Domenica, 24 maggio, 2015
If you ever thought that renewables were the energy industry worst nightmare, you might now want to consider the storage storm.
Storage companies are entering the market with the idea to provide energy independence to utility customers by installing and financing batteries plus smart software behind the meter. It’s a game-shifter directly striking at the core of the “shut up, use it, pay it” old-style electric utility business model that has granted relatively stable returns for those who had large customer bases and were used to measure their market capitalisation on life-time customer value.
Indeed, utilities have traditionally sold the electricity necessary to serve the demand coupled with a service aimed at ensuring security and reliability of supply. This means aligning capacity and tariffs to the potential “peak demand” by customers but, today, distributed generation power with storage capacity can influence the amount of electricity customers need from the grid during peaks and provide energy when the grid is congested. This leads to the fact that one of the key services provided by utilities will progressively become useless for customers and their margins will be shaved significantly.
That’s why utilities are resisting the integration of distributed generation with integrated battery storage systems, especially if both system components are to be installed behind the same meter. In fact, this will imply that “pro-sumers” will in this way reduce the overall amount of their energy needs, as well as reducing the average use of the grid and the value associated with both these products / services [1]. Moreover, operators complain that it is hard to ensure that the power flowing back to the grid from “behind the meter” is really clean.
However such resistance is challenged: by example, one can consider the regulation issued by the California Public Utilities Commission (CPUC), which requires incorporating customer owned storage into the utilities’ grids. The CPUC mandates the key Californian utility companies to add some 1.325GW of storage to their grids by 2020 – of which 200MW must be met behind the meter (which means: directly operated by the customer). Also, utilities won’t be allowed to own more than 50% of the new storage assets and, yes, in addition there are subsidies: customers can save 1.80$c/kWh for energy storage, plus an additional 20% of the incentive if installing products from a local supplier – and customers are only required to pay 40% of the project cost. If this model ramps-up economically, it would completely dis-intermediate the role played so far by the whole utilities industry.
Will all this ever be economically viable? Costs are forecasted to fall by 57% to $807 per kWh in 2020 from $1,893 for the same amount of storage capacity today (according to Bloomberg), while the global market for solar systems combined with storage is expected to rise to $2.8 billion in 2018 from less than $200 million in the past year 2014, according to Lux Research. It looks like it will be economical, available for all, and won’t need to be subsidized forever.
Is this shifting the role of the electric utilities? Yes and no.
Yes, since the whole business model and services will be deeply influenced by the combination of distributed generation and storage systems, which will significantly reduce the possibility to “manage” customers.
No, since distributed generation without connection to the grid is like a PC with no Internet access. The grid, and in general all systems based on digital and integrated infrastructures, is becoming the platform for plugging-in and combining renewable sources and storage. The growing number of storage units are not independent systems backing up a bunch of relatively tiny solar plants, but they should be considered as generation assets, on-line systems to be enlisted for scheduling coordination purposes and grid needs. This will also have impact on tariff structures. Therefore, the answer can also be a no, since TSOs and DSOs will anyway bear the investments needed for the transition, while utilities may profit from appropriate business models tailored on pro-sumers.
About two decades ago, regulators started opening the doors of the energy systems to independent power producers, eating away the utility’s monopoly of generation. Storage will put more customers out of reach and the question is: what will happen to the utilities’ business model and valuation?
[1] Whether this will be effectively the case is still to be clarified, since the results on the empirical research on the electricity consumers behaviour when exposed to market dynamics is still inconclusive. Do we have a reduction or just a shift of consumption?