Friday, May 4, 2012

Solar doesn't care what utilities want

For any of you who haven't heard of Ray Kurzweil, I highly recommend reading up on his Singularity theory.  He's a fascinating guy and his ideas are even more so.  Pertinent to my interest in solar technology, one component of Kurzweil's Singularity ideas is that technology advances at an exponential rate which is profoundly disruptive to existing technology.  Just as with financial investments, past performance does not predict future returns.  People in the heart of the change often have trouble seeing that straight line forecasts often fail to capture the future impact of a particular technology. Such is the case in the solar business today.
Worth a read
Solar PV is a transformative technology that is already disrupting traditional utility delivered energy models. A recent McKinsey study sums up the current state of PV rather succinctly and charts a few forecasts into the next couple of decades.  In some market segments, PV already competes effectively on price per kWh delivered; in others, the expectation is that other generation technology will continue to dominate but not for much longer.

No one is "letting" distributed solar happen.  In fact, it's becoming adopted despite countless institutionalized roadblocks.  This interaction between Travis Bradford and Barry Cinnamon highlights a critical misunderstanding that many people have about how distributed solar will develop.  We aren't waiting for utilities to let people install systems (via interconnection & net metering policies), and we actually don't need more incentives from the federal government (maybe these have only inflated installation prices anyways).  While both these components have facilitated system installation in the short term, the greater driving trend is the narrowing gap between the retail rate for electricity and the installed cost of solar.

Net metering is serving a great purpose today in helping to grow solar but the electric utilities would like to see it go away because they lose money from it.  At a much larger solar penetration rate than we have today, they would have to raise rates to cover the lost production and distribution charge revenue.  At a TVA sponsored solar event last month, I heard multiple utility representatives talk about how this hypothetical problem should cause us to temper if not even retard current PV installations. Regardless of what happens to net metering, distributed solar is going to continue grow and because of the easily scalable nature of it, I'd bet it will be at an exponential rate as Ray Kurzweil's hypothesis would predict.  Here are three reasons why I think so:

Solar is Easy to Install

and it's getting even easier to do so.  The only downside of solar right now is first cost.  Not only are installation prices falling and retail utility rates rising, there are many new financing options to minimize solar's first costs. There is really no reason that a person can't decide to go solar one day and have the system commissioned the next.  Any red tape would only come from utility interconnection and this is irrelevant in solar water heating or in the case of my next example.  When all the economic forces align, we will see neighborhoods transformed from zero roofs with solar to most of them in very short order.


Real Time Consumption of Solar Production

No need for utility permission to buy less electricity by producing it locally
All commercial customers and many residential ones are on a Time of Use (TOU) or real-time pricing plan with their electric utility. This means they pay a variable rate for electricity over the course of a day depending on the wholesale rate (cheaper at night, more expensive during the day).  Since solar PV production correlates well to peak rate periods, you can size a cost effective system today to lop off real time demand from grid power without selling any excess energy back to the utility.  If the customer pays $0.25 or more during the middle of the day for electricity, a PV system sized to meet this midday load is cost effective today.  This behind the meter PV system would be invisible to the utility while saving the building owner money.  There is a huge amount of potential new solar work just for this application.


Back Up Energy Systems

Many businesses and homes want or need back up generators to guarantee access to electricity during interruptions of grid service and they are willing to pay a premium above the retail rate for electricity to do so.  Brown outs, ice storms, lightening, squirrels, etc. knock out power on a rather regular basis in some areas.  For someone considering a generator, they'll need to figure in the cost of the fuel to power it, the transfer switch wiring in addition to generator itself.  The generator will also have to cycle regularly to keep in optimal performance shape and fuel costs could be significant depending on whether the building has access to natural gas or not.
Inverters offer energy arbitrage options in addition to battery backup functions
An alternative today is a grid tied PV system with battery backup.  This allows for the triple benefit of back up power, peak load rate shaving, and energy arbitrage (charging batteries with off peak rate electricity and using during peak times).  All this adds up to more benefit than a generator backup.  Battery technology has been improving in cost and performance just as PV technology has.  This is yet another way that a PV customer could have a cost effective system for their needs and never need to sell anything back to the utility or need any sort of special agreement to go solar.


Thomas Friedman called it the democratization of energy and this is exactly what solar offers.  Individuals now have the option for the energy source of their own choosing.  Utilities have a stranglehold on options just as telephone companies did before the advent of cell phones.  How many of you even have a landline at your house anymore?  How many of you will be at the mercy of electric utilities for service in 10 years?  I think the numbers will be very similar.


We are like tenant farmers chopping down the fence around our house for fuel when we should be using Nature's inexhaustible sources of energy — sun, wind and tide. ... I'd put my money on the sun and solar energy. What a source of power! I hope we don't have to wait until oil and coal run out before we tackle that.
         --Thomas Edison

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