More than a few utility customers have considered defecting from the electric power grid. The technology exists for going off the grid. The price tag is the problem. It is too steep for the vast majority of utility customers to stomach.
Over the past year or so, several studies have concluded that the cost of grid defection is falling so fast that utility customers could soon begin a mass exodus from the system.
Last year, Barclays downgraded the US electric sectors entire high grade corporate bonds because it believed that solar plus batteries posed a disruptive risk to utilities.
Like Barclays , virtually all of the grid defection studies have concentrated on the economics of using solar panels coupled with batteries as a substitute for power from the grid. The so-called solar plus batteries platform enables grid defection because customers can generate their own power using solar panels. If they need more power than the solar panels can provide at any given time, they can use power from the batteries.
These studies have established a de facto consensus view that solar plus batteries has already achieved or will soon achieve cost parity with the power grid. If the consensus view is accurate, the implications for investor -owned utilities are likely to be dire.
Based on a persuasive analysis released on Tuesday by Moodys Investor Service, the consensus view on the economics of grid defection is dead wrong.
According to Moodys, the risk of utility customers exiting the electric system en masse is negligible and will almost certainly remain negligible for the foreseeable future.
The key difference between Moodys analysis and the consensus studies is that Moodys used actual consumer usage data to calculate the size of the battery system required to go off grid.
By using actual consumer usage data, Moodys concluded that the size of battery system customers would need to defect from the grid was far bigger than commonly believed. This is because a residential customers daily consumption and a rooftop solar PV systems daily production profiles vary so widely.
Some days customers use a lot more electricity than they use on the average day. Similarly, some days solar panels produce far less power than they produce on the average day. The combined variability of consumption and generation means that the battery system must be very large to provide electricity as reliably as the power grid.
To support grid defection, we believe the size of the battery needs to be very large, something akin to two-months worth of consumption, Moodys concluded. The cost of electricity using that much storage would cost around 552 per kilowatt hour (kWh) on a levelized cost of energy basis.
More specifically, the batteries would contribute about 535 per kWh to the total costs and the solar PV system would contribute the remaining 17 per kWh. To put this in perspective, the average retail rate of electricity for residential customers in Hawaii is about 36 per kWh.
Batteries are still extremely expensive even with dramatic declines in the costs, said Toby Shea, a senior analyst at Moodys.
The capital cost of the batteries included in a residential off-grid solar plus batteries system currently cost about $500 per kWh, according to Moodys. To achieve cost parity with the grid, the capital cost of batteries would need to decline to about $20 per kWh, based on Moodys calculations.
Absent a major technological breakthrough, battery costs are likely to remain above $20 per kWh for several decades. In 2012, the U.S. Energy Information Administration projected that battery costs would fall as low as $135 per kWh by 2035 in the best case scenario.
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