US Electricity Sector Gets Downgrade From Barclays

Originally published on Rocky Mountain Institute by James Mandel

Barclays recently downgraded the U.S. electricity sector. That’s right, the whole sector. It’s now listed as “underweight,” meaning that if you were to hold a full portfolio of bonds for the U.S. economy, you might want to be a bit light on U.S. electric utilities, as they might not keep up with the broader economic growth trends.

Why? One answer is the disruptive threat of solar-plus-battery systems.

From the Barclays report:

Over the next few years… we believe that a confluence of declining cost trends in distributed solar photovoltaic (PV) power generation and residential-scale power storage is likely to disrupt the status quo.

Based on our analysis, the cost of solar + storage for residential consumers of electricity is already competitive with the price of utility grid power in Hawaii.

Of the other major markets, California could follow in 2017, New York and Arizona in 2018, and many other states soon after.

In the 100+ year history of the electric utility industry, there has never before been a truly cost-competitive substitute available for grid power.

We believe that solar + storage could reconfigure the organization and regulation of the electric power business over the coming decade.

If that language sounds familiar, it’s because Barclays’ logic is very similar to that of our recent report, The Economics of Grid Defection, in which we forecasted the declining costs of solar plus storage and the time—coming soon—when those systems could reach parity with grid-sourced retail price electricity in a growing number of markets, including Hawaii, California, and New York.

In fact, the Barclays report cites RMI as a key source in several of its analyses that lead to this conclusion.

Barclays recently downgraded the entire U.S. electricity sector.
Barclays recently downgraded the entire U.S. electricity sector.

Barclays believes we’re entering a post-monopoly world in which distributed energy resources will take a place alongside large-scale central generation as a critical energy resource and a widely available and affordable customer option.

In a surprisingly strong prediction for analysts, Barclays views this transition as inevitable:

“Whatever roadblocks utilities try to toss up—and there’s already been plenty of tossing in the states most vulnerable to solar, further evidence of the pressures they’re facing—it’s already too late.”

If you’re a utility, or an investor who’s got money in utilities, that’s some ominous language. Admittedly, a downgrade suggests two possible outcomes in the near future: 1) analysts tend to move in herds, so expect more news on the U.S. electric sector soon, and 2) capital is likely to get a bit more expensive for utilities, as millions of dollars shift out of the sector.

It’s not all bad news. As we discussed recently in “Caveat Investor,” this should ultimately lead to a stronger, more resilient power sector with stronger overall valuations, but the transition is likely to be volatile. The Barclays report suggests we’re about to enter that volatile transition phase.

So, what are the major trends we can learn from this, and what does a utility downgrade mean for the future of distributed renewables?

1) Distributed energy is hitting the mainstream. Historically, it’s renewables’ creditworthiness that has been challenged (while utilities have been considered rock solid), but now this trend appears to be reversing. We’ve seen declining costs of capital in solar (as recent securitizations demonstrate), new financial instruments emerging for related technologies, and lower costs overall. Despite this progress, there is still a large gap between the market acceptance of renewables and the market acceptance of central, fossil-fueled generation. The recent downgrade suggests that people are starting to take distributed renewables seriously, and that utilities and renewables are entering a period of equal (or at least comparable) market strength.

2) Issuing new bonds for thermal fossil generation will become more expensive. While many people focus on the construction costs of new assets (central and distributed generation alike), it’s more often the cost of capital that determines project viability. Traditionally, utilities have almost always been the lowest-cost provider of new energy resources, and part of this advantage has rested on ready access to and favorable terms from the bond market. If that advantage is eroding, then expect new players to be able to compete for providing the nation’s energy, including providers of much smaller, distributed generation.

3) Distributed storage, when combined with already mature trends in generation and energy efficiency, compounds the disruptive threat of consumer-scale investments in energy. Many people have worried that declining demand (through energy efficiency) and distributed generation are putting enormous stress on the traditional business model for investments in central generation. That has not changed at all. So why does the emergence of storage, something that doesn’t reduce consumption or increase generation, suddenly give the markets concern? Simply put, the addition of storage gives customers the option to entirely disengage from their relationship with the utility. While most customers won’t choose to leave, and for good reasons, the threat of grid defection creates consumer leverage that will slow recent upward trends in utility rates out of competitive necessity.

4) These trends are likely to accelerate. As capital shifts from central to distributed generation, this just improves the economics of distributed resources even further, through scale benefits as well as lower cost of capital. Few people would say that we’ve even come close to market saturation for any customer segment for renewables and efficiency. As the traditional electric sector becomes a more challenging place to park capital (or even just a less certain place), more investors will start to notice that investments in distributed resources have similar risk-reward profiles, and this movement of capital will be self-reinforcing.

