Electric and solar promise to disrupt the energy industry

The Tesla S

As the demand for alternative energy sources increase, traditional utility businesses prepare to take cover.

By Elizabeth Fry

Just a few years ago, solar energy was for environmentalists or science nerds and batteries were what you bought for your torch. Neither solar nor batteries seemed likely to disrupt the world energy industry. But those days are over.

Today, solar photovoltaic panels are spreading fast across rooftops the world over. Since 2008, the cost of solar power has fallen so steeply that it is close to competing head-to-head with fossil fuels – even without government subsidies.

And batteries? The high-capacity lithium-ion cells originally developed for laptop computers are now powering one of the world’s hottest automotive properties – the curvaceous and neck-snappingly fast Tesla S sedan. The Tesla S demonstrates how electricity can now be stored at an increasingly attractive price.

It’s this combination of cheaper solar power and cheaper batteries that is being talked of as transforming global energy. If you can make clean, reliable energy at home or in your workplace, disconnecting from the power grid becomes possible.

And if that happens, the shape of energy changes forever.

The solar surge

Right now, widespread grid disconnection is a scenario for the future. Solar is still a small part of the global energy market. But it may not be for much longer.

Distributed solar power [such as from rooftop solar photovoltaic panels] in the US is growing at 50 per cent per year. Estimates put the total potential market for distributed solar at 24 per cent of US electricity sales, half of which would come from homes. Chinese president Xi Jinping has said that by 2030, 20 per cent of Chinese energy will come from non-fossil fuels. Japan took up solar-made electricity after the Fukushima nuclear power plant meltdown in 2011.

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The International Energy Agency’s most optimistic case has 4600 gigawatts of photovoltaic capacity being generated worldwide in 2050, up from about 150 gigawatts now. Half of that capacity would be in developing countries. In such a world, solar power would be the world’s largest electricity source.

Why are solar power installations growing? Because the cost of producing solar power has plummeted, bringing it at least close to being an economical power source in many parts of the world.

"Battery technology will combine with solar to transform the electricity industry."

Bernstein Research last year produced a graph which showed that fall. They titled it “Welcome to the Terrordome”, a nod to the concern that cheap solar was creating among fossil fuel electricity generators. They noted that “solar is now – in the right conditions – cheaper than oil and Asian LNG [liquefied natural gas].”

And they added that “since it is a technology, it will get even cheaper over time”.

Batteries charging

The problem with solar power has always been storage. The batteries that allow people to draw down on stored energy at sunset or on cloudy days have been prohibitively expensive. So as recently as 18 months ago, commentators such as The Economist magazine fretted that an increase in solar power would destabilise the power grid.

But better lithium-ion batteries created for laptop PCs, tablets and phones have now made electricity storage cheaper, too. They helped PayPal’s co-founder Elon Musk to create the much-acclaimed Tesla electric cars. Teslas and other lithium-ion cars such as the Nissan Leaf, and hybrid electric-petrol vehicles, including the Chevrolet Volt and Toyota Prius, are starting to sell in developed countries.

As well as providing cutting-edge transport, these companies are helping drive battery technology to the point where it will combine with solar to transform the electricity industry.
Until the cost drops, most people with rooftop solar will still need some grid supply at night. But it may be only a matter of a few years before further improvements and technology breakthroughs push battery costs sharply lower.

"In 2050 solar power would be the world's largest electricity source."

Take Tesla. It is building a US$5 billion battery factory, dubbed the “gigafactory”, which will double the world’s lithium-ion battery capacity. Importantly, it will slash the price of battery packs for consumers.

Musk’s future plans for batteries – to power everything from cars and household appliances to airplanes – no longer looks like a pipe dream. He has his eye on the grid. He chairs one of the US’s largest solar installers, SolarCity, and that company is already fitting Tesla batteries along with solar panels in commercial buildings such as Walmart stores. Musk knows that battery technology will drive a massive change in the consumption of electricity. In February, he told financial analysts that Tesla would soon make a stationary battery for powering homes.

