There is a point at which it will make economic sense to defect from the electrical grid

More than 1 million US homes have solar systems installed on their rooftops. Batteries are set to join many of them, giving homeowners the ability to not only generate but also store their electricity on-site. And once that happens, customers can drastically reduce their reliance on the grid.

It's great news for those receiving utility bills. It's possible armageddon for utilities.

A new study by the consulting firm McKinsey modeled two scenarios: one in which homeowners leave the electrical grid entirely, and one in which they obtain most of their power through solar and battery storage but keep a backup connection to the grid.

Given the current costs of generating and storing power at home, even residents of sunny Arizona would not have much economic incentive to leave the electric-power system completely - full grid-defection, as McKinsey refers to it -until around 2028. But partial defection, where some homeowners generate and store 80% to 90% of their electricity on site and use the grid only as a backup, makes economic sense as early as 2020.

This scenario is already playing out in Australia and Hawaii, and has begun spreading to solar-friendly markets such as Arizona, California, Nevada, and New York. As batteries get cheaper and better, utilities are rattled at the prospect of losing a massive share of their revenue.

A self-reinforcing cycle is at work. As consumers make their own energy, rates must increase on those left to cover the system's fixed costs. This raises rates still further, making it even more advantageous for customers to leave the grid.

Instead of adapting to this dynamic, utilities have generally sought to stifle solar with time-of-use pricing, demand charges, or cutting compensation for electricity exported back to the grid.

But as daily needs for many are supplied instead by solar and batteries, McKinsey predicts the electrical grid will be repurposed as an enormous, sophisticated backup. Utilities would step up and supply power during the few days or weeks per year when distributed systems run out of juice. Our analysis helps show the grid is very valuable as a backup investment, says Amy Wagner, a co-author of the McKinsey report.

Only, the business models of utilities are not designed for this. Their revenue typically depends on selling kilowatt hours: more electricity equals more money for utilities. Power users don't respond quickly to daily price spikes in their power bill, so ratepayers absorb electricity costs. That goes away in a world where software managing a grid connection can automatically switch to batteries to avoid high charges. A new business model is needed.

The only way to pay for the grid is as a network, said McKinsey's David Frankel, a co-author of the report. "It's very counter to what the industry has seen." Instead of paying per kilowatt, he suggests, grid users could pay for access and reliability, with one fee covering the vast majority of usage. The model might resemble the fixed, monthly charges we're used to paying for cell phone data and calls.

At the moment, only a tiny fraction of utility customers have left the grid or installed batteries. But it's happening faster than was expected several years ago. Solar panels and battery prices are dropping fast - lithium-ion batteries have fallen from $1,000 to $230 per kilowatt-hour since 2010 - as massive new solar and battery factories come online in China and the US. By 2020, Greentech Media projects, homes and businesses will have more battery storage for energy (841 megawatts of capacity) than utilities themselves.

Utilities may find they need to retool their business models sooner than they think.



Almost Too Much Wind Power in Europe

It’s Been So Windy in Europe  (June 2017) That (Wholesale) Electricity Prices Have Turned Negative

But we can't always rely on bad weather.

Editor's Note by the Arizona Solar Center:

This is one of the technical problems with renewable energy, sometimes the local utility (or even regional inter-tie area) will end up with more renewable energy than anticipated or useful.  For many reasons local utilities do not generate all the energy their customers need.  In the USA and Europe there are wholesale energy markets in which utilities and independent power producers buy and sell energy under contracts. There can be minimum and maximum power levels for specific time periods.  System operators need to maintain a balance of generation vs. customer loads (not a simple task), and must consider the varying load characteristics of the various generation sources. As a result some suppliers may be told not to supply contracted power (and may receive compensation as a result), and adjoining utilities may be paid to accept some extra power. 

It's been very windy across Europe this week (June 5, 2017). So much so, in fact, that the high wind load on onshore and offshore wind turbines across much of the continent has helped set new wind power records.

For starters, renewables generated more than half of Britain's energy demand on Wednesday—for the first time ever.

In fact, with offshore wind supplying 10 percent of the total demand, energy prices were knocked into the negative for the longest period on record. The UK is home to the world's biggest wind farm, and the largest wind turbines, so it's no surprise that this was an important factor in the country's energy mix.

"Negative prices aren't frequently observed," Joël Meggelaars, who works at renewable energy trade body WindEurope, told Motherboard over the phone. "It means a high supply and low demand."

Indeed, there were a few periods in recent days during which Denmark's supply of wind energy alone exceeded local demand—as much as 137 percent  overnight when demand was lower.

In total, around two percent of Europe's total energy supply was being provided by offshore wind on Tuesday.

"That's a very high level," said Meggelaars.

Producing more energy than your country can use isn't always a bad thing. It often simply means that energy can be sold on to neighbors, as is frequently the case with Danish supplies to The Netherlands, Germany and Norway.

The news comes not long after it was revealed that, worldwide, renewables supplied a record 161 gigawatts of electricity in 2016—and at a price that was 23 percent cheaper than it would have been in 2015.

Of course, one of the main features of energy sources such as wind that is made clear by this recent news is just how variable, or perhaps unreliable, it is. As a result, most countries still rely on more predictable sources of energy such as gas, nuclear, or biomass to provide their "base load"—the minimum demand on the electricity grid over time.

Source 6-8-2017 https://motherboard.vice.com/en_us/article/its-been-so-windy-in-europe-that-electricity-prices-have-turned-negative

Storage and Solar Finance: Programs for the Rising Behind-the-meter Markets in the US, EU

Moixa Smart Battery for the home. Credit: Moixa.
The global energy storage industry will expand rapidly in the next few years, as it moves to support solar and other infrastructure that is growing more and
more complex.