Barclays took a fairly surprising stance for an industry not traditionally known for looking years into the future. That’s a great sign for the markets, which need to start responding to global, long-term trends. And while the Barclays report isn’t likely to move markets in the next 6 or 12 months, it does signal an important shift under way—distributed generation is likely to be an affordable and accessible choice for more and more customers alongside traditional utility-provided electricity. More options means more competition and increased relevance of the customer. And that’s an upgrade for users of electricity everywhere.

Image Credit: pcruciatti / Shutterstock.com

This article, US Electricity Sector Gets Downgrade From Barclays, US Consumers Get Upgrade, is syndicated from Clean Technica and is posted here with permission.

Indian Govt replacing 26 Mn Diesel Water Pumps with Solar Pumps

by Guest Contributor Jeff Spross.

Renewable Energy pumps water. The Indian government is aiming to swap out 26 million fossil-fuel-powered groundwater pumps for solar-powered ones.
Renewable Energy pumps water. The Indian government is aiming to swap out 26 million fossil-fuel-powered groundwater pumps for solar-powered ones. Image by Shutterstock

Originally published on ThinkProgress.

The pumps are used by farmers throughout the country to pull in water for irrigation, and currently rely on diesel generators or India’s fossil-fuel-reliant electrical grid for power.

Pashupathy Gopalan, the regional head of SunEdison, told Bloomberg that 8 million diesel pumps already in use could be replaced right now. And India’s Ministry of New and Renewable Energy estimates another 700,000 diesel pumps that could be replaced are bought in India every year.

“The potential is huge,” said Tarun Kapoor, the joint secretary at the ministry. “Irrigation pumps may be the single largest application for solar in the country.”

The program works by subsidizing the swap, and operates in different capacities in India’s various states, sometimes subsidizing the solar pumps up to 86 percent. Thanks to that aid, and the dramatic collapse in prices for solar power, the pumps pay themselves off in one to four years, according to Ajay Goel, the chief executive officer of Tata Power Solar Systems Ltd., a panel maker and contractor. And Stephan Grinzinger, the head of sales for a German solar water pump maker, told Bloomberg the economics will only get better: diesel prices will rise and spike during farming season, and economies of scale will help the swap program.

Two-thirds of India’s electricity is generated by coal, with natural gas and hydroelectric making up most of the rest. But the monsoon season is growing more erratic — likely due to climate change — making power from the hydroelectric dams less reliable as well. Coal is growing in economic cost for India, so power plants often sit idle, and the coal that is easy to reach would require displacing major population centers.

The national grid that relies on those fuels has seen few updates since it was constructed in they 1960s. It’s also under growing stress from India’s rising middle class, which is adopting air conditioning and running water in massive numbers — all in a country prone to heat waves, again thanks in part to climate change. As backup, many Indian residents and businesses rely on diesel generators, which leaves them vulnerable to the fuel market and contributes to fossil fuel emissions.

Even when the grid is working, around 300 million of India’s 1.2 billion inhabitants don’t have access to it. When it’s not, rolling blackouts are common. Many farmers are able to draw only four hours of power a day from the grid, and that often at night. Heat waves in 2013 were accompanied by widespread blackouts, and a two-day grid failure in 2012 left over 600 million Indians without power.

Ironically, thanks to the kind of distributed and sustainable generation the swap program represents, many of India’s rural poor actually faired much better during the blackout than the grid-dependent middle-class. It’s one of the strengths of solar in particular, even before climate change is considered: a more decentralized power system, based around “microgrids” and individual power generation, rather than a centralized system reliant on the good function of large, singular power providers. In India in particular, sunlight is most plentiful at the times when demand tends to peak. That leaves the power system more adaptable, less prone to central failures, and thus more hospitable to those still struggling to overcome poverty in particular.

Beyond India’s pump swap program, other efforts in south Asia and northern Africa are already underway to bypass grid expansion entirely, and bring solar power and microgrids directly to poor people.

Image Credit: solar water pump via Shutterstock

This article, Indian Government Aims For 26 Million Solar Water Pumps, is syndicated from Clean Technica and is posted here with permission.

Former Duke Energy CEO calls Rooftop Solar the Next Big Thing

by Giles Parkinson.

Renewable energy in the form of distributed solar. Image by KCET.org
Renewable energy in the form of distributed solar power. Image by KCET.org

Originally published on RenewEconomy.

Former head of US largest utility says regulations and business models will not change quick enough to save traditional utilities in face of solar.

