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Utilities, Cheap Batteries Won't Hurt You; You Have Much Worse Things to Worry About - Part I: Assault and Battery

I can still remember my vacation in Hawaii: walking on beautiful white-sand beaches; snorkeling in the cool, clear waters; and hiking on the rocky shores. It all seems like a dream now, but Hawaii isn’t a dreamland for everyone. For electric utilities, Hawaii is an archipelago of nightmares.

In Hawaii, the waves keep coming


A recent New York Times article, Solar Power Battle Puts Hawaii at Forefront of Worldwide Changes, explains why. According to the author, the Hawaii Electric Co., popularly known as HECO, in response to a rapid rise of residential solar installations, stopped approving applications for new installations in certain areas. As a result, a backlog of thousands of applications piled up. The article is relatively balanced. It notes the technical problems that the wave of installations poses for the utility—including the potential for excessive amounts of uncontrolled solar electricity flowing into the grid and overloading circuits—as well as the financial impacts. It also notes the frustrations expressed by the obstructed applicants who pay some of the highest electricity rates in the US. Even though the state utility commission recently ordered HECO to process the applications, it’s currently mulling over a set of proposals made by the utility to change the rules for remunerating solar panel owners for the power they feed back into the grid. Solar installations have started again, but both installers and advocates strongly oppose HECO’s proposal, and tensions continue to simmer.

As if the article weren’t distressing enough for utility executives, it ends with their ultimate nightmare. The author quotes a local installer who’s encouraging his customers to combine their solar panels with batteries and disconnect from the grid altogether. Indeed, he gets the article’s final word: “The lumbering big utilities that are so used to taking three months to study this and then six months to do that—what they don’t understand is that things are moving at the speed of business. Like with digital photography—this is inevitable.”

He predicts that photovoltaic (PV) panels combined with batteries will do to the electric utility industry what digital cameras did to the photography business—turning Kodak into a mere shell of its former self. He’s not alone in making this prediction, as evidenced by headlines such as Why Tesla’s Battery for Your Home Should Terrify Utilities and Why Your Next Home Might Be Battery-Powered. Are they right? Has the advancement of the electric vehicle (EV) industry driven down the cost of lithium-ion (Li-ion) batteries to the point that homeowners and businesses will combine them with similarly cheap solar panels to become electrically self-reliant? Perhaps leaving the grid in droves?

One part of that scenario seems likely. Two researchers from Stockholm, Sweden, documented 80 estimates of EV battery-pack prices from scientific journals, news media articles, industry consultants, and manufacturer press releases. In their recently published paper Rapidly Falling Costs of Battery Packs for Electric Vehicles, the researchers concluded that EV batteries from market leaders Tesla and Nissan currently cost about $300 per kilowatt-hour (kWh) and have been dropping at about 8 percent per year for the past six years. That seems downright pokey compared to solar panels, which have been dropping in price by about 14 percent per year, on average, over the past 37 years, according to Is Moore’s Law Really a Fair Comparison for Solar? However, it’s fast enough to get the job done.

Should that 8 percent rate continue for another nine years, the cost of EV batteries will be cut in half, down to the $150/kWh level. At that price, the authors assert that EVs will become cost-competitive with gasoline autos. The study’s researchers don’t make this assertion, but it only follows that as the costs for Li-ion batteries decline, the technology will find its way into a wide variety of applications, including portable power, backup power, and renewable energy storage.

So when will batteries get cheap enough to entice hordes of homeowners to stock up on panels and batteries and escape the grid? According to two researchers from the University of Sydney, the answer to that question is never. In their study Leaving the Grid: An Ambition or a Real Choice? released in March of this year, the researchers detailed the extensive work they did to arrive at their conclusion. They developed a model of the economic performance of residential PV systems, and used it to model a wide variety of system sizes, with and without batteries. They entered copious amounts of data, including electric load profiles, solar insolation, solar panel and battery performance, panel and battery cost, and electric rates. They ran their model repeatedly and produced dozens of figures and charts.

In the end, the Sydney researchers concluded that for a solar panel and battery system to be large enough to be a home’s sole source of electricity, it would have to contain lots of extra panels and batteries that would rarely get used. For example, in one location, the researchers calculated that to increase the portion of household annual electricity consumption produced by solar from 52.1 to 99.6 percent, the solar array would need to be 8 times as big, and the battery bank nearly 6 times as big. Much of these additional panels and batteries would essentially be kept in reserve for the most extreme conditions.

The researchers further concluded that homeowners who had such excess panel and battery capacity would be far better off connecting their systems to the grid so they could sell their excess electricity production to the utility. In retrospect, the Sydney researchers needn’t have done so much work. They rediscovered one of the main reasons why we have utilities. It would be far too wasteful for all of us, both individually and societally, to buy all the excess equipment we’d need to have our own autonomous highly reliable electric supplies. Instead, we depend on the utilities to aggregate our loads, damp out our individual peak loads through diversity, and invest in whatever power capacity is required.

Once we accept this conclusion—that it makes no economic sense for solar homeowners who have access to net metering and the grid to ever disconnect from the grid (although some will likely do so for noneconomic reasons)—several other things follow logically. Solar homeowners don’t need to buy enough panels to meet their entire load. Nor do they need to buy any batteries at all (although they might buy a few to get a little backup power). Their access to both the grid and net metering means that they get free backup and storage service from the utility. Without the grid, and all those free services, we wouldn’t have a rapidly growing rooftop solar industry.

