How Solar Will Destroy Utilities in 5 Easy Steps

June 9, 2014


Don’t say I didn’t warn you.

Rob Wile in Business Insider:

Barclays recently downgraded the entire U.S. electric utilities sector to “underweight” on the threat posed by widespread adoption of solar-storage. These systems allow homeowners to use rooftop solar panels and a battery to cut all but the figurative emergency backup cord to their local electric grid, putting a severe strain on an industry that has been a defacto monopoly.

The firm’s sweeping case focused in large part on debt markets’ apparent ignorance to challenge utilities are facing. We wanted to zero in on the astonishingly simple steps that makes Barclays lays out to make shaking up utilities quite possible.

 1. Solar prices come down

For the past few years, we have been quietly living through a stunning drop in prices thanks to an unintended loop of massive European subsidies and capacity overexpansion in China. As a result, from 2006 to 2013, photovoltaic panel prices dropped nearly 70%.

The next step is for storage prices to fall too. Cheap storage is key so that people can have power at night, when the sun is down.

Right now, the cost of such systems — about $0.22/kWh is only competitive with retail electricity in Hawaii — the cost of vanilla electricity in California is $0.15/kWh. Barclays says Tesla has single-handedly brought down the cost of batteries over the past few years, from about $1,000/kWh in 2009 to $300/kWh in early 2014. If the company’s gigafactory successfully ramps up, costs could plummet.

2. The defection spiral commences

Once the prices for everything get cheap enough, homeowners begin to leave the grid.

There remains huge demand for solar, and as costs continue to fall, the price point will continue to match that sought by ever lighter hued green thumbs. This expanding scale will in turn make it more expensive to stay on the grid, bringing even more customers into the solar-storage orbit.  “…Once solar + battery approaches the retail cost of power, its advantage can scale quickly,” Barclays says.

3. Utilities flail around in their state capitols seeking relief

We’ve already seen this in Arizona, where the state’s electric utility has spent more than $3 million on a campaign to discourage solar adoption in the state. California utilities also won new surcharges, and SolarCity recently charged them with slow-walking grid connections. Neither will prove more than speedbumps in the long-run, Barclays said. “While they may slow the penetration of solar, any relief they offer utilities is likely to be short lived. In Arizona, the fee increases the cost of a rooftop solar installation about 5%. With the costs of solar installations falling about 10% per year, we expect the pace of installations to recover before the end of 2014. While we need more months of data to confirm our view, this may prove to be an example of how quickly the technological/cost curve can overtake regulatory responses.”

4. The decommissioning process begins

As demand for baseload generation becomes less consistent, utilities could be forced to replace aging power units earlier than scheduled with more modern and efficient “peakers.” This could end up lowering utility margins, as well as bring forward cost loads.

This is the key moment: Utility companies being forced to upgrade their plants in the face of a declining customer base. That’s a killer combination.

 5. The market turns

In Germany, aggressive subsidies and a move away from nuclear led to an explosion of renewables expansion. Since the beginning of 2010 (though for reasons that go beyond simply that outgrowth), Germany’s two largest utilities had stock price declines of 55-60%, compared with a near 60% gain in the DAX.


17 Responses to “How Solar Will Destroy Utilities in 5 Easy Steps”

  1. Alan Olson Says:

    I love it when Paradigms shift.

    • rayduray Says:

      You wouldn’t if you had skin in the game. When the grid is destroyed by clueless people who spent too much time staring at the sun you’ll find that America will be operating like a third world nation.

      And how will that go? Did you happen to read about the recent riots in Uttar Pradesh at the coal-fired substations? People were angry because it was 45 C. degrees out and they were suffering blackouts. Burning down the utility station is hardly going to solve the problem, but that’s what irrational rioters did.

      I frankly do not understand why some here are so gleeful about destroying one of the most rock solid utilities on the planet and replacing it with a cowboy-ish libertarian devil-take-the-hindmost privatizations scheme from hell.

      Where is the intelligent thought about how you maintain community wide services such as traffic signals, street lighting, public sector electrical needs?

