Utilities Face ‘Perfect Storm’ From Falling Renewables Costs

by Giles Parkinson.

Originally published on RenewEconomy

A new report from leading utilities analysts at investment bank UBS suggests that energy utilities in Europe, North America and Australia are facing a “perfect storm” from the falling costs of renewables, energy efficiency and falling demand, and may not be able to sustain their business models.

The report – entitled; Can utilities survive in their current form? – is the latest in a series of assessments, reviews and analysis that point to the severe disruption to the centralized generation model, and the demand and supply dynamics that have governed the industry for the past few decades. To briefly summarise the UBS response to its own question, the answer is No.

UBS says the biggest impact on the current utility model will occur in developed markets, where renewables in general and distributed solar in particular will take more of an already depleted “demand pie.”

This, says UBS, will cause profits to fall and could force utilities, particularly generators, to look at greater exposure to renewables and distributed generation, and to other downstream services. It comes to a similar conclusion on this as the CSIRO Future Grid forum, and echoes some of the strategic decisions currently being mooted German energy giants RWE and E.ON.

“We expect the renewables onslaught to continue and that the going will only get tougher for conventional generators,” the UBS analysts write. “We believe they will need to examine and change their traditional business model to survive the renewables era.”

These new business models could include a greater focus on rooftop solar, energy efficiency, and consumer offerings that combined solar, storage, and electric vehicle infrastructure, as well as energy efficient appliances.

UBS says the economic for solar panels looks set to work best in Australia, the southwest US, Germany, Italy and, with a time lag, in Spain.

It notes that the combination of decreasing costs of solar and rising electricity bills means that “end-user” grid parity has been achieved in several key European market, and in Australia and the south-west of US.

This means that consumers can reduce the cost of their bills by more than the cost of the solar system – and rooftop solar systems are having the added impact of pushing thermal generation down the merit order, as Stanwell has testified in Queensland.

“As unsubsidised solar replaces conventional generation … in Europe, the US and Australia by shaving off the peak demand, it has started to reduce pool electricity prices,” UBS notes. And utilisation rates will also fall. This would lead to a 50 percent fall in profits from conventional utilities in Europe by 2020, based on current deployment forecasts.

UBS says the prices will fall so low that capacity will have to be removed to allow prices to recover. However, that capacity may be superseded anyway by the emergence of storage, potentially another blow to conventional generation.

Interestingly, UBS conducted a survey of 65 utility companies in Europe, Asia, America, Australia and Brazil – and the biggest number of utilities who viewed renewables as a threat where conventional generators in developed markets.

More than 50% of generators thought this way, compared to less than 5% in emerging markets. The percentages were virtually reversed when asked about the opportunity for renewables.

Must be something about sunk investments. Indeed, most developed market generators said renewables would lower their profits, while in emerging markets they thought renewables would increase their profits. UBS noted that the problems for conventional generators in developed markets would likely increase, given that penetration rates are still relatively low.

In Germany, however, households are expected to generate 29 percent of their needs from rooftop solar by 2020, and commercial businesses up to 18 percent. In Italy and Spain, commercial businesses are expected to generate more than one quarter of their own electricity requirements.

This article, Energy Utilities Facing ‘Perfect Storm’ From Falling Cost Of Renewables — Report, is syndicated from Clean Technica and is posted here with permission.

Local Solar Energy Banks Cheaper Than Home Batteries

by Giles Parkinson.

Originally published on RenewEconomy

What if households could deposit excess solar output in an “energy bank”, and use it to drawn down when needed or loan energy to others.

There is no doubt that rooftop solar systems are seen as a threat to incumbent utilities – be they they generators suffering from lower demand or network operators finding their business model under threat.

Most of the scenarios generated for the development of rooftop solar, such as that by the CSIRO Future Grid forum, suggest the development of in-home battery storage that could enable householders to shift their peaks, store energy for night-time or even, one day, go off grid.

But another proposal involves a different way of thinking about this – using storage, in this case compressed air, to create a sort of “solar bank” that would allow householders to deposit surplus electricity, and either draw down for their own use or lend it out to others.

The proposal comes from General Compression, a Boston-based company which is developing and trialling technology that allows excess output to be stored as compressed air in large caverns.

General Compression argues that its proposal avoids the pitfalls of rooftop solar created when too much strain is put on the network when the sun goes down, or from too much electricity being sent back to the grid.

But what if a single bulk energy storage facility could act like a bank for thousands of distributed solar system owners, suggests Peter Rood, the development manager from General Compression.

A network connected storage project would allow multiple customers to “deposit” energy into the bank during the day when they have excess generation and later “withdraw” that energy when the sun goes down.

He says that low cost of bulk storage – estimated at around one quarter of the megawatt hour cost of batteries, combined with a pay-for-use model would allow easy access to storage for customers – and allow the network to benefit from the fast responding ancillary services provided by the storage system.

Like a bank, not every customer would demand their stored energy be withdrawn at the same time and unused energy from the storage facility could be “loaned” during peak periods and later repaid during off-peak periods. This would further offset the cost of the facility and increasing the benefits to the network.

Rood says this would help networks because it would maintain their relationship with customers – which others have pointed out is under threat from rising network costs, falling solar and battery prices, and unchanging and inflexible business models.

And it would provide access to low cost storage to distributed solar owners and avoid individual households having excess capacity at each location. As mentioned before, general Compression sees CAES at one quarter the cost of batteries.

If such a system were introduced, it would probably require the rules of the market to be re-written, and the roles and responsibility of the storage facility operator, the network operator and the electricity retailer would need to be defined.

Note: Certain market rules and regulations may require revision to allow for the creation of the business model described in this section. In particular the roles and responsibilities of the storage facility operator, network operator, and retailer need to be defined.

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This article, Creating A Solar Energy Bank, is syndicated from Clean Technica and is posted here with permission.