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Utilities Should Worry; Rooftop Solar Could Soon Cut Their Profit
Lucas123 writes A study by the Lawrence Berkeley National Laboratory predicts that distributed rooftop solar panel installations will grow from 0.2% market penetration today to 10% by 2022, during which time they're likely to cut utility profits from 8% to 41%. Using those same metrics, electricity rates for utility customers will grow only by as much as 2.7% over the next eight years. By comparison, the cost of electricity on average rose 3.1% from 2013 to 2014. The study was performed for the Office of Energy Efficiency and Renewable Energy under the U.S. Department of Energy. One of the main purposes of the study was to evaluate measures that could be pursued by utilities and regulators to reduce the financial impacts of distributed photovoltaics.
And you think the utilities will suffer because of this? Here in Australia power companies have just started bringing in (opt-in for now) billing at different rates for different times of the day for all a house's power. They will simply make day-time power prices stay the same and increase prices for night-time usage, passing the loss on to customers as they always have.
Quite naive to think a company would accept the losses themselves.
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Utilities are boring because they do a simple job which generates small but predictable profits. Therefore investors put their money into them in the expectation that they will remain boring.
When a new development comes along that destroys their business model, one of two things will happen; they will increase their prices, or they will go out of business. Note that 'the government taking them over' is a subset of 'they will increase their prices'. The service that they provide; a reliable baseload supply and a safe network to distribute electricity HAVE TO BE PAID FOR. At the moment those costs are hidden in the average cost of a kWh. If private solar power reduces the average demand some of the time, the average cost of a kWh will have to be increased, or the other features be recognised and paid for.
Ladies and gentlemen, there is no such thing as a free lunch, despite politicians pretending otherwise for several thousand years.
As the Economist notes, due to German and other European solar government incentives, European utilities face an existential threat to their investment future and business model. Utility giants the world over have seen this and decided to fight back against Net Metering and other means whereby homeowners can feed back into the electric grid excess energy production from rooftop solar. Barclays, the British multinational banking giant, agrees that rooftop solar and net metering represent a threat to centralized electric production utilities.
The problem utilities face is that solar tends to maximize output at mid-afternoon, exactly the same time spot prices have traditionally been at maximum. So their solution is to lobby government the world over to reverse net metering laws and end solar subsidies.
OK, time for me to get on a soapbox. I think this is shortsighted. The real problem here is that government and electric utilities have agreed on a price structure and investment plan to build out gas powered and coal powered plants that now appear to be unsustainable due to disruptive shifts in the market from technical innovation in the renewable field. As is noted in TFA, solar is - or will soon be - already cost competitive even without government subsidy.
Market fundamentalists would argue, 'let the utilities die. Their investors bought into a dying technology, the market will decide their fate.' Except that they have an endless stream of money to buy lobbyists and legislators to warp law in their favor. Further, they have a good argument that intermittent renewables will only meet partial demand. You still need baseline generation capacity from central utilities. So the problem - from their perspective - is excess production by renewables.
Except: when has excess energy production ever been a problem?
The real problem is twofold: We want to move off of fossil fuels due to global climate change and they want to maximize their vast infrastructure investments. A real policy solution would meet both needs.
Rooftop solar should be maximized. During periods of excess, gas powered plants should funnel their energy to local raw materials ore processing facilities and manufacturing. This has the benefit of distributing labor where it's needed near mining sites, rather than shipping raw materials where labor is cheapest for exploitation as well. And it keeps utilities running for the next thirty years to generate a viable expected ROI. And government policymakers could then plan a rational transition period away from fossil fuels without the economic dislocation of utility giants imploding worldwide.
Thoughts?
A study by the Lawrence Berkeley National Laboratory predicts that distributed rooftop solar panel installations will grow from 0.2% market penetration today to 10% by 2022
That is not what the study shows at all. They did an analysis of what the revenue impact on utility companies would be at various hypothetical levels of PV installation between 0.2% and 10%. It ignored total costs of PV (including installation and maintenance).
