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Page added on April 21, 2014
How to Really Disrupt the Retail Energy Market With Solar Energy
Shayle Kann, SVP of Research at GTM, presented on solar’s disruption of the wholesale energy market in Germany and the U.S. at the kickoff of the GTM Solar Summit in Phoenix, Arizona. It’s an important presentation, and you can view it here.
But the next section of his presentation really connects the dots between the growth in solar and DG and the looming existential threat to utilities.
How to disrupt a retail energy market
Step one for disruption is to install a lot of solar.
The following slide shows the phenomenal growth in residential and commercial solar, along with the 1.9 gigawatts of distributed solar installed in 2013.
But here’s the kicker: that 1.9 gigawatts of solar, which is producing 2.7 million megawatt-hours, accounts for only 0.04 percent of national electricity demand. Why would utilities be impacted or worried by that small sliver of solar?
Kann next turned his attention to the top solar states — perhaps the situation looks different there.
The U.S. market is still very concentrated, with the top seven states accounting for 88 percent of the market. But, with the exception of Hawaii, which remains an outlier in almost every case, even the top solar states, including California, satisfy very little of their overall load with PV.
Kann switches gears here. He suggests that we stop looking at total electrical generation.
He notes that utilities have historically made their money from load growth. But load growth has fallen steadily since 1950, and going forward, the EIA sees 1 percent load growth for the next 30 years. Except for Hawaii.
That 1 percent average applies to the top solar states as well. Except for Hawaii.
Through this lens, distributed solar’s impact on 2013 load growth is already being felt. California, Colorado and Massachusetts all saw their load growth cut in half by distributed solar.
Looking forward to 2016, Kann makes what he calls “conservative” growth estimates for distributed solar.
And based on those conservative forecasts, 2016 demand growth looks even more stark for utilities. He said, “You could see negative demand growth in California and almost [the same situation] in New Jersey.”
“If you are a utility, this is potentially disruptive and very meaningful,” he added.
Kann asked, “If you worked for a Hawaiian utility, wouldn’t you be terrified?”
The last slide shows California retail electricity sales that have been and will soon be lost to solar.
“At its most destructive, you could call this the ‘utility death spiral,'” particularly for an industry accustomed to recovering fixed costs through rates over 30 years.
In the face of a utility disruption of unknown consequence, Kann suggested that the solar industry needs to foster this disruption by building a sustainable business, saying, “We want to have a solar market in 30 years.”
Instead of focusing solely on near-term buildup, Kann said, “We need to maintain a long-term view.”
Confronted with the possibility of increasing numbers of wealthier people opting for solar or even potentially disconnecting from the grid, Kann added, “We need to maintain a strong eye toward equitable growth.”
“The last thing we want to do is create an energy divide.”
15 Comments on "How to Really Disrupt the Retail Energy Market With Solar Energy"
rockman on Mon, 21st Apr 2014 11:52 pm
“Step one for disruption is to install a lot of solar.” Sorry but that’s not correct. It’s Step three. Step one would be convincing a large portion of the population to go solar. Step two would be developing some acceptable way to finance Step one.
Without Steps one and two I don’t see how Step three can be achieved. Step three is a end point goal…not a starting point. Sort of like the process of getting rich: Step one – earn $10 million. See…easy. LOL.
deedl on Tue, 22nd Apr 2014 12:27 am
@rockman
You miss an important point. The price of solar, as for most products, falls when production volumes increase. To make solar acceptable you have to lower costs. In order to lower cost you have to increase volume and for this volume you need a buyer, so you start with installation of solar.
The scheme could be well observed in many countries now. You start with some form of government supported or subsidized installation scheme that triggers private investement along the supply chain and helps finance their investments. While installation increases the public support is reduced until the market can stand alone.
Many countries have done so and the world pv industry is now very big with costs greatly reduced by the large volumes and many manrkets can now install pv without any subsidies. At this point people accept pv due its price, but the road to this price was creating the supply chains by government funded installation.
Makati1 on Tue, 22nd Apr 2014 2:20 am
deedle, cost is the point here and you do not get large volumes from the start. Nor will you get them with on again off again government subsidies. The gross income of the average consumer is dropping like a rock. There is no money to put a $5K to $10K system on your roof, that is IF you own a roof to put it on, when the local utility costs are still manageable. The average American could cut his electric use in half and still live a very nice lifestyle. THAT is what they will do when the crunch happens. Not go out and borrow to be independent of the commercial grid only to be a slave to a bank.
Yes, stand alone solar is great but it will never be more than a small percentage of the population. The author’s conservative estimate of growth is still wildly high, I think. Remember, the number of actual home owners in the US is shrinking and those still holding on are likely going to lose them in the future anyway as the crash takes hold. Solar, like electric cars, are toys for the wealthy, not the burger flipper at McDonalds.
simonr on Tue, 22nd Apr 2014 3:38 am
Hi Makati
You are saying that the inevitable will be an energy divide, this does seem true.