      Not all of us are Beverly Hills magnates with unlimited funding for solar panels and battery backup in the unused quarters in the mansion. How is solar supposed to work at One57 off Central Park in NYC? Where’s the practical consideration of the fact that people live in congested cities and not everyone has enough solar rights to go private. Where are the recent graduates going to put the battery packs in their 200 sq. ft. studio apartments in foggy San Francisco?

      The above article seems to assume that everyone lives in a leafy suburb with unlimited space for solar panels and battery packs (not to mention kitchen gardens and places for the kids to play). I believe this is a rather “Qzzie and Harriet” sort of blind understanding of how we live now.

      • I agree Rayduray. I’m puzzled by those who are positively euphoric over the prospect that the electric grid may go down. I’m always hearing from people with solar installations who boast that they “use the grid as a battery.” What are they going to do when that “battery” is gone?

      • Earl Mardle Says:

        Yup. What ray says.

        As I was reading down through the piece, all I could think of by the end was, “so the poor get screwed again”. But Ray’s point about public services driven by utilities is every bit as germane.

        On the other hand, I come from a country which is just beginning to privatise its utilities, getting them back in public ownership should be the first step so we can start thinking about them as critical infrastructure and act accordingly.

      • Ray-Take it easy. Your statement seems extreme. Should we deplore the demise of pay phones and berate those that wished they disappear? Has the world collapsed because the greatest phone system in the world has been destroyed? The fact that there is change afoot is just as old as the hills. New replaces old. It doesn’t mean the end of the world. Change might actually be good. Barclays has skin in the game. And they are not gleeful about destroying. This is not about any of that. Its about renewables becoming cheaper than existing conventional FF and the old utility business model based on ever increasing consumption colliding with the future of limited resources. Most automakers Moodys ratings have fallen. People are not driving as much or buying cars. Good for some, bad for others. Gas is 4dollars a gallon. Something has to give. If you think this is just some hippie dream, look out. Its happening so fast few recognize it. How much of the present US electrical demand is met by wind? 1%,? 2%? It can’t be that much, its barely started to grow, right? How much renewables percentage wise globally? 2%? 5%?

  2. kap55 Says:

    It’s misleading to say that Tesla is responsible for storage prices to fall, because Tesla is only concerned with one small segment of the storage market: lithium-ion batteries. In fact, Li-ion is still more expensive than lead-acid, whose price has remained (relatively) low and stable for decades. Even assuming Tesla’s projections for Li-ion price reductions after the proposed giga-factory are met, Li-ion would still be more expensive than PbA ($175/kWh vs. $150/kWh), though not by much. Considering both technologies are good for about 500 x 100% roundtrips, there is not much reason for a homeowner to choose Li-ion over PbA, even after Tesla’s giga-factory reductions.

    Meanwhile other low-cost battery systems recently being touted are either very high-temperature or use very toxic chemicals; fine for utilities, but generally not consistent with home installation.

    The bottom line is that for homeowner solar+storage installations, there has been no improvement in storage costs, nor are such reductions on the horizon.

    And that’s the issue, because at the current price of $150/kWh for PbA, which is good for 500 roundtrips of 100% charge/discharge, the cost of storage alone is 30 cents per kWh, more than double the current US average grid price. So even if the price of solar panels falls to zero, solar+storage will still be more expensive than grid. And that’s also assuming 100% roundtrip efficiency, which is unattainable.

    • No, not both good for 500 discharges. Depends on DoD. For same DoD, Li lasts much longer. Winston LiFePo4 batteries and most others of the same type from other manufacturers like A123 are 1000 cycles 100%. But why would you do that when merely limiting them to 80% would give you 5000 cycles and 70% DoD would give 8000 cycles? In real world applications, Lead Acid batteries have limitations like the Pukert curve, where capacity sags if current is too high, and temperature limits life and performance. The quoted cost/kwhr is day one cost. It does not take into account the number of cycles before the battery is gone. Lead acid can last a long time, but seldom does because it has to be properly maintained and does not tolerate repeated heavy discharge. LA loses capacity fast under stress. Not so LiFePo4. It can take a lot more abuse. When you look at cycle life, Li has way more cycles. That makes its cost much lower than a look at the initial performance shows. It is likely that a lead acid system would need to be replaced several times in the time that an LiFePO4 system just keeps going.
      A Balqon 34KWhr system costs 12k for inverter, BMS, the whole shebang. Initial cost for a lead acid system might be a little less…. until you have to replace it and the Li system keeps going.!/~/product/id=12477202