Most importantly, the study does not predict that PV installations will grow to 10% or any other level. It is just a "what if" analysis.
Utilities actually have two businesses: Generation and distribution. We pay one bill and conflate the two. Solar just makes it clear they are different.
With home solar increasing, utilities will just invest less and less in generation. The transition is pretty gradual, so they can adapt just fine. Profits from generation will decline ... life will go on. But only if we accept that distribution also needs to be paid for.
If and until home power storage also becomes economical, homes are still going to need to connect to the grid. That infrastructure will need to be paid for. It's going to be tacked onto the utility bill. In the past, we subsidized small users by paying by the kwh. Now we have to decide if connection fees are more appropriate. That's what the debate is going to turn into.
The world is made by those who show up for the job.
Actually, the cost of subsidizing solar and wind has doubled the cost of power in Germany. Not only is that inflicting pain on consumers, German manufacturing is finding it hard to compete with countries where energy is cheaper. Politicians are quickly backtracking.
And Germany's power industry is increasing the amount of energy generated with coal. That's because coal power is the cheapest and they need some way to keep down those skyrocketing prices. Absent the need for that, many of those companies could afford more expensive but cleaner sources such as natural gas, using gas either from Russia or from fracking to create a domestic supply.
Mandating expensive and unpredictable power sources such as solar and wind, is making German power generation more coal-based and thus dirtier. Closing nuclear plants is having a similar impact on the more stable sources of power.
http://www.bloomberg.com/news/2014-04-14/coal-rises-vampire-like-as-german-utilities-seek-survival.html
Note this:
"The result: RWE now generates 52 percent of its power in Germany from lignite, up from 45 percent in 2011. And RWE isnÃ(TM)t alone. Utilities all over Germany have ramped up coal use as the nation has watched the mix of coal-generated electricity rise to 45 percent last year, the highest level since 2007."
In Georgia both the PSC and the legislature is being lobbied hard to effectively outlaw private solar installations at the same time that the utilities are running a PR Blitz about how much they are working on solar energy. Having the most corrupt governor in the country doesn't help things here either
This is standard modus operandi for three local trolls: angelsphere, dblll and amimojo. Use the arguments that look like they make sense to a layman, advance them with yellow press-style arguments and finish off by questioning the intelligence of anyone who dares to point out flaws.
Here dblll relies on relative ignorance of most people of how grids and grid stability actually works. Instead he simplifies the model to make it look feasible to a layman - grid is essentially a pool after all, and surely if there's input somewhere, it would balance out the lack of input at another location?
In general, that is indeed correct, and how grid is generally balanced. But as with all engineering problems, devil is in the details. And details make his model utterly ridiculous and completely unfeasible. The problems here is DISTANCE and LOCALIZATION OF PRODUCTION.
Most of German wind power is located in the North. Most of the consumption is in the South-West. This means that power must be pushed over large distances, with a lot of transformers and substations balancing the flow. And when the supply suddenly dies, it takes a while for automation to switch back. At the same time, the sheer volume that tends to go offline at once is quite large, as production is concentrated in certain regions. As a result, if you do not have spinning reserve in the producing regions, by the time switching brought you power from the South, your grid in the North is already down and you have countless transformer fires if you tried to keep it up regardless.
Nuclear has the exact same problem actually. We here in Finland are currently building a 1.6GW unit in Olkiluoto. As nuclear is far more reliable, we need much less than that capacity of installed spinning reserve, so if his hypothesis of "distance doesn't matter" was true, we could just increase our imports from Russia, Sweden and Estonia to make the shortfall. We have very good connections to all of these countries and routinely both import and export power.
In real world on the other hand, we had to build a 300MW power plant in Forssa, about half way between the new plant in Western Finland, and major consumption centres in Central Finland and Helsinki to provide the spinning reserve for this new unit. Because distance matters.