Jim Rogers, the recently retired head of Duke Energy, the biggest utility in the US, has had some interesting things to say about the fate of the traditional utility, particularly with the proliferation of rooftop solar.

In an interview with Energy Biz Magazine, Rogers says there is no doubt that utilities are under fire from new technologies such as rooftop solar, and are in danger of losing customers to new players.

Indeed, if he were entering the industry now, that’s where he would want to be – in rooftop solar, attacking the market rather than defending it.

“The utility industry has been like the proverbial frog that’s been put in a pot of cold water, and the heat’s been turned up,” he said in the interview.

“And it’s been turned up slowly. The many challenges ahead are going to fundamentally change this industry.”

“Leaders in this industry in the future are going to have to run to the problems that they see on the horizon, embrace the problems, and then try to convert the problems and challenges they see into opportunities to create value for their customers as well as their investors.”

This is not the first time he has said such a thing, though not quite as dramatically. Last year, Rogers warned that “the progress in solar and storage means that customers may simply use the grid as a back-up some time in the future.”

Asked later in the interview what approach he would take if he were entering the industry now, Rogers initially replied that he would like to come back as David Crane, the CEO of NRG – the largest privately owned generator in the US – who has been extolling the virtue of solar and the transition that would likely create, and warning that customers were likely to disconnect from the grid if utilities did not evolve quickly enough

“Maybe I should take that back,” Rogers added. “I would come into the industry as someone who is an attacker, not a defender. I’d want the solar on the rooftop. I’d want to run that.”

“I’d want the ability to deploy new technologies that lead to productivity gains to the use of electricity in homes and businesses. I would go after the monopoly that I see weakened over the last 25 years.”

“My goal would be to take customers away from utilities as fast as I could, because I think they’re vulnerable. Regulations will not be changed fast enough to protect them. The business model will not be changed fast enough.”

Rogers said all utilities should be making decisions based on the assumption that there will – some day – be a price on carbon.

“Our industry needs to lead on environmental issues. We need to lead on productivity gains in the use of electricity. That’s a critical way for us to continue to reinvent ourselves as an industry.”

Nuclear supporters may be cheered by his outlook for nuclear, which he said would be centred almost entirely around China, and the development of Chinese technology, including modular reactors.

“They will lead the world in the building and operating of new nuclear plants over the next 30 years.”

“They will develop the supply chain and build nuclear plants in a modular fashion. We will have to change our rules and regulations and how we think about the Chinese. They’re going to bring us the nuclear technology to replace our existing plants at a lower cost and build new ones faster than we can.”

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This article, Why Traditional Utility Companies’ Days Are Numbered, is syndicated from Clean Technica and is posted here with permission.

About the Author

Renewable Energy by Giles Parkinson.Giles Parkinson is the founding editor of RenewEconomy.com.au, an Australian-based website that provides news and analysis on cleantech, carbon, and climate issues. Giles is based in Sydney and is watching the (slow, but quickening) transformation of Australia’s energy grid with great interest.

Local Renewable Energy or Utility Co. Who’s Your Energy Daddy?

by John Farrell.

Photo Credit: Michael Kappel
Photo by Michael Kappel

For now it remains large, investor-owned utilities, and ostensibly locally-focused rural cooperatives and municipal utilities. But the energy landscape of today gives me uncomfortable reminders of the Athenian tragedy by Sophocles – the Oedipus tale.

John Farrell, ILSR’s Director of Democratic Energy, gave this panel presentation at the 23rd annual conference of the Society for Environmental Journalists in Chattanooga, TN, on Oct. 4, 2013.

For those who don’t recall their college or high school English class, that’s the tale of the man who grows up to murder his father the king and marry his mother.  And in this 21st century version, the utilities are the king and Little Oedipus is represented by rooftop solar panels, wind turbines, and other ways that utility customers can produce their own energy. I won’t speculate who is the mother.

Earlier this year, the Edison Electric Institute (the daddy’s club of the investor-owned utilities) released a report suggesting that Oedipus has grown up and his daddy may not be prepared for the climax of this play. It’s summarized in two headlines from the clean energy press this summer. In Grist: “solar panels could destroy U.S. utilities” and in GreenTechMedia, “adapt or die.”

The problem is that customer power generation from local renewable energy reduces utility sales.*

(I asterisk this statement because there’s a robust debate about whether this distributed renewable energy brings other benefits to the grid not reflected on the balance sheet – for more information, read up on Minnesota’s value of solar process.) But if your utility (or state regulatory regime) has built its business model around growing energy sales, this creates what some are calling a utility death spiral. Falling energy sales force utilities to raise rates, which further enhances the attractiveness of generating your own energy from solar.

