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posted on 17 April 2015

Will Rooftop Solar Energy Ruin The Electric Utility Business?

Written by , GEI Associate

The grid will require about $2 trillion in investments over the next 15 years. Electricity costs are expected to rise. In order for companies to update the grid, costs must be covered with increases in price and revenue from electricity sales.

This makes solar and batteries more and more economically efficient for potential customers. RMI (Rocky Mountain Institute) predicts that if customers choose to follow optimal economic conditions, there will be a large potential kWh defection from the grid.

As RMI states in their report, by 2030, in the Northeast U.S., maximum possible kWh sales erosion could be approx. 58 million MWh annually residentially and approx. 83 million MWh commercially. This would represent a total loss of over $30 million in revenue from the grid.

"Our February 2014 analysis The Economic of Grid Defection was a central piece of that conversation. We found that in the coming years and decades - and certainly within the economic life of new investments in conventional generation- large numbers of residential and commercial customers alike will find it economical to defect from their utilities and the electricity grid and supply themselves with power from solar-plus-battery systems."

We are looking at an era when people will be able to choose between generating their own power, being connected to the grid, or combining both as they please.

The report by RMI focuses on five cities, Westchester, Louisville, San Antonio, Los Angeles and Honolulu. They evaluated their economies through 2050 and forecasted pricing expectations for grid, grid plus solar, and grid plus solar plus battery electricity to find the lowest-cost option per city.

RMI findings show that over time electricity generation systems will evolve. Optimal configurations for each city change depending on timing. Most cities would benefit economically from getting electricity from the grid at first, moving towards a combination of grid and solar, and finally using the grid combined with solar supported by battery storage. Each city has a different timeline but as they stated on their report,

"New customers will find solar-plus-battery systems configurations most economical in three of our geographies within the next 10-15 years."

Solar electricity seems to be inevitable. Customers who choose to get off the grid could seriously benefit from keeping prices lower than 'peak price.' For example, by 2030, the average monthly grid electricity bill in Westchester County, NY would be about $375. However, for those customers with added solar-plus-battery systems monthly bills could be less, just $268.

Recent trends in costs for solar and storage technologies are helping drive these tendencies. There was a 45% decline in price per watt of a residential rooftop from 2009 to the first half of 2014. Batteries are also showing a decline in pricing. Additionally, state legislatures keep pushing for newer, greener, more affordable technologies.

As solar electricity keeps becoming cheaper and more accessible, a report published by U.S. Solar Market Insight highlights the reasons behind the drops in price for solar installation. It also shows,

"system costs dropped by 9% to 12% over the course of 2014, depending on the market segment. While specific cost reduction areas vary depending on market segment, competition amongst hardware suppliers, more efficient installation, and operations, industry scale more aggressive bidding have driven costs down across the board - even as PV module costs remained relatively stable. Total installation costs for utility and large commercial systems have fallen below $2.00/W and are now below 2011 module costs, underscoring the magnitude of the impact of falling module prices and incremental balance of system reductions."

The report shows there were great cost-reduction efforts in installations and operations.

During the year 2014, there was a 3.3% reduction in residential installation cost while there was a 20% reduction in medium-scale commercial installation cost. The report highlights low prices are due to falling input prices. These include Polysilicon, Wafer, Cells, and Modules. But the price declines are not monotonic and are subject to volatility as seen in the graphic below. All of the decline in pricing over the year of 2014 came from a fall of cell prices by more than 25% while the other three price components were unchanged or rose during the year.

Additionally, the larger the volume of production, the lower the installation cost. With expected higher grid electricity pricing to cover for maintenance of the grid and an increased supply of lower cost solar electricity, we might see a shift in electricity generation to greater use of distributed rooftop solar over the next 35 years.

Possible utility responses to this threat to their business models will be addressed in one or more future articles.

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