The Terra News

Utilities fighting against rooftop solar are only hastening their own doom

Batteries are going to make rooftop solar invulnerable.
Updated by David Jul 7, 2017, 1:10pm EDT

Several of the big trends in clean electricity depend, in one way or another, on batteries. How fast batteries get better and cheaper will help determine how fast renewable energy grows, how fast fossil fuel power plants get shut down, and how fast the vehicle fleet electrifies.

The consulting firm McKinsey & Company recently released an analysis noting that batteries, like solar panels before them, are getting cheaper much faster than anyone expected — and the consequences for the power sector are going to be immense.
Batteries have entered a virtuous, self-reinforcing cycle. This graphic, adapted from a Ramez Naam post, captures it:

(Javier Zaraccina)
As they get cheaper, batteries make sense for more commercial applications. As new markets for storage grow, demand for batteries increases. As demand increases, economies of scale kick in and batteries get cheaper. Rinse, repeat.

The McKinsey analysis shows this dynamic playing out within the power sector, both “behind the meter” (batteries inside a customer’s home or building) and “in front of the meter” (batteries assembled into large-scale storage installations). Batteries are soon going to disrupt power markets at all scales.

The whole analysis is interesting, but I want to focus in on the way batteries will affect rooftop solar. Across the country, intense battles are being waged as utilities push back against the rapid spread of rooftop solar. (See, as the latest example, Nevada.) Batteries, McKinsey reveals, are going to scramble those battles, making them effectively unwinnable for utilities. The existential crisis they hoped to avoid by slowing rooftop solar is going to slam into them twice as hard once batteries enter the picture.
To begin, let’s back up a bit. To understand the role of batteries, first you have to understand why utilities don’t like rooftop solar in the first place — and what they’re doing to stop it.

Utilities’ problem with rooftop solar power, in 250 words or less
Utilities don’t make money selling electricity — for that, they can only recover costs. They are, after all, monopolies.
Investor-owned utilities make money by investing in grid infrastructure and then charging ratepayers the cost of that infrastructure plus a “reasonable rate of return,” as defined by the state public utility commission (PUC). They make money, in other words, by building stuff.
Utilities generally recover their costs-plus-returns from ratepayers through flat volumetric rates — “flat” means the rate is the same for everyone, at all times of day, and “volumetric” means that the more a customer uses, the more she pays.

Power utilities are built for the 20th century. That’s why they’re flailing in the 21st.
When a customer installs solar panels, it hurts the utility in two ways.
One, it reduces demand for utility power. Utilities generally don’t want lower demand. To justify building stuff, they need to be able to project higher demand.
Two, the more solar customers reduce their utility bills by generating their own power, the more utilities have to charge other, non-solar customers more, to cover their costs-plus-returns. This pisses the other customers off. And it incentivizes them to install solar themselves!
Utilities are terrified of the “death spiral” that could ensue as more customers are driven to generate their own power. So they are increasingly fighting back.
“The utilities’ response,” McKinsey writes, “has been to design rates that reduce the incentive to install solar by moving to time-of-use pricing structures, implementing demand charges, or trying to reduce how much they pay customers for the electricity they produce that is exported to the grid.”
Those battles are ongoing across the country.
Enter batteries.

Share This Post
Comments (0) Trackbacks (0)

Sorry, the comment form is closed at this time.

No trackbacks yet.