Off-Grid Solar Threatens Utilites In The Next Decade

The utility death spiral could be just around the corner.

A new report from the Rocky Mountain Institute (RMI) finds that solar photovoltaics combined with battery storage could become cost competitive with grid electricity in key parts of the United States within a decade.

That would pose an existential threat to the traditional utility. As more homes and businesses opt for solar power equipped with battery backup storage, utilities will lose their customers. That makes it increasingly difficult to finance and maintain expensive grid assets, forcing utilities to raise rates on remaining customers, further pushing people to go off-grid. For example, in the Northeast, within 15 years utilities could see 9.6 million fewer customers. That will make it daunting for utilities to keep spending billions of dollars per year in order to maintain the grid. Related: How Much Longer Can OPEC Hold Out?

RMI concluded in a 2014 report that "solar-plus-battery" - which amounts to a "utility in a box" - will reach grid parity at the commercial level in New York by 2025. Solar-plus-batteries could become the most attractive form of electricity generation.

But it is not as if utilities will only start to see their business case threatened in 2025. Insurgent solar power is already cutting into their sales, albeit at a small-scale. That will only accelerate. There are a variety of reasons that a stampede towards solar will soon begin, even before the average cost of solar-plus-battery officially falls below electricity generated from the grid.

For example, people who are interested in lowering their personal impact on the environment have become earlier adopters, and will continue to do so. Another reason people may opt for off-grid solar-plus-battery path is due to concerns about reliability. A spate of severe storms in just the past few years has highlighted the fragility of the conventional electric grid. Superstorm Sandy in 2012 knocked off power to 8.2 million people. The derecho that hit the mid-Atlantic just a few months earlier cut off power to 4.2 million people, some for as long as 10 days. More recently, a small fire at an electric transformer in southern Maryland sparked a power outage in Washington DC on April 8, even cutting off electricity to the White House and the State Department.

Yet more motivation, according to RMI, is the rising frustration with utilities. Rate increases and fights over net metering are pushing people to cut their ties with the grid. Related: Is Private Equity Distorting E&P Asset Prices?

But ultimately, a mass exodus will occur when the price is right, and that milestone is within sight. For some parts of the U.S., such as Hawaii where electricity is expensive, it already is cheaper to go off-grid with solar-plus-batteries. For New England, which also has high electricity rates, grid parity will come by the middle of the next decade.

And those are conservative scenarios. Breakthroughs in technology that bring down the cost of solar panels or batteries will only move that timeline forward. For example, researchers at Stanford University have invented a new battery that uses aluminum instead of lithium. The aluminum-ion battery is potentially longer-lasting and safer than the lithium-ion batteries used in electric cars and other appliances today.

"We have developed a rechargeable aluminum battery that may replace existing storage devices, such as alkaline batteries, which are bad for the environment, and lithium-ion batteries, which occasionally burst into flames," Hongjie Dai, a professor of chemistry at Stanford, said in a press release. "Our new battery won't catch fire, even if you drill through it." Related: Top 12 Media Myths On Oil Prices

Even better, the battery charges ultrafast. While it can take several hours to charge a smartphone with a lithium-based batter, the Stanford aluminum battery can charge a smartphone in one minute.

But for off-grid electricity, it is even more important for batteries to have long lives. Here too the Stanford battery offers benefits. "The grid needs a battery with a long cycle life that can rapidly store and release energy," Dai said. "Our latest unpublished data suggest that an aluminum battery can be recharged tens of thousands of times. It's hard to imagine building a huge lithium-ion battery for grid storage."

The battery still needs to improve its energy density, but the potential is there. If and when solar panels can be combined with batteries to provide a more reliable and cheaper alternative to grid electricity, utilities could enter the death spiral.

By Nick Cunningham Of Oilprice.com

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