So, there you have it. Cheap batteries are unlikely to hurt utilities. Indeed, more batteries will lead to more revenue for utilities as those batteries power new applications, like EVs, or require constant trickle charging for backup power systems. If batteries get cheap enough, utilities will probably buy plenty themselves to damp out power fluctuations due to solar and wind installations. It’s almost like utilities have a new friend.

If utilities have nothing to fear from batteries, what storage and backup power–related problem threatens them? Part two of this blog series will reveal the answer.

Original article

Jay Stein's picture

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Bob Meinetz's picture
Bob Meinetz on May 4, 2015

Jay, the Sydney researchers’ data shows that to achieve 99.6% reliability would require a solar array 8x as big “at one location”.

Obviously, whatever your location happens to be will have a significant influence on that number. But let’s assume it was in a solar-friendly locale like South Australia – that still leaves 36 hours/year without any electricity at all.

How big would the array have to be to guarantee the “three nines” standard (99.999%) of American utility generation?

Jay Stein's picture
Jay Stein on May 5, 2015

Bob, I think the U.S. grid, on average, is nearly 99.99% reliable. I don’t know how much more equipment it would take to go from supplying 99.6% of the load to just below 99.99%, but it’s probably significant. Due to the laws of diminishing returns, at extremely high levels of reliability, small improvements can require a lot of additional gear. I doubt you could practically get to 99.999% reliability using solar panels and batteries alone. I suspect at that point, you’d have to have some sort of dispatchable generator. Maybe one of our readers is a power quality expert and can help us with your question. Thanks for commenting on my post.

Jorge Montero's picture
Jorge Montero on May 8, 2015

Do you really think people need almost perfect realiabity ? I dont think so.  Perhaps you are not considering the demand side of electricity.  Demand can adapt.  Perhaps 95% is easily achived by changing some habits, using more efficient appliances, using using other resources, etc., etc..

I do agree with idea that not everybody will leave the grid.  But how many ?  Would they be enough to start the death spiral ? (less clients, higher electricity prices, more defections, less clients, higher electricity prices … and so on)



Jay Stein's picture
Jay Stein on May 11, 2015

Gordon, thanks for commenting on my post. I’m curious as to why you think it’s strange I didn’t mention Swanson’s Law. I don’t see how it would either add or detract from my conclusions. Anyway, the other day, Michael McDonald published an excellent article about Swanson’s law titled A Spanner In The Works Of The Solar Revolution. Please consider Swanson’s Law mentioned.

Regarding your concern that I didn’t mention the strategy of using batteries to shift load between peaks and troughs, I suspect you missed where I did that. It’s near the end, where I wrote “If batteries get cheap enough, utilities will probably buy plenty themselves to damp out power fluctuations due to solar and wind installations.”

Lastly, I’m curious why you wrotethe grid would not need the additional capacity to handle peak loads.” Of course, once any building is connected to the grid, the utility has the obligation to serve. It must have the capacity to meet that building’s peak load, whether that capacity is used or not. Just having a solar array is by no means a guarantee a given building won’t ever draw its peak load. For one thing, solar peak does not necessarily occur when peak load does.


Thanks, again, for commenting on my post.

Jay Stein's picture
Jay Stein on May 11, 2015

Gwen, thanks for commenting on my blog. I would like to note that many utilities are eager to help their customers use technology to shift their loads so that they minimize their electric bills. However, I suppose there are some utilities who would take the point of view you describe in your comment. To them I would say that, currently, it’s highly uneconomical for residential customers to use batteries to arbitrage time-of-use rates. Long before this application becomes economical for customers, I expect it to become economical for the utilities themselves to smooth out loads using grid-scale batteries. Utilities would earn a rate of return for purchasing, installing, and operating such batteries. As such, I don’t see this application as a threat. Anyway, I think we can both agree it would be preferred if regulators can work out a better way of remunerating utilities, so that their incentives are better aligned with our society’s goals regarding improving the effectiveness with which we use energy. Thanks again for commenting, and I hope you’ll check out Part II.

Jay Stein's picture
Jay Stein on May 11, 2015

Mario, thanks for commenting on my post. I don’t think people need almost perfect electric system reliability, and indeed, I never wrote such a thing. I’m sure some people who are driven to achieve electric supply autonomy would be happy with the 95% availability that you propose. I agree with you that there are a variety of demand response and other coping mechanisms that would enable someone to manage at that level.

You ask how many people I expect will leave the grid if we assume 95% electric availability is sufficient. I don’t think that introducing this number changes my conclusions in the slightest. As long as access to net metering remains widely available, only a trivial number of people will leave the grid. There is no economic justification for spending large sums of money on panels and batteries when one can get electric storage and backup services for free.

Perhaps the events of last week will shed some light on how US consumers value electric supply availability. I spent countless hours over that time reading about how the availability of our current electric grid is unsatisfactory, and that tens of thousands of people want to buy a battery for over $7,000 to improve their electric supply availability. How many people would be willing to spend much more money and achieve much lower availability than what the electric grid currently provides on average? The rustic charm of a less electrified life notwithstanding, I don’t expect to see many people lining up for that offer.


Thanks again for your comment.

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