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Op-Ed: Is Dream of Going Off the Grid Disconnected from Reality?

Technological advances and public-policy shifts notwithstanding, storage costs and other factors mean the future isn’t here just yet

Rasika Athawale

Ralph Waldo Emerson wrote: “Every man is a consumer, and ought to be a producer. He is by constitution expensive, and needs to be rich.”

Given the recent rise of interest in self-generation of electricity, one may say that Emerson’s quote has been literally put into practice by electric consumers.

According to General Electric, the annual distributed power capacity additions (including for all categories of consumers -- residential, commercial & industrial -- and technologies such as gas engines, reciprocating engines, fuel cells and solar PV) will grow from 142 gigawatts in 2012 to 200 gigawatts in 2020 (a majority of which will be installed in China and India).

Advancements in home battery storage have further led analysts to believe that probably the future of utilities is much bleaker than what we all thought – for example, Tesla announced last month an overwhelming response to its new line of products, as it received pre-advance orders for 38,000 of its home-sized Powerwall units.

Much of this growth can be attributed to technological progress resulting in reduction of costs (both capital costs and soft costs such as installation, financing, insurance, etc.) coupled with supporting regulatory and business environment.

From a public policy perspective, distributed generation has been encouraged because -- depending upon the type, size and location configuration – emissions reduction, lower transmission and distribution (T&D) costs, and increased reliability and resiliency (R&R) of the grid can be achieved.

In New Jersey, supporting policies such as net-metering and solar renewable-energy certificate mandates have helped expand the distributed solar market.

From January to December 2014, the net-metering eligible customer-generators supplied a total of 723,611 megawatts per hour to the electric distribution companies (EDCs) in the New Jersey, which was approximately 1 percent of the total retail electricity sales in the state for that year.

But can consumers hope to completely support their energy requirements after leaving the grid?

This question was brilliantly analyzed in a recent Energy Policy paper titled “Leaving the Grid: An Ambition or a Real Choice?” by researchers from The University of Sydney, Australia.

The paper has important lessons for consumers (discussing what choices are most economically feasible), for regulators (discussing which policies would be effective) and, last but not least, for utility companies (how to sustain revenues in the face of looming “death spiral”).

The authors argue that the principal barriers of intermittency and availability of distributed renewable energy sources can be overcome if and when storage becomes cost-competitive.

Power costs are now in the range of $200-$300 per kWh for a Tesla or Nissan battery compared to an average residential retail tariff of 15.56 cents per kWh in New Jersey.

Innovation and advancements in technology would increase the economic feasibility of energy storage sooner or later, thus making distributed generation-plus-storage a reality.

The current rate design, which favors volumetric tariffs, further leads to calls for action by non-participating consumers, since if they don’t do anything their share of electricity bills would go up.

This in turn leads to the “death spiral” challenge for utilities if they are unsuccessful in changing rate structures for all consumers – not an easy task, for energy bills are a politically sensitive topic in any country.

The authors go on to demonstrate that it may not be actually beneficial (always) for the consumer to self-generate and that there are periods when relying on the traditional utility for electricity is more cost-effective.

They do this with an optimization model which identifies the optimal solar PV and battery-size required for a hypothetical consumer while maximizing consumer savings (costs incurred in self-generation minus costs incurred in drawing power from the grid).

The results suggest that no combination of PV and storage is able to achieve 100 percent grid independence while also maintaining a positive net present value (NPV). In other words, the size of a distributed generation solution becomes too large (and hence too expensive) if a consumer wants to be completely off the grid.

Given these economic constraints, we may not see too many consumers leaving the grid in the near future.

Nevertheless, several changes in the business environment can have an effect on how far away that future is. Price reduction, technological advancements (availability factor, material and size improvements) and regulatory push (ability to sell excess electricity, community projects) all can have a profound effect.

But, until then, we are all hooked to the grid!

Rasika Athawale is a research manager at the Center of Energy, Economic & Environmental Policy (CEEEP) at the Bloustein School of Public Policy at Rutgers University. Previously a consultant with KPMG and PricewaterhouseCoopers India, she has assisted clients with feasibility studies, entry and growth strategy and bid process advice. As a founder of MindCrunch, she has helped clients create thought leadership content. She writes for various business magazines on global energy industry issues and can be followed on Twitter (@GoRasika).

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