Can Companies Really Say Goodbye To The Utility Grid?

Posted by Jacob Bayer on September 22, 2016 No Comments
Categories : Featured

Producing energy has always involved a large upfront investment and a steady return over many years. In the era of power plants, joining the production chain meant acquiring a large piece of land, hiring an army of workers and managing cost-effectiveness to remain in the game.

However, since solar panels became very cheap, a lot of that has changed. Suddenly, producing energy became as simple as drilling a few holes on your roof and setting an installation that requires little to no human oversight. Best of all, you can actually scale the system and only invest in power production capacities large enough to meet your needs.

So, why would you stay connected to the grid when the technology to produce and store power already exists? Do you even need someone else to supply you with power? Questions like these are already being posed by businesses, and some of them are threatening to leave the grid. However, those threats might not be as serious as they initially appear to be.

Intermittent nature of solar

The world will continue to turn and the sun will continue to shine – that’s a given. However, we are not in control over the amount of sunshine we receive every day, and that’s where it starts to get tricky. Even if we set aside the fact that the sun cannot help us out during the night or during a storm, we still have to figure out how to handle peak demand, so the first thing that comes to mind is energy storage.

So, how much storage? How big should renewable capacities be to actually produce enough for current use and reserve? What’s our fail-safe option? These are all good questions that keep businesses and residents connected to the grid.

Plus, for now, staying connected to the grid is still lucrative for most of those who own solar. As an energy consultant, I often get asked to calculate the cost of a grid-independent solution and to compare it with the grid-tied option. These calculations always end up the same way – independence leads to a larger upfront investment and slower return on investment because, in my view, the idea is inferior as a business model.

Energy needs to be a liquid asset

Producing and storing power that will not be used is the equivalent of keeping money under a mattress – there is no chance to lose your capital, but you are missing out on the chance to increase its value. A connection to the grid will always be useful, not only to make your energy supply more stable, but also to use it as a trading route that turns your excess into a liquid asset.

Even with large storage capacities, there will be occasions when you can’t store or use all the power that’s being currently produced, so the only smart thing to do is sell.

Why companies want to disconnect

If it’s so lucrative to stay connected to the grid, then why are some companies threatening to leave it?

Large companies that are based in states without deregulation have almost no control over how much they pay for electricity. Adding solar capacities and improving energy efficiency are the two options left for companies that want to lower their energy bills but can’t negotiate a price per kilowatt-hour. Because most new commercial properties are actually quite energy efficient, that leaves solar as the only viable option for lowering energy bills.

This can be quite frustrating, especially if the local utility charges high electricity rates and is not very solar friendly. When it comes to solar, net-metering policies vary a lot from one state to another, and in some states, utilities are allowed to charge solar users a fixed fee for grid maintenance. That makes the addition of renewables less lucrative, and when combined with high energy rates and the lack of other options, it’s no wonder there are companies that want to leave.

What’s their plan, and where’s the catch?

According to studies, the U.S. commercial storage market could grow significantly by the end of the decade. This growth is mostly tied to future solar energy generation, and it speaks volumes about the dissatisfaction of the business sector with the services utilities are currently providing.

Storing excess power is the first step toward claiming energy independence. The only thing missing now is favorable math – cheaper storage and even cheaper panels – for all of it to make sense.

So, why are businesses threatening to leave now, when the math still doesn’t add up? In most cases, it could be because they are trying to negotiate rates rather than seriously considering to leave. Even according to some of the most optimistic studies and assessments, grid defection might not be a lucrative move for at least 10 years.

Because companies are big consumers, threatening to leave out of spite gives them leverage and helps them negotiate now instead of waiting 10 years for the market to tilt in their favor.

Utilities: evolve or die

Still, prices on battery storage are rapidly declining, and the clock is ticking for utilities to make large changes. A sharp fall in battery storage prices could greatly challenge a utility’s role and threaten its business.

Some states and utilities have already modified policies to accommodate solar, but there are also utilities that have taken action to discourage the addition of more solar capacity. Working against solar proliferation is the one recipe that will ensure mass grid defection, so it’s time for everyone to wise up and work together. Slowly changing conditions are best suited for evolution, so utilities should start working on integration before energy storage creates huge changes on the energy market.

There’s still time to adjust

The grid has always been a good idea, and it will continue to be one as long as it is used right. Its future probably lies in facilitating energy trade between individuals and supporting local and global energy security, which is not a small role to have. There’s a long road ahead before that becomes a reality, and there’s a great deal of uncertainty about how things will play out. Nonetheless, odds are that we’ll be long gone way before the grid concept is replaced by something superior.

Jacob Bayer is founder and CEO of the energy consultancy Luminext Inc.

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