Why Utilities Fear Solar Power

March 29, 2012

Look at the graph above.

It indicates that we are on the verge of a revolution. Remember the last few years before the internet explosion? Say, 1992.
How many of you had personal computers? I didn’t.

Most people said to themselves, “Well, I’m not a programmer, I don’t like math or computer games. I have actual real people to play chess with. And I already have a typewriter. So why do I need a computer?”

4 years later, like the rest of us, you were up till midnight every night “surfing” the web, and checking your “email”.
It didn’t happen because it was mandated. It happened because the technology became so cool, affordable, profitable, and compelling, that you just absolutely had to jump in.

You can argue about the timing. 2 years. 5 years. 10 years on the outside. But competitive photovoltaics are coming to your country, state, or town. It is already here in some areas. And when it arrives, it will turn the world upside down. Those players in the power generation sector that are ready will benefit. Those that are not may be swept away.


Here is a pair of graphs that demonstrate most vividly the merit order effect and the impact that solar is having on electricity prices in Germany; and why utilities there and elsewhere are desperate to try to reign in the growth of solar PV in Europe. It may also explain why Australian generators are fighting so hard against the extension of feed-in tariffs in this country.

The first graph illustrates what a typical day on the electricity market in Germany looked like in March four years ago; the second illustrates what is happening now, with 25GW of solar PV installed across the country. Essentially, it means that solar PV is not just licking the cream off the profits of the fossil fuel generators – as happens in Australia with a more modest rollout of PV – it is in fact eating their entire cake.

Both graphs were published last week on the website Renewables International, and were sourced from EPEX, the European power price exchange. The first graph, from 2008, shows peaking power prices rising to around €60/MWh and staying there for most of the day, with some visible peaks around noon and the early evening – the size of which would depend on the temperature and the usage.

The second graph shows a brief leap to €65/MWh around 9am, before the impact of solar PV takes hold – erasing the midday peak entirely and leaving only a smaller one in the evening. The huge bite out of day-prices is also a bite out of fossil fuel generators’ earnings and profits. Note that the average peak price in the second graph is barely higher than the baseload price.

Deutsche Bank solar analyst Vishal Shah noted in a report last month that EPEX data was showing solar PV was cutting peak electricity prices by up to 40 per cent, a situation that utilities in Germany and elsewhere in Europe were finding intolerable. “With Germany adopting a drastic cut, we expect major utilities in other European countries to push for similar cuts as well,” Shah noted.

 Renewables International:

A comparison of the prices four years ago with those of today shows more clearly how vastly things have changed. Back then, prices were the lowest at four in the morning, dropping just below 20 euros per megawatt-hour (see second chart on the left). The two peaks are not clearly visible here either, however, with the price reaching the upper 50s at 8 AM and staying at near that level until 9 PM at night. In other words, there is no dip between the spike in morning demand and the spike in evening demand. But there is a big dip then these days.

At the end of 2011, Germany had some 25 gigawatts of PV installed, and it may have installed as much as two more gigawatts already this year, though no official figures will be available for a few months. Compare that, however, to the installed PV capacity for the chart from 2008 above, when Germany had closer to five gigawatts installed.

But there is one further salient feature in the comparison of the chart from 2012 with the one from 2008. Last week, the spot price did not dip below 35 euros per megawatt-hour, whereas prices started at 20 euros – nearly half as expensive – four years ago. Over a 24-hour period, the price of power on the spot market is indeed lower today than it was back then, but how do we explain the nearly doubling of power in the middle of the night? Given that baseload demand has hardly changed, it must be assumed that power companies are charging more in times of lower demand now that they cannot make their old profits during daylight hours.


21 Responses to “Why Utilities Fear Solar Power”

  1. Martin Lack Says:

    Utility Company managers have been behaving like life-time members of the Flat Earth Society for far too long. What I cannot understand is why?

    Just as the tobacco company executives knew their product killed people for decades, surely they have known since at least the time I was born (1965) that the unfettered burning fossil fuels was likely to cause an environmental catastrophe? (N.B. Scientific advice to a certain Lyndon B Johnson who attained high office in unfortunate circumstances).

    They have had decades to get ahead of the game and, in a reversal of the way in which automobile manufacturers bought-up and dismantled public transportation systems, ensure they would be the first to profit from any move away from fossil fuel dependency. Why did they not do it? Why must they be dragged kicking and screaming into the 21st Century?

    In yet another inversion of reality, we are told that environmentalists want to take us back to the Dark Ages. Unfortunately, the truth of the matter is that, if we do not get off a dirty fossil fuel habit very quickly now, we will be taking the Earth back much further than the Dark Ages; we will be going back to a much more unpleasant time (similar to that which brought an end to the dinosaurs 65 million years ago).

    • climatehawk1 Says:

      The utility industry is a conservative one–its mandate has been reliability above all. This is changing, but very slowly. Xcel Energy and MidAmerican Energy have taken a leadership role in wind power, and Duke Energy, AEP, and NextEra Energy are all active participants via unregulated subsidiaries. But it’s not going to happen overnight, absent some heavy-duty change in government policy.

    • Mike Says:

      Hi Martin

      You will find that the executive board members and CEO’s and whatnot of the big polluters know full well that their product is bad for the environment. The problem lies in the fact that these publicly listed company bigwigs are at the mercy of their shareholders and in order to maintain their positions of power and wealth will not change their business model. Unfortunately in a market driven and greedy society this is the way it works. The opportunity for change within these companies is there and in many cases the economics is there but the forsight and/or backbone to move towards profitable greener alternatives is not. The answer lies in two possible directions, government intervention or consumer demand. Either way its up to the average Joe on the street to send the message through either channel.