It explains why the chair of the Federal Energy Regulatory Commission, Jon Wellinghoff, recently said: “solar is going to overtake everything.”

So Oedipus a growing threat, and the utility daddy is trying desperately to stave off the storybook conclusion.

The problem is that the energy daddies grew up in a very different era.  In the early days of the electric system, you needed big capital to build big power plants and big power lines to bring energy to big cities. We gave them monopolies to facilitate that infrastructure development. And for decades, it worked.

But in the next 10 years, electricity from rooftop solar energy will be competitive – without subsidies – with utility energy prices in almost every state. The overlay of renewable energy standards and incentives for distributed renewable energy illustrates how the public interest, the energy model, and the economics have changed.

The way utilities respond will determine whether this Oedipus tale ends like the play. In Arizona, Wisconsin, and many other states, utilities are trying to gut the basic policies allowing people to generate their own energy. In some places, they are successful.  But a recent story from Georgia should give them pause – a “Green Tea Coalition” of environmentalists and tea party activists successfully lobbied the public utility commission to require the state’s biggest utility, Georgia Power, to launch a large distributed solar program.

Utilities that try to maintain the status quo, to remain the energy daddy, are going to have a hard time. Their customers will fight them for the right to self-generate, especially if it costs less than utility power, and these local energy producers will also be energy voters.

What we need is to have the utility become the facilitator rather than the ruler, the kindly elder sibling rather than an energy daddy. Because even as utility customers look to their own options for electricity generation, they will still need the utility network…

1)  to help them use their rooftop solar to power their electric vehicle.
2)  to finance high-efficiency appliances, efficient lighting, insulation and other strategies to cut their energy use and energy bills.
3)  to use existing on-demand energy sources (like natural gas) and future ones (like batteries) to keep power delivery smooth and high quality as the grid transitions to primarily renewable energy.

This won’t be easy. For one, utilities have a lot of money sunk into power plant and transmission infrastructure that may or may not be useful in this new era. For another, the regulatory system doesn’t necessarily reward this facilitation role rather than energy sales. But there’s no real alternative, because people are not likely to accept, nor should they, giving up this opportunity to have more control over their energy future.

Photo Credit: Michael Kappel

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This article, Who’s Your Energy Daddy?, is syndicated from Clean Technica and is posted here with permission.

About the Author

John Farrell directs the Energy Self-Reliant States and Communities program at ILSR and he focuses on energy policy developments that best expand the benefits of local ownership and dispersed generation of renewable energy. His latest paper, Democratizing the Electricity System, describes how to blast the roadblocks to distributed renewable energy generation, and how such small-scale renewable energy projects are the key to the biggest strides in renewable energy development.

Farrell also authored the landmark report Energy Self-Reliant States, which serves as the definitive energy atlas for the United States, detailing the state-by-state renewable electricity generation potential. Farrell regularly provides discussion and analysis of distributed renewable energy policy on his blog, Energy Self-Reliant States (energyselfreliantstates.org), and articles are regularly syndicated on Grist and Renewable Energy World. John Farrell can also be found on Twitter @johnffarrell, or at jfarrell@ilsr.org.

China ups 2014 Solar PV Target to 14 GigaWatts

by Giles Parkinson.

Solar PV via Shutterstock
China Solar PV via Shutterstock

Originally published on RenewEconomy.

China’s National Energy Administration (NEA) has reportedly increased the 2014 target for new solar PV capacity installations to 14GW – up from its previous target of 12GW.

The increase was noted by Deutsche Bank analysts, who said the target represents a near 50 per cent increase on the actual capacity installation of 9.5GW of solar PV in 2013.

Chinese officials had previously said that two thirds (8GW) of the 2014 target would come from distributed solar PV (on rooftops or in smaller arrays close to consumption), but it is not clear what the percentage is in the new target.

Earlier this month, Deutsche Bank said surging demand in China, Japan and the US would underpin a “second solar gold rush”. It tipped global installations to rise to 46GW in 2014 (based on the previous 12GW target for China), and to 56GW in 2015.

China is expected to be by far the largest installer of solar PV, followed by Japan, US and Europe, each with around 8GW.

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This article, China Brings 2014 Solar PV Target Up To 14 GW, is syndicated from Clean Technica and is posted here with permission.

About the Author

Giles ParkinsonGiles Parkinson is the founding editor of RenewEconomy.com.au, an Australian-based website that provides news and analysis on cleantech, carbon, and climate issues. Giles is based in Sydney and is watching the (slow, but quickening) transformation of Australia’s energy grid with great interest.