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Report: 'Load Defection' from Customer-Owned Solar and Batteries is Already Here

Jeff St. John's picture
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  • Apr 10, 2015

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Not even fixed charges or net metering rollbacks can stop solar-plus-storage from undermining utilities that can’t adapt.

Forget the threat of solar and battery-equipped customers defecting from the grid. The real threat for utilities unwilling to adapt to grid-connected customers installing ever-cheaper solar and energy storage technologies is “load defection” — and that future will come whether or not utilities and regulators support it with net metering regimes and customer-grid integration, or try to fight it with fixed customer charges and other roadblocks.

These are some of the top-line findings from “The Economics of Load Defection” report released Tuesday by the Rocky Mountain Institute, CohnReznick and HOMER Energy. Calculating the economics through 2050 for median commercial and residential customers in five U.S. markets, the report shows that grid-connected solar-storage systems are already more cost-effective than grid-supplied electricity in expensive electricity markets like Hawaii, and will be more economic than grid power in three of five U.S. geographies studied, including California, New York and Texas, within the next 10 to 15 years.

Tuesday’s report is the long-awaited sequel to the “Economics of Grid Defection” report released last year, and looked at the same five cities modeled in the previous report — Honolulu, Hawaii; Los Angeles, California; Louisville, Kentucky; San Antonio, Texas; and Westchester, New York.

Using Homer Energy’s modeling software and U.S. Energy Information Administration data, the new report modeled grid only, grid-plus-solar, and grid-plus-solar-plus-battery configurations to find the lowest-cost options over time, based on systems’ per-kilowatt-hour levelized cost of energy equivalents.

But unlike the Grid Defection report, which projected when solar-plus-storage systems will become cheap enough for customers to disconnect from the grid, the new report analyzes at what speed these technologies will start to become economically attractive enough to start significantly eroding the profits that utilities make by selling electricity to their customers.

Because grid-connected customers don’t need to buy nearly as much PV and battery storage to provide their full electricity needs, the load defection scenarios will proceed more rapidly than the grid defection ones, the new report finds. While these customers will still be buying utility power, they’ll be buying less and less of it as time goes by.

That will equate to “substantial utility load loss well within the economic life and cost recovery period for major assets” like central, fossil fuel-fired power plants and transmission and distribution grid infrastructure, the report states. For example, by 2030, Northeast U.S. energy sales could be cut in half for residential customers and cut by 60 percent for commercial customers, adding up to a combined $34.8 billion in lost utility revenues.

That’s a problem for a U.S. utility sector that will require about $2 trillion in grid investments between 2010 and 2030, or about $100 billion per year, mostly paid for through revenues from energy sales. To make up for this potential loss, utilities face two different choices today, the report states — to work with regulators and customers to share the costs and benefits these distributed energy resources can deliver, or to fight their spread through legislation or regulation that limits customers’ ability to adopt them.

Why cutting net metering, imposing fixed charges, won’t stop load defection

Unfortunately, RMI’s analysis doesn’t paint a rosy picture for utilities that try to stem this trend. Notably, its analysis took a conservative stance and didn’t include the economic effects of any “export compensation.” These include the net metering regimes in 43 states that allow small customer-owned PV systems to earn money for the power they put back onto the grid, as well as feed-in tariffs, avoided fuel cost compensations, or other means of paying customers for self-generated power they don’t consume themselves.

That means that “eliminating net metering is not going to prevent load loss,” Leia Guccione, a manager at RMI’s electricity and industry practice and co-author of the new report, said in an interview. “The decline in purchases form the grid, while it may be delayed, still happens. Eliminating net metering will only buy you time.”

Likewise, the fixed charges that utilities across the country are imposing on solar-equipped customers “might disincentivize customers from trying to install a grid-connected solar battery system” in the short term, she said. But as financial analysts such as Morgan Stanley have pointed out, “in the long run, it’s just going to push people towards grid defection — which is also not optimal,” she said.

Today’s battery-backed solar deployments are cost-effective largely through federal and state incentives, as GTM Research points out in its projections of a $1 billion U.S. market for solar-storage systems by 2018. But in the long run, the continuing reduction in costs of solar PV systems and the falling price of lithium-ion batteries could well surpass the impact of incentives on these economics.

Meanwhile, the solar-battery connections are being forged by most of the country’s largest solar manufacturers, project developers and third-party residential and commercial installers, including SunPower, SunEdison, SolarCity, NRG Home Solar, Sunrun, Vivint Solar, Kyocera and Sharp.  Behind-the-meter battery installers and aggregators such as Stem, Green Charge Networks, Coda Energy, Sunverge and (reportedly) Tesla, are similarly building their connections to rooftop solar.

Finding the win-win path to avoid grid-customer disconnection

But before this scenario has a chance to play out, utilities and regulators will need to find a way to align their economic imperatives. RMI’s report calls the choices before them following two possible paths in a “metaphorical fork in the road,” which will lead either to a future in which customer-owned energy resources and grid systems can work in an integrated fashion, or one in which both utilities and customers end up over-investing in redundant systems.

Whether it’s grid defection or departing load that’s at stake, “the commonality between the two reports is that both of them are showing the urgency with which we need to start transforming utility business models,” Guccione said. “We need new utility business models that are not so dependent on capital investment and getting returns on capital investments. We need to think about business models where utilities are acting more as integrator and coordinator, not just as asset owner.”

