Onsite Generation: Can Utilities Rethink Their Business Proposition?

Onsite Generation: Can Utilities Rethink Their Business Proposition?

Can utilities adapt to emerging innovations that allow customers to bypass their services? Or, will power companies become the modern-day dinosaur?

The trend is toward more independent customers who are able to generate their own electricity all spearheaded by advancing technologies that are becoming cheaper and more effective. But just how all it all ends cannot yet be forecast.

In its report, The Economics of Grid Defection, the Rocky Mountain Institute says that the transformation to onsite generation is inevitable. Rooftop solar panels are the main catalyst: Falling prices and financing by third parties in combination with continued government supports are all promoting development. The missing component, it says, is a reliable and affordable battery technology, which can store the electrons and then release them later on.

We looked at solar plus battery systems and already, the economics are getting better, says James Mandel, manager at the think tank and an author of its report, in an interview. The optimal investment for these is in concert with the grid, which we believe will lead to cheaper central generation too.

How can onsite generation, or distributed generation, work together with the existing electricity infrastructure? Thats a huge debate now taking place across several states. Even those who detach would still use the common wires to receive utility-provided power when the sun is not shining or to sell any excess electricity back to the utility.

Utilities, meantime, are trying to modernize and expand their infrastructures to conform to a 21st Century economy. They point out that they collectively spend $25 billion a year maintaining their networks and they say that its upkeep is everyones responsibility.

We are not advocating that people defect, says Mandel.

After all, green energy is comprised of much more than homeowners with solar panels on their roofs. It is also made up of utility-scale wind farms and concentrated solar power complexes that are located on large plots of land in remote areas. They need the transmission system to be widened so that they can hook up and send electricity to where it would be consumed.

The grid should be treated as a public good, like buses or subways, says Mandel. We as a society think that these are important assets even if we dont all use them. Its cost should not be borne entirely by those who remain dependent on it.

As a percentage of the generation portfolio, renewable energys share remains in the single digits. How does the Rocky Mountain Institute envision a massive energy conversion?

In reviewing the varying geographies, the think tank says that Hawaiis independence should come by 2030. And, in the sunny Southwest, its analysis shows that solar panels in combination with energy storage would undercut utility retail rates by 2024 for one-fifth of the load served.

The institutes study also examined Kentucky, which is a big coal producer and which relies heavily on the fuel to power its local economy. Mandel says that the Appalachian region, generally, has a longer cost curve but that it too will adjust and reposition itself.

Ultimately, we see this as a national change in how electricity is generated and consumed, says Mandel. It will be cleaner and distributed. The time frame changes, however, based on location. In some places with access to cheap and reliable electricity, the transition will be slower. But coal costs are increasing while green energy costs are continuing to decline. We feel good about this evolution.

The ultimate outcome will largely depend on how state regulators configure their so-called net metering laws, which try to apportion all the costs and subsequent payments for use of the wires and the re-selling of electricity.

State commissions are thus challenged to find the sweet spot whereby utilities can afford to maintain their systems and homeowners are motivated to go green. The early indicators are that the residential users who unhook from the grid are having to pay up, although not nearly as much as what the utilities had wanted. Thats been the case in California and in Arizona, and its the current debate in Colorado. Then it heads to Georgia, Louisiana and Texas.

Beyond the infighting over net metering rules and continued government subsidies, the greatest obstacle is perhaps the pace of battery storage development and by extension, the cost of those products. If energy storage proves itself in the market, it would mean a brighter future for renewable energies that are considered intermittent power sources.

Source: Forbes

SMART GRID Bulletin March 2018

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