Page 29 - Energize September 2021 HR

VIEWS AND OPINION

The economics of grid defection revisited

What seemed like a novelty is becoming commonplace

by Fereidoon Sioshansi, PhD, Menlo Energy Economics

n 2014, the Rocky Mountain Institute (RMI) published a report titled The economics of grid
defection in which it showed how different regions of the US could experience grid defection as the
Icost of self-generation – primarily from rooftop solar PVs – would fall below retail electricity rates.
It was a prophetic report – scary if you were a regulated utility with high retail tariffs in a sunny
region of the US such as Hawaii or California. The report, as with many others from the RMI and
others, was, however slightly ahead of its time. For example, while it saw the combination of solar plus
batteries as a major threat, it did not foresee how quickly the costs of both technologies would fall.
The report posed the question: “What happens when solar and batteries join forces? Together
they can make the electric grid optional for many customers – without compromising reliability
and increasingly at prices cheaper than utility retail electricity.”
Adding, somewhat optimistically, “Though many utilities rightly see the impending arrival
of solar-plus-battery grid parity as a threat, they could also see such systems as an opportunity
to add value to the grid and their business models. The important next question is how utilities
might adjust their existing business models or adopt new business models – either within existing
regulatory frameworks or under an evolved regulatory landscape – to tap into and maximise
new sources of value that build the best electricity system of the future at lowest cost to serve Fereidoon Sioshansi
customers and society.”
With the prevailing numbers which might have seemed a bit rosy at the time, the RMI retail rates. It is also helped or hampered
produced the accompanying visual (Figure 1) which suggested that customers in Hawaii, with high by the presence or absence of net energy
retail rates, would be better off producing their own electricity on their rooftops as early as 2014, metering (NEM) laws and how generous or
while those in New York or California would have to wait until 2025 and 2031 respectively, and stingy they are. In California, for example,
those in Kentucky and Texas even longer. they have been helped by an overly
Rooftop solar price parity has less to do with solar insolation and more to do with high generous NEM law – mostly unchanged
since it was introduced in 1996 when PV
costs were high relative to retail rates, but
not anymore.
The California Public Utilities Commission
(CPUC) is expected to significantly modify the
NEM by the end of this year. As with many
predictions about the future, RMI was off:
it grossly under-estimated how quickly and
how far the costs of both PVs and batteries
would fall.
It also under-estimated how retail prices
may rise. At current tariffs prevailing in
parts of CA, NY and New England, the day of
reckoning – solar price parity vis-a-vis retail
tariffs – arrived earlier than expected.
Moreover, distributed storage
allows “prosumers” (those who produce
and consume electricity) to become
“prosumagers” – by storing the excess solar
generation during sunny hours for later use
– or charging their electric vehicles (EVs),
basically big batteries on wheels.

(Building on the concept of “prosumers”
(producers and consumers), the term
“prosumage” has emerged. Prosumage
additionally includes energy storage that
Figure 1: Off-grid vs. utility price projections - commercial-base case; y-axis uses 2012 US$/kWh can be used to increase self-consumption
tariff (Rocky Mountain Institute) (producers, consumers and storage – ed.).

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