Tuesday’s report lays out multiple reasons “beyond simple economic parity to invest in solar-plus-battery systems, including decreased carbon intensity, improved resilience, mitigated or avoided impact of future potential rate increases, ancillary services provision (e.g., frequency and voltage regulation), deferral of distribution system upgrades, reduction in peak power usage, and power quality management.”

New York’s Reforming the Energy Vision (REV) proceeding is a good example of the kinds of broad-reaching reforms that will be needed to make this transformation possible, Guccione said. Of course, “we all know that regulatory reform, rate reform, do not happen quickly, and that new utility business models don’t emerge overnight.”

Still, if there’s one key message for utilities and energy regulators to take away from these analyses, it’s that “there is a real cost to doing nothing,” she said. “In the absence of more customer choices, customers will take matters into their own hands. And that’s going to lead to sub-optimal outcomes that we see in grid defection — over-investment, and under-utilized capital,” for customers and utilities alike.

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Mark Heslep's picture
Mark Heslep on Apr 16, 2015

The lastest from Lovins’ Mountain is often long on what will sweepingly be, and short on simple reality checks of actually what is today.  In this case that would be some accounting of how many have actually left the grid with PV and storage.  Today, thank you.  I’ll decide for myself on likely outcomes 35 years from now.   

Nathan Wilson's picture
Nathan Wilson on Apr 10, 2015

The new RMI report on solar PV induced grid and load defections is good news for utilities.  It will give them ammunition to take to the regulators to help them get the regulatory policy they need to co-exist with residential solar.  They need rate plans which reflect the fact the utility solar and other central generation is more cost effective than home generaion.  The RMI gives them a set of feel-good buzz-words to throw into their rate requests which will keep them from sounding like the evil empire.

Clearly policies like the one in Hawaii (delaying or rejecting requests for permits to connect home solar PV) are not viable.  But the idea that homeowners will slash their electricity bills to around zero simply is not scalable.  There are simply very few places where PV with 10 or 15 hours of batteries on each home can eliminate the need for much fixed grid costs (i.e. the peak transmission, distribution, and dispatchable generation requirements only drop slightly); running a grid fewer days per year does not reduce fixed cost.  Utility profits are guaranteed by regulators; less electricity sales just means higher rates for everyone.

With the new paper from RMI, solar PV owners can expect to save less on their utility bill, even while their regulators claim a win-win solution.

Paul O's picture
Paul O on Apr 13, 2015

If it does accellerate their demise, that would be their problem…Would it not? Why then should Solar PV owners with battery backup care so much, or be concerned about the doomed fate of the dreadfull, evil untilities?

I would really love to see this Brave New World of PV+Battery all over our rooftops, that’s being predicted to lead to the often foretold and repeated “death spiral” of the utilities. 

My view frankly, is that if the PV pushers are so confident they should push on ahead and stop using utility power already. (1) Those americans who don’t have, can’t afford, or don’t care or want to have PV-s+Batt. will be happy the way they are, and (2) PV guys (if they got off the grid) would stop being accused of pushing their fair share of utility maintenance on poorer folks, and (3) the Utilities too, would not have to worry about “distuptive” renewables using their lines without paying for the privilege.

Everyone would have exactly what they say want, this then should be a Win-Win-Win proposition. Right?

Edward Kerr's picture
Edward Kerr on Apr 16, 2015

Ah, the mutually misanthropic irony is almost delicious. We all get what we want and we all lose!  I’d try to laugh but might cry instead.

Spec Lawyer's picture
Spec Lawyer on Apr 17, 2015

Except in high AC areas” . . . which is pretty much most of the USA these days.

Paul O's picture
Paul O on Apr 21, 2015

Wait now, are you saying that Wind Energy does not matter? If it does matter, how do you want that wind energy to get to homes thousands of miles away without utility power lines?

If ordered to do so, Utilities would happily develop their own more cost efficient, better solar tracking PV, and they’d do a better job of integrating PV into the mix than your solar salesman ever could.

Most inner city folks will never be able to utilize Solar Power on their rooftops because (a) They are flat broke, and (b) They don’t even have rooves of their own. 

This is not about “greed”, or “magnates”. This is about getting CO2 free energy to everyone. 

Bruce McFarling's picture
Bruce McFarling on Apr 21, 2015

It seems likely that the areas where they are projecting the risk are more like Southern California and Phoenix than northeast Ohio.

The notion of going off-grid with solar in San Diego or Phoenix must at least sound more plausible than going off-grid in Ohio. I would assume Ohio is among the states where they are not projecting a risk, since we are at a high enough latitude that winter insolation is quite weak, and unlike Southern California and Phoenix we have adequate rainfall, which implies periods of cloudy weather particularly in spring and fall, when a home battery bank might be less likely to start out “topped up” than in summer.

Bruce McFarling's picture
Bruce McFarling on Apr 21, 2015

“Except in high AC areas, most people use more electricity in winter than summer.”

From NERC, contiguous US noncoincident peaks in “Megawatts”:

Summer 2011: 782,469

Winter 2011/12: 648,490

So no, not in general in the US. Winter peaks do exist, but summer peaks tend to be higher.

Now, the winter peaks are high enough that any substantial share of the population going off grid in the northern half of the US seems highly unlikely (not a lot of winter sun to draw energy from in Ohio), but there could be some solar defection in the southern half.

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