However I think that if people see that the cost of repaying a loan is lower than utility costs, it is a no brainer, it now depends on number of home owners, and credit history of same.
I reckon there is a long way to go for solar.
I could see a more socialist gov. either using tax to stop renewables, or more likely dole out loan guarantees to low income home owners.
Of course in a total crash scenario, all bets are off.
Simon
Arthur on Tue, 22nd Apr 2014 4:21 am
The US may have 1.9 GW solar installed, Germany, with a population 4 times smaller, has meanwhile 36 GW solar installed. So the destructive effect on utilities is far more pronounced there. The German utilities already concluded that the days of their old business model are numbered and they are re-positioning themselves towards being an intermediary between local distributed energy producers. The future of utilities is about software, IT, smart grids, messaging, metering, wind and storage and ever less about buying and burning fossil fuel to generate electricity in a big centralized plant. They are going to be the providers of the ‘energy internet’. Here is how one of them, RWE, presents itself:
http://www.rwe.com/web/cms/en/10122/rwe/about-rwe/
Makati1 on Tue, 22nd Apr 2014 5:42 am
Arthur, I laugh when I read how your techie dreams cannot even imagine a world without it. No, they (power companies) are not going to get more techie. They are just going to consolidate and eventually disappear as demand continues to shrink, not because of solar but because they (consumers) cannot afford either. The world post oil is going to be more 19th century than 21st. Wait and see. But, thanks for the chuckle. ^_^
Davy, Hermann, MO on Tue, 22nd Apr 2014 5:50 am
This distributed solar and large grid connected AltE sources are dangerous for the associated grid. Instead of competition there should be cooperation. But typical market capitalism looks to compete and often distorts markets to what is the most rational. We see this with coal, Nuk, and gas. We are seeing this with AltE grid penetration also. We cannot do without a healthy grid for status quo BAU. We know status quo BAU is on its death bed but the important point is gentle transition to a soft landing and reboot as globalism fails. This renaissance in AltE will follow the oil market, financial market, government subsidies all under stress and heading in the direction of contraction. China has produced major over capacity in the solar AltE market driving prices overall down. Their economy is in a debt unwind and much of this over capacity will be wrung out with this contraction. Governments everywhere are going broke. Look to Germany and how it will stall in its AltE penetration when its grid gets significant stress and the costly upgrades to a more AltE friendly grid mount. The German gas grid is already looking at possible stress with the Ukrainian crisis. Distributed AltE is a bright spot but with costs soon to rise and supply to fall this will stall. The same is true for all other major economies embracing AltE sources. We are at a paradigm shift and it will be driven by two things mainly a financial correction 1st then an oil contraction. Both contractions are in effect now but masked by the financial repression of the markets by the central banks and the debt bubble Ponzi scheme. Financial repression with its wealth transfer and debt bubble is a house of cards with parasitic elements of the economy cannibalizing the real economy. Significant oil production is now only cost effective because of this financial repression. This will not last much longer because of the shear amount of debt. Debt at such high levels and Governments with such large deficits we cannot see the cost of money rise “AT ALL” yet, this will happen and soon. Any loss of confidence will affect liquidity and the cost of money “WILL RISE”. AltE is expensive and expensive upfront meaning it relies on cheap money for growth. The sweet spots for AltE will be taken just like fossil fuels were. AltE will experience diminishing returns as a further stress to growth. So like the boom in unconventional oil, AltE will experience significant capex compression very soon slowing growth rates to very low levels. We are near a point of “WHAT YOU SEE IS WHAT YOU GET” global economy.
Arthur on Tue, 22nd Apr 2014 6:41 am
Look to Germany and how it will stall in its AltE penetration when its grid gets significant stress and the costly upgrades to a more AltE friendly grid mount.
Yes, I know the rumour of stalling, but over the past 12 months the (spectacular) growth rates in Germany were:
Wind: 31%
Solar: 74%
The ‘stalling’ refers to government investment, but meanwhile households, farmers, companies and municipalities merrily continue to invest in renewables and the effort is supported by a large majority of the population, which has everything to do with a deep historic awareness about how vulnerable Germany is when it comes to energy and other resources. Yes, it is true that the grid capacity constraints threaten to halt further renewable development, so the government has decided to make storage a priority first, and limit feed-in, before further expansion is considered.
http://deepresource.wordpress.com/2013/01/17/solar-storage-in-germany/
They are just going to consolidate and eventually disappear as demand continues to shrink, not because of solar but because they (consumers) cannot afford either.
