Discussion on the potential energy utilities’ death spiral has moved from industry articles to mainstream media. It’s a fascinating topic that has the potential to rework one of the fundamental corner blocks of modern society, electricity.
Cycle started by solar PV
But what exactly is a death spiral in this context? For those unfamiliar with the term, a death spiral is when lower demand for electricity from the grid leads to higher prices (because the same infrastructure still needs to be maintained), further leading to lower demand, higher prices etc. Increasing prices will obviously hit the poor hardest, especially with the up-front capital requirements of solar PV (though some schemes are helping consumers with those).
In Australia, electricity demand has gone down for five consecutive years. There are many reasons for this (manufacturing recession, increased efficiency etc) but the most interesting and perhaps the most important one is increased distributed generation in the form of consumer solar PV panels – approximately 10% of the households now have a solar PV installation.
That amount of panels generates a significant amount of electricity, even if it is only when the sun shines. The aggregate impact is reduced grid demand – the distributors are however left with the same costs to cover for maintaining the grid, but with less revenue to cover it from. Their “natural” reaction to this is to raise network charges and lobby for policy changes like reducing feed-in-tariffs (FIT), both of which have successfully been done – see, e.g.Grattan Institute report Fair Pricing for Power on the former.
It seems inevitable that the cost of solar PV will continue to come down, as it has for decades. There is however another, even more important, part of the puzzle with also reducing costs: storage. While energy storage is still relatively clumsy, expensive and resource-intensive, this is slowly changing and household-scale batteries are already available, albeit at a high price.
When – not if – that price comes down sufficiently, it will become economically feasible for households to do something en masse that is today mostly a special circumstances or an ideological solution: disconnect from the electricity grid altogether. If households start disconnecting in significant numbers, the risk of a death spiral suddenly becomes much greater – and with rapid cost increases for grid-supplied electricity, the emotive rationale of disconnecting becomes increasingly compelling as well.
Will that happen? It remains to be seen, and there is another interesting development that may change the course of this development:
What do electric vehicles have to do with a death spiral? Perhaps ironically, they may delay it at first, and hasten it in long-term. Forbes reports on an EEI study that electric vehicles will save the utilities from the death spiral because of their high energy & power demands.
By proxy, however, success of electric vehicles may enable households to disconnect. Morgan Stanley highlights this angle in their report Solar Power & Energy Storage Policy Factors vs. Improving Economics where it is pointed out that the scale – Tesla’s Gigafactories in particular – will come to help:
“Given the relatively high cost of the power grid, we think that customers in parts of the US and Europe may seek to avoid utility grid fees by going “off-grid” through a combination of solar power and energy storage. [..] We believe there is not sufficient appreciation of the magnitude of energy storage cost reduction that Tesla has already achieved, nor of the further cost reduction magnitude that Tesla might be able to achieve. once the company has constructed its “Gigafactory,” targeted for completion later in the decade.“
Morgan Stanley is predicting battery costs will come down by more than 50% from today’s prices by 2020, with equal full system price reductions. Cheaper batteries of course mean not only cheaper electric cars, but cheaper household-scale energy storage. Barclays joins the sentiment and has downgraded the US utilities as it sees solar as viable competition, stating “We believe that solar + storage could reconfigure the organization and regulation of the electric power business over the coming decade”.
Tesla is already, through SolarCity, trialling stationary storage systems in up to 20kWh range; if all goes as planned, Tesla’s Gigafactories can in some years’ time feasibly produce battery packs at one fifth the price of currently offered solutions.
What do I think will happen?
So, interesting times. I can’t say where this will end, but I can say where I would like it to end: part of me, the resilience-seeking, decentralization/relocalization-driving part, would like to see the grid completely reconfigured, microgrids in place, with distributed generation commonplace and with a healthy dose of completely disconnected entities – with possibly the grid serving in reserve capacity for at least some time. On a system level, this would be much more resilient.
Transition to something so fundamentally different would, however, be extremely difficult and costly. If we wanted to maintain the current basic idea of centralized generation and the style of grid we have today, I would vote for the bulk of generation moving from coal to nuclear, with renewables playing a role as well.
Whatever the future brings, I hope we get rid of coal – it is by far the most environmentally disastrous and dangerous. In terms of deaths per TWh generated, coal is king at 161 deaths, followed by oil at 36, biofuels at 12, gas at 4 and hydro, solar, wind and nuclear all about 1 or less (data from here).
I’d welcome any thoughts or guesses on how this will play out and what the inevitable geographical differences will be.