      • climatehawk1 Says:

        Certainly true of some (perhaps many) utilities, but not of all. As I mentioned, some have come around and are strongly making the case for renewable energy. Agreed that much more and much faster is needed.

        Regarding the average Joe, in polls it is typical for hefty majorities to say they are willing to pay extra for renewable energy. When offered the option, typically only a few percent volunteer. That may be because they recognized that others are “free riders,” getting the benefit of their extra payment, but it’s not helping to get the job done.

        • Mike Says:

          True true. I’m speaking from an Australian perspective and I probably should have made that disclaimer. Here, there are a few green power companies popping up offering a guarantee that their power is coming only from renewables although given they have to rely on the current infrastructure and act as the middle man by buying and onselling the power I’m unsure how they can make that guarantee. With the exception of Tasmania which in years where there is adequate rainfall produces 85% of its power from hydro, Australia is dragging its heels with virtual monopolisation of utilities, especially electiricity supply. We had a solar rebate scheme here which was recently scrapped where the federal government was chipping in to assist individual households wanting to go solar but since they scrapped it the return on investment time for many seems too long, especially since the majority of people here don’t remain in the family home for as long as they used to, opting to sell and upgrade several times during their lifetimes. Eventually the tide will turn and green will be the new gold for utility companies if pricing follows the way the graph at the top of this page pans out.

          • adelady Says:

            Depends where you are in Australia. Here in SA, we get 26% of power from wind anyway. The feed in tariff on domestic PV is steadily reducing – we managed to get ours installed in the last great rush before the 44c cutoff. Becoming a bit like Germany I suppose. They have these periodic rushes for installation when the next scheduled reduction in FIT is coming up.

            And for those who complain about how high the FITs are in some places. Remember the prime function of the FIT for the grid operator (rather than the retail customer) is to reduce or eliminate the need to pay premium prices for power needed at peak demand.

            And even when power still needs to be bought in during heatwaves, not being absolutely desperate to avoid blackouts in the next 30 minutes means the top prices in spot auctions are not as high as when the whole of SA, Victoria and southern NSW are boiling over with high AC demand. Because a significant % of households are like mine, running their ac from their rooftops. (And most of those have lower demand in the first place because we’ve also got good insulation.)

            Solar PV fits that requirement like a glove in Australia and many other places.

  2. Dennis Cox Says:

    A good home solar system is not dependant on daylight hours to remain off the grid. My own system produces enough energy to both power the house during the day, and to charge a bank of batteries that carry us through the night.

    We remain connected to the grid for a small fee of only $10.00 per month or so as a system backup in case of batterry failure.

    Once the rest of the contry catches on this is most certainly the way to go.

    • climatehawk1 Says:

      Nice! Plug-in electric vehicles should also offer an excellent storage capability.

      • Dennis Cox Says:

        I have to admit though, that we had a significant advantage over most people from the beginning.

        Our batteries are recycled aircraft batteries that were in perfectly good condition. But the airline my nephew works for as a mechanic changed over from Ni Cad to Lead Acid batteries for their intire fleet of aircraft. As a result, we were able to get 50 perfectly functional 24 volt NiCad aircraft batterries for the effort of hauling them off.

        The framework for the solar panels is all recycled steel. And we did the intire installation ourselves. So we are about $18,000 out of pocket for a solar system that the contractors quoted us $120,000 to build.

        Our DIY solar project ate all of our free time for the better part of two years. But it was well worth it. Freedom from the grid is heaven.

  3. daveburton Says:

    I wish I believed this was correct. However, even on Maui, where electricity is 4x the price I pay, PV still needs heavy subsidies to compete.

    In the USA, nobody’s building coal plants, now. The 75% drop in natural gas prices makes that the fuel of choice.

    • NevenA Says:

      Move to Germany, Dave!

      • climatehawk1 Says:

        Agreed, we are not there yet, though the trend is definitely encouraging. Our household will be installing solar this spring. The return on investment is negligible, but of course, there IS no ROI on utility bills …

  4. Rebecca PB Says:

    I hope this isn’t a silly question, but what if the panels get covered in snow? Am I going to run out of power or what? I feel like there should be classes about this new technology articles like the ones on MyMove (http://www.mymove.com/tips-advice/home-improvement/saving-energy/solar-energy-101) help, but I need someone to educate me

    • climatehawk1 Says:

      You are sort of answering your own question–the Internet is out there for people who can use a search engine. Most solar systems use the utility as backup, because the cost of batteries substantially increases the cost of a system. So if and when your panels are covered with snow, you’ll just use utility or battery power.

    • climatehawk1 Says:

      Oops, and a backup generator is a third option.

  5. […] posted graphs the other day demonstrating the downward pressure PV solar is having on electric rates in Germany.  There is similar evidence showing the price […]

  6. […] Green Energy Cost Myth: Pundits keep telling us that green energy, such as solar and wind, are still far more expensive than fossil fuels, like coal, oil and natural gas. While this may be partly true due to innovation costs and energy infrastructure, this claim is certainly distorted. Oil Companies are receiving some of the largest tax breaks and subsidies our government is giving out and it’s no wonder given that Senators are receiving quite a lot from their work for the oil industry. The costs of dirty air, health implications (like lung disease and asthma) and dirty water are left out of the economic comparison of clean energy vs outdated fossil fuels. President Obama endorsed a piece of legislation last week that would help end these tax breaks, although the bill failed to advance in the Senate. Continuing down this line of corrupted economics distorts the true cost of fossil fuels compared to renewable energy. Oil companies are milking our government for all of its resources, much like how they treat the environment, and are trying to tell us that their product is cheaper. We need to end this free market manipulation sooner than later because right now we can take steps and ease the abrupt affects. Waiting too long will only harm us and our economy. Read here […]

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