      • andrewfez Says:

        =A Balqon 34KWhr system costs 12k for inverter, BMS, the whole shebang. Initial cost for a lead acid system might be a little less…. until you have to replace it and the Li system keeps going.=

        If you were a do-it-yourself-er and put the solar up and did the wiring yourself then $12K for a battery seems rather reasonable, especially in a sunny state where your probably not getting near the bottom of the barrel with regard to DoD. Where i live there are rarely any clouds to speak of and it only rains a handful of days per year.

        How long does the battery last in the real world?

        • Andrew- Its cheap because its a battery and inverter, Battery management system, charger (from solar) and all in one ready to go proven package. Saves installation of separate components. 34kwhr is way too much for the average grid connected system. For off grid, I don’t know. have to ask one of the off grid guys how much they use. If you use LA gingerly (no more than 50% DoD and no heavy discharge, and diligent maintenance) it can last pretty long. That does not make it a very robust system,, though.

          • andrewfez Says:

            I wonder about an air conditioner draw (maybe 200 to 400 DC amps?) when it first starts up and if that would have a deleterious effect over the life of the battery.

            Of course, soon as the thing gets in the $2,500 range (or maybe the smaller capacity ones are?) we’re probably going to have yahoos sucking up night time grid power and reselling it in the day.

        • I am venturing into unknown territory, but my guess is that if you are off the grid in a hot area, you are using a swamp cooler or building a home deep into the ground to avoid the heat. Air conditioning is an energy hog. A refrigerator is useful and uses a lot of energy. Lights and communication can use little electricity.

  3. Lithium-ion batteries are not only expensive, but the world lacks sufficient lithium deposits to replace lead-acid batteries. We can use Li-ion batteries in our cell phones because cell phone batteries are small. If everyone wants a car powered by Li-ion batteries, the cost of lithium will skyrocket and supplies will dwindle.

    • A wealth of misinformation. Twaddle. Here are the facts:
      be driving up battery prices.

      Lithium is a trivial part of the cost of a lithium-ion battery. The expensive bits par are the mind-bendingly complicated cathodes and anodes that have to be created with extremely complicated chemistry, even nanotechnology. And this is not to mention the active cooling systems that have sent the price of the Volt and the Tesla higher than expected. Every Chevy Volt contains about $180 of lithium. The battery is estimated to cost more than $10,000.

      Lithium is not scarce. Currently Bolivia produces about half of the world’s lithium but only because their supply is particularly easy to extract, and thus very cheap. But if Bolivia decided to start using their power to drive up prices, economically viable sources of lithium would be found in nearly every country in the world. At 5x the current price, it would be economically viable to extract lithium from seawater. Hopefully we won’t have to worry about running out of seawater.

      Lithium is not used up inside of batteries. While oil is burned by cars, lithium just sits there and, unless the battery is destroyed in a crash, it will be recycled. It won’t however, be recycled for economic reasons, because lithium is too cheap to justify the costs. It will be recycled for environmental reasons, but that doesn’t mean the recycling companies (see our story on Toxco) won’t be feeding the lithium back into the market.

      Once the battery is built, commodity costs cease to matter. With oil, we’re all at the mercy of wildly flucuating pump prices. With lithium, on the other hand, you’ve already got your battery and fuctuating costs of lithium won’t affect you until you need a new car (or battery.)

      Advanced batteries use less lithium. The better these batteries get, the less lithium is needed per mile of travel. And as technologies get better and more batteries are made, battery prices will drop much faster than increasing lithium costs ever could.

  4. andrewfez Says:

    Don’t forget solar freaking air conditioning:

  5. […] 2014/06/09: PSinclair: How Solar Will Destroy Utilities in 5 Easy Steps […]

  6. I waited to see if anyone bothered to look it up or find out. The US currently generates 4.13 % of its electricity from wind. How many would have guessed that? The world generates about 11% of its energy from renewables.

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