Consider this: according to Agora Energiewende, the Berlin-based think tank for energy policy, renewable electricity generation (mainly wind and solar) has surpassed 82% of Germany’s electricity demand on May 15 this year. Power consumption makes up to 20% of all energy consumption in the Federal Republic.
Consider also this: the cost of lithium-ion batteries is steadily decreasing. Whereas they were around €500 per kilowatt-hour (kWh) one year ago, home storage systems are selling for €300 per kWh nowadays. Tesla’s PowerWall and others, like Sonnenenergie, BMW and Mercedes, have made inroads in countries with high tariffs and electricity prices such as Australia last year, their offers oversubscribed within hours. Up until now, more than 30.000 home storage systems are sold in the Federal republic of Germany, a figure expected to rise steeply over the coming years.
And now consider this: several thousands electric vehicles in Europe, whether full electric or hybrid, will reach the end of their economic lifetime after more then ten years of usage. Their battery pack, of no use in these vehicles anymore, can be used as an energy storage option for stand-alone (residential) appliances. According to an April 2016 report of the Bundesverband Erneurbare Energie, if Germany’s milestone of one million electric cars in 2020 were to be achieved, the Federal Republic could have an additional storage capacity of 25 GWh from second life batteries by then, an equivalent to power the whole of Germany for half an hour.
Grid defection now
These developments, coupled with the tremendous growth in rooftop solar in the last 18 months, will lead to load defection or even grid defection in wealthy regions and neighbourhoods in Europe within the next ten years or less. Examples from other regions in the world are quite illuminating. According to one of the first reports on grid defection, a joint publication of RMI (Rocky Mountain Institute) and Cohn Reznick in 2014, Hawaii has already achieved PVS grid parity, i.e. that self-consumption and storage equals or outweigh retail prices offered by utilities. The report further stipulates that a rising number of states in the southwest of the United States will reach load parity before 2024, leading to the so-called ‘utility death spiral’ in which traditional power companies earn less and less revenues while their base load still has to be covered.
Similar developments are taking place right now ‘down under’, in Australia. Instead of selling excess power back to utilities at the height of the day, hundreds of thousands end-users with PVS in the belly of the fifth continent are storing excess power at home in their systems and release it at the end of the day when retail rates are the highest. The advantages are obvious: end-users, whether they are individual households, cooperatives or residential buildings, will reap the financial gains while at the same time reducing local grid peak demand (from which distribution system operators - or DSO’s - will obviously profit).
So how about the European Union? Better to say Germany in which penetration of big scale offshore wind energy and rooftop PV energy sources are the highest in volume? There are many thresholds. From an economic point of view, above 70 to 80% solar self-consumption and electricity storage will become prohibitively expensive, as Haike van de Vegte of DNV GL, one of the biggest energy consultancies in the world, aptly points out. "The value of energy storage systems hasn’t matured yet. For the coming years and depending on the location, it’s more logical to keep a lifeline to the grid and organise storage not on a household but on a neighbourhood level", the energy storage consultant said.
James Mandel, a principal in the electricity practice at RMI, uses the same reasoning. "A battery is like a Swiss Army knife", he told Peter Maloney of Utilitydive. "It can do many things, but if it is used for just one thing, it may be not cost effective." The RMI consultant argues one has to take the whole energy infrastructure system into account. Until now, in the EU there’s a whole bunch of hurdles to be taken, from a regulatory as well as a value-added point. Storage hasn’t got a level playing field because energy systems are still, for the larger part, one-directional: from large scale production units to final users.
According to a 2016 paper of Eurelectric, the European association for the electricity industry, most DSO’s place little emphasis on the character of output as well as on the availability of information. The power association recommends regulators to be more transparent and more inclusive about their decision-making process. Without flexible tariffs - that will provide much needed incentives to start-ups, incumbent power generators and system operators – innovative technologies and internet-based (mobile) appliances won’t enter the market.
Those objections notwithstanding, when major utilities start to fall into a ‘death spiral’ and DSO’s will also face diminishing returns on their long-term investments, somebody has to pay for keeping the electricity grid resilient to the influx of intermittent resources while simultaneously preserving its reliability and affordability. Instead of only focussing on wholesale markets and retail tariffs, utilities now try to get a foothold in ‘behind the meter’ products like solar, energy storage and smart software. If they do not change into ‘full service system providers sooner or later they will face their ‘Kodak moment’ and will become obsolete.
Power to whom
Placing too much emphasis on affluent end-users has its setbacks. The NBCSL (National Black Caucus of State Regulators) sounded the alarm two years ago. They worry that policies encouraging PVS will widen inequality between rich and poor communities. Households not able to afford distributed generation (DG) are left to pay more for the electric grid. Net metering customers profiting from subsidies are avoiding paying for the full range of services, leaving the rest to pick up the bill (an estimated 1.1 billion dollar per year more for non-PVS citizens in California). In its May 2016 report to the governor and legislature the CPUC (California Public Utilities Commission) took up the gauntlet and stated "we must explore alternative strategies to manage utility revenue requirements if we are to maintain an equitable rate structure".
The same applies to Europe. Although policies among EU member states widely differ, most of them use volumetric tariffs and net metering instead of capacity-based tariffs. The share of distribution costs ran from 33 to 69% on their total energy bill for households while enterprises pay an average of 60%, a study of Directorate-General Energy (DGE) of the EU on tariff design has shown. Also, there are big differences between regions, cities and counties. Currently, the Bundesverband Neue Energiewirtschaft e.V. (BNE) is working on a proposal for a network tariff structure reform in Germany, in line with the EU report ‘Best Practices on Renewable Energy Self-consumption’. "Due to the big share of renewable sources in the republic, the old rule ‘feed-in follows demand’ is no longer valid", Bianca Barth, policy director of BNE told EER. "We consider to introduce a more capacity-based tariff structure. That would solve the cross-subsidization issue between customer classes while on the other hand it would still encourage increased flexibility on the demand side."
Capacity-based tariffs – in which network costs for the consumer are only reduced if self-consumption reduces peak-load from the grid – are one side of the coin to alleviate the threat of energy inequality. Another is community-scale solar, as recently proposed in a report of RMI. By its very nature, distributed generation and storage (PVS) is locally oriented. Until now, middle- and upper income households gain profits of PVS while millions of homes and SME’s are being left out of the energy revolution, due to financing, renting or lacking a suitable roof for PV panels. According to RMI community-scale PVS is interesting for low-income households, utilities, cooperatives and solar developers to find new markets.
The German solar developer Sonnen (formerly Sonnenbatterie) has already done that last year. By some estimates Sonnen accounts for about half of Germany’s residential battery market. The company is linking their solar and storage devices into a virtual grid that allows members – mainly residential customers – to trade electricity among each other and sell their excess power into the wholesale market, in effect cutting incumbent utilities out.
The race to find a proper regulatory framework and new business models for PVS - in which not only middle- and upper income households but society at large will profit - is far from over, though. Within a highly fragmented energy landscape in the EU, the devil is, as always, in the details.