That’s too pessimistic. 12 * 250 Watt panels cost 6000 euro, all incl. That’s enough for a modest energy consuming household (like mine). It will generate 3000 kwh/year (Dutch environment). That’s the equivalent of 3000 man-day/year of work. Over a life span of 30 years, that’s 100,000 man-day or 274 man-year of work. For 6000 euro. That’s 22 euro per man-year. Obviously all other expenses will be cut first (car, holiday, health-care, like transplants for 60+, expensive homes, kids to university, etc., etc.), before energy is being phased out. As it is, a financing scheme for a solar installation is already cheaper then paying the utilities. By 2020 most roofs in Western Europe will be covered by panels and provide for most of the energy needs of the inhabitants.
The essential things is: START NOW and don’t wait for the crash!
rockman on Tue, 22nd Apr 2014 6:53 am
deed – I didn’t miss the point being made…seen it a 100 times. But you miss my point: “You start with some form of government supported or subsidized installation scheme…” Exactly as I described. But again you’re describing a goal…not a plan. This is just one more step after 1 and 2. It doesn’t matter how cheap the alts get. It doesn’t matter how much govt sub might be injected. Until the public commits to a major shift top the alts then all you have is numbers on paper. All the logic, which is typically valid, about why this is the way to go isn’t relevant. I see it similar to the dozen of new diets advertised every year to help folks lose weight. Most make sound/logical nutritional goals. And what happens year after year: society becomes more over weight.
If a system can’t be devised to cause a massive shift in attitudes to get folks moving to the alts then all the theoretical benefits will remain just that…theoretical.
So tell my how this will be done. And then explain why isn’t being done now. And then tell me what PRACTICAL AND ACHEIVABLE plan you have for getting it done. there’s nothing wrong with most of the numbers behind the “solution”. But as I’ve said before a solution that isn’t applied isn’t a solution.
Global coal consumption has increased more than 50% in just the last 10 years. It doesn’t appear to have any trouble attracting new consumers. The total energy increase from all the alts combines pales in comparison to coal. And that despite all the great looking THEORETICAL numbers you can toss out. A lack of alt tech isn’t the problem so just saying we should apply it doesn’t solve the problem.
Davey on Tue, 22nd Apr 2014 7:23 am
Art, I am hopefull for your optimism. What you are promoting are global pluses i.e. A Europe more AltE. Yet you must accept my opinion and Rock’s opinion of market and financial constraints. The European financial system is in very bad condition under the surface for a number of reason most notably sovereign debt, unfunded liabilities, and deflationary liquidity trends. Europe has a short time and a long way to go with its AltE renaissance. Europe has maybe 5 years or less. Do the math Art!
Kenz300 on Tue, 22nd Apr 2014 7:38 am
Climate Change is real…… it is time to speed up the transition to safer, cleaner and cheaper energy sources.
We Could Power All 50 States With Wind, Solar and Hydro Washington’s Blog
http://www.washingtonsblog.com/2014/03/solar-wind-mix-baseload.html
PrestonSturges on Tue, 22nd Apr 2014 10:21 am
Is it any coincidence that the Bundy ranch standoff was supposedly about an entirely imaginary “Chinese solar farm,” which was actually about 200 miles away before it was canceled?
Is it a coincidence that we suddenly have armed militias geared up to die to stop solar energy? It looks like the corporations are activating the Brown Shirts once more. That’s a good analogy considering that crowd probably has quite a few swastika tattoos.
J on Tue, 22nd Apr 2014 5:29 pm
This has been discussed many times, but just as solar is a fuel saver for fossil fuel plants (i.e. you still need the coal/gas plant), solar PV is a variable cost saver for the grid connected house.
Most people would never be able to disconnect from the grid. A problem with is the fixed costs associated with grid connections. Utilities could easily raise them at any time as well.
They also hate the idea that you feed into the grid so you get very little money for it. It’s hard to get the economy to work out for most. Forget it in Seattle where I live. If there was a bang for the buck then more people would do it.
I like the idea of a black plastic tank on the roof and cheaper hot shower in the summer. There is ROI in that!
Makati1 on Tue, 22nd Apr 2014 9:08 pm
J, Cost vs income is THE deciding factor in alt anything. Not that many don’t see the value, but that many don’t have the cash/credit to do anything about it. And the cash/credit block is only going to get worse until it all resets to a much lower and different level.
I don’t need 2,000+ words to say that the financial war and the capitalism for profit scenario is the brick wall to most better futures, alt or other.
Kenz300 on Tue, 22nd Apr 2014 10:30 pm
Save energy and you will save money.
Buy LED light bulbs and save 75% on your electricity cost for 25 years.
Buy a high efficiency furnace and save 20% on the fuel costs for 20 years.
Buy an electric or hybrid vehicle and save on your transportation costs.
Grow a garden and plant some fruit trees….. you will save on your monthly food bills.
Walk, ride a bicycle or take mass transit and you will save on your monthly transportation costs.
Insulate your home and plug up the air leaks. It will be much more comfortable and you will save on your heating and cooling costs.
We Could Power All 50 States With Wind, Solar and Hydro Washington’s Blog
http://www.washingtonsblog.com/2014/03/solar-wind-mix-baseload.html