Solar + batteries = disruption

The combination of cheap solar power and affordable storage changes the shape of electricity supply and demand. Says Bernstein Research: “We are on the cusp of dramatic growth as lithium battery costs fall to levels that make electric vehicles not just cool but also economical, and energy storage for both utilities and renewables starts to make sense.”

An array of solar photovoltaic panels at Hami in Xinjiang, China produces a yearly average 19.8856 million kWh of on-grid energyEven the US electricity industry acknowledges the transformation that the solar-plus-batteries combination would wreak. The US industry’s own Edison Electric Institute wrote in a report as long ago as 2013 that “one can imagine a day when battery storage technology or micro turbines could allow customers to be electric grid independent.”

And the report reminded the industry of how change swept through another industry, asking: “Who would have believed 10 years ago that traditional wire line telephone customers could economically ‘cut the cord’?”

Customers representing billions of dollars in utility revenues are already withdrawing from the grid. If that keeps going, legacy electricity utilities may be in big, big trouble.

Utilities’ vulnerability springs from their high fixed costs – all those huge coal-fired power plants, the transmission towers strung across the countryside, the poles and ductwork and the wires running down every street. When customers leave the system, those costs have to be spread across the remaining users. Higher costs encourage more people to leave the system, raising costs again in what has been dubbed a “death spiral”.

Few utilities have prepared for the disruptive technologies that are up-ending their business. But in Germany, where solar photovoltaic energy took off early, preparations are well advanced. RWE chief executive Peter Terium has repeatedly said that “the industry faces the worst structural crisis in the history of energy supply” and that conventional power generation is “fighting for its economic survival”. Germany’s biggest electricity provider, E.ON, has completely restructured, focusing on renewables, distribution networks and customer services.

Governments are in a tough position. They want to encourage renewables, but they don’t want the grid to go bankrupt. Even with government support, solar is still disruptive because the mix of power will have to change. That means going back and rewriting how they pay for it.

“Solar is a challenge for a revenue-capped network since when consumption drops, prices rise,” says Ian McLeod, CEO of Australian electricity distributor Ergon Energy.

"The industry faces the worst structural crisis in the history of energy supply." Peter Terium, RWE

Most utilities operate under a “regulated return” model where a government regulator, such as the Australian Energy Market Commission (AEMC), sets prices based largely on a utilities’ capital employed rather than electricity sold. The AEMC has been helping electricity distributors by letting them charge customers higher prices for network access. But in the medium term, that may encourage people to disconnect from the grid entirely.

Dealing utilities in

The big hope for utilities is that they too can store solar power, making it cheap enough that consumers won’t want to bother generating their own energy. Affordable mass storage has always been the big opportunity. But high costs and issues with batteries’ safety and life cycle mean they are not yet a big part of the grid, says Bernstein. Even Tesla car batteries are no good for wide-scale storage.

Things are changing. Several high-tech companies are working hard to bring down mass storage battery costs. In July, Swiss-based Alevo will start installing a battery which holds two megawatts of power and lasts 20 years – ideal for power companies.

“Our battery is cheap enough and will live long enough to make economic sense by providing power grids with flexible capacity,” says Chris Christiansen, who heads up Alevo’s energy storage division. He sees both rooftop and centralised solar having roles in the future.

Ergon’s McLeod agrees. “Some people would rather not deal with battery life and panels, as long as costs come down,” he says. He thinks the industry will evolve to a mix of rooftop and grid solar. For instance, Ergon has already rolled out a battery grid support system to parts of the network where it makes more business sense than bringing in new electricity lines or augmenting existing ones.

No one knows for sure where the processes now at play will end. But it’s clear that the new technologies are driving the power industry to somewhere it has never been before.

This article is from the April 2015 issue of INTHEBLACK.

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