of their loads that are met with grid electricity: $0.18/kWh in Los Angeles versus $0.36/kWh in Honolulu, at today’s rates. “The cost of a solar-plus-battery system in these five very different places is really not that different,” says Guccione.

What is different is the abundance of sunshine. So while grid-connected solar-plus-battery owners in Los Angeles and Honolulu will see their costs rise only seven percent and four percent, respectively, between 2030 and 2050, customers in markets with longer spells of cloudy weather will rely more on the grid and be less insulated from rising grid prices. In Louisville and Westchester, the corresponding cost increases to solar-plus-battery owners will be 57 percent and 19 percent, respectively: from $150 to $236 and from $269 to $319. Again, this is due to the greater portion of their load that still must be met with grid electricity.

And make no mistake: even customers in cloudy markets will save greatly by adopting solar-plus-battery systems if recent trends of increasing retail prices continue. Those in Louisville and Westchester who rely entirely on the grid will see their monthly costs rise from $161 to $290 and from $359 to $649, respectively, over the same period. 

An Easy Choice for Customers

RMI’s analysis shows that, by 2050, customers who invest in solar-plus-battery systems will save about $1,000, $2,000, $4,000, or even $11,000 every year, depending on the market. That’s a powerful incentive and it’s something that customers, utilities, and regulators will need to reckon with. 

For customers, investing in solar photovoltaics and battery energy storage is “something that the customer really does need to think about. It’s becoming more and more mainstream every year,” says Rader, and after about 2020 it will be powerfully economically attractive. "Your own system is decreasing your reliance on a grid that’s getting more expensive.” Guccione adds: “These distributed energy resources are going to put another tool in the toolkit of families in America to manage their expenses.”

An Opportunity for Utilities

But while there is a clear benefit to customers, utilities are faced with a challenge—and a choice. As residential and commercial customers follow their economic interest and invest in solar-plus-battery systems, utilities can choose to discourage them or to integrate and utilize their systems (see figure below) There is still time for utilities to choose between these two pathways, but the window will close as more customers add solar-plus-battery systems. 

If customers are discouraged with things like fixed charges and a lack of compensation for exporting surplus power to the grid, more and more of them will become true grid defectors, choosing to rely on their own systems. This would lead to excess investment in the electric system as a whole, among other inefficiencies. Stand-alone solar-plus-battery systems must be larger and more expensive than grid-connected ones, while electric utilities that don’t take advantage of the customer-sited, solar-plus-battery systems at their disposal will need to invest far more in grid assets, which may then be stranded by further grid defection. 

There is another path for utilities, however. “There’s an opportunity for them to embrace this as a game-changing opportunity and play a major role—rather than fight the trends—and the utilities that do so will find themselves come out ahead,” says Rader. Guccione explains, “there’s an opportunity for utilities to create avenues for customers to offer their home energy systems to the utility in a way that can be advantageous to the whole system.” 

Distributed energy resources like solar PV and battery energy storage can make grids more reliable, more resilient, and less costly to maintain, but only if they are grid-connected and intelligently integrated. Doing so, in turn, creates more value from the distributed resources: “In the sharing economy, people are making better use of underutilized resources, whether it be their homes through AirBnB or whether it be their cars through services like Uber and Lyft,” says Guccione. 

Rader says that, in the same way, “Utilities can take an active role in making sure this transformation works to the best result for the grid as a whole.” They are in the best position to provide the coordination that is crucial to making distributed resources work in harmony, which is the essence of the utilities’ role as distributed system platform operators under New York’s REV proceeding. “A utility has a built-up relationship with the customer that’s unique to them. No other company out there, a solar installer, a battery installer, or any company has that,” says Rader. “At the very least, they can serve as brokers that help customers understand their options.” 

Regulators Can Open the Door

But first, utilities will need an assist from regulators, says Guccione: “In order for utilities to fully take advantage of these distributed energy resources as they’re deployed on the grid, it’s going to require new rate structures and it’s going to require new business models.” Some states are experimenting with such advances in regulation, and not a moment too soon. “Right now there are no clear mechanisms and markets for utilities to work with customers who have highly capable distributed energy systems that can be used to provide services back to the grid. Regulators really need to revisit the rules of engagement between utilities and customers,” says Guccione. 

The large and growing savings delivered by grid-connected solar-plus-battery systems will drive their adoption by myriad users. But to realize the full value of these systems, Guccione says, “Utilities have to be afforded the opportunity to leverage and, to some extent, guide the deployment of assets on their systems.” Much more is at stake than peak price for customers; the future of the grid is at a fork in the road. 

Image courtesy of Shutterstock. 

 
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