Utility-scale storage will be a significant part of the energy storage market’s expansion, but, according to a March report by Navigant Research, recent market
developments include an uptick in projects in the distributed sector, particularly for solar + storage microgrids and the commercial and industrial segment.
Navigant expects global annual deployments of residential energy storage to increase by about 3.7 GW by 2025.
With interest in energy storage growing within the commercial and residential segments, how are markets moving to assist customers as they look for
financial options to install these next-generation energy systems?
Storage Costs Declining But Still Higher than PV Costs

Behind-the-meter energy storage prices are declining, but they are not so low that it’s an easy buy for businesses and the general public.

A National Renewable Energy Laboratory (NREL) report released at the end of March found that the cost in 1Q16 for a 5.6-kW PV+storage system with a
3-kW/6-kWh AC-coupled battery was $29,568. The PV modules accounted for about $3,600 of that total and the battery $3,000. The cost for a
5-kW/20-kWh battery on a similarly sized PV system was $10,000 for the battery alone. The report puts total hardware costs in 2016 for a standard
3-kW/6-kWh residential storage system at between $6,530 and $8,560.

In the U.K., home battery provider Moixa was offering a solar+storage package last year for £4,995 (US$6,240). That installed price includes a 2-kWh
battery and a 2-kW solar system. Moixa also offers standalone home battery systems of 2 kWh and 3 kWh starting at £2,500.


Incentives for storage in the U.S. are mostly limited. The 30 percent federal solar investment tax credit applies to energy storage, and while a handful of states
have incentive programs for non-residential behind-the-meter storage, even fewer have programs for residential storage.

Energy storage is included in Calif.’s self-generation incentive program, but residential installations have been limited under the program. According to
NREL, Calif. regulators last year amended the program to reserve 15 percent of total storage allocations for projects < 10 kW, making about $9M available
annually for that segment through 2019.
In Vermont, Green Mountain Power last year started offering incentives for installation of Tesla’s home battery. Leases are available for about $40/month, and homeowners who purchase the system can earn a bill credit of about $32 per month.
There is more in the original .pdf file:

Thoughts on utility and Solar/Wind issues in Arizona- June 2017

Recent advances in batteries and pending changes in utility policies and rates regarding solar electric (photovoltaic or PV) systems has shown a need for background data.  The Arizona Solar Center has prepared this report. 

Most residential electric utility customers do not understand the challenges that utilities face with adapting and accommodating renewable energy.


Electric utility operations

 The need for electrical power varies by:

  • Time (seasonal, time of day, instantaneously as equipment cycles no and off, etc.) (see Need for Storage later in this document)
  • Location (rural vs. urban)
  • Type of equipment (lights, water pumping, smelting, heating/air conditioning, water heating, vehicle charging, etc.)

 This varying demand for electrical power is always a challenge for utilities, and a direct cost.  Many types of electrical generator cannot vary their output quickly (nuclear and hydro are examples), while others such as gas turbines can be varied and are used to match utility load to generation.  Utilities spend considerable effort predicting loads and managing their resources in order to meet but not exceed the demand. Some generation sources, such as solar and wind will be by their nature intermittent (since the sun does not shine at night) and their absence will have to compensated by use of other resources. The challenge also includes minimizing the cost, the larger power plants that react relatively slowly have the lower cost per kWh (kilo-Watt-hour, the usual measurement of electrical energy).

 The penalty for failure to match demand with generation is severe, outages and brown-outs (lower than normal voltage) can occur.  

 The ideal situation for a utility is constant demand, but that is not likely.  The utilities have few tools available to them to encourage an easier to manage, more constant load.  These include:

  • Rate schedules that offer lower rates during periods of generally lower demand, and higher rates during periods of generally higher demand,
  • Offering customers the availability of rates with a demand charge, but lower energy charges in order to have customers even out their energy usage,
  • Offering incentives to customers to allow the utility to turn off some loads remotely when the utility is experiencing loads in excess of the available generation (water heaters, air conditioning, some commercial processes to name a few),
  • Limiting the generation of power by sources that can more easily be cut back (large scale photovoltaic systems and most wind turbines).

 Over decades the rate schedules in Arizona have been developed in order to somewhat balance the competing demands of the various classes of customers and the related legal situation.  In Arizona the utilities have defined service areas and must service all customers on an equal basis.  Rural customers generally cost more to serve than urban customers.  Small customers cost more to serve than large customers, on a cost per KWH basis.

 Due to many reasons, it is not practical to directly allocate utility costs to customer bills.  Kind of related to the old economic impossibility of calculating the relative costs of steak, tallow, hide, etc. of beef when the costs are related to raising the whole animal.  These economic problems are best solved by letting the market place establish the relative prices based on supply and demand.  While the prices of commodities can vary quickly, few power users would be well served by waiting for a utility to determine actual costs before billing users.   

In a perfect economic situation, a utility customer would be billed for electric services in direct accordance with the cost of providing the services.  The basic services are the energy generation and the transport of the energy to the customer.  The transport involves the requirement for equipment to carry the peak power requirement of the customers and is called “Demand”.  Precise billing is not possible for many reasons because of the interplay of fixed and variable costs and the complex issues involved.  To address this billing need, easy to implement rate schedules have been developed for the many classes of customers and for many reasons.  These rates attempt to match costs with pricing for various classes of customer.  As an example, APS presented the following comparison of Cost structure vs. Revenue Collections for residential customers:

Another way of looking at this:

One consequence of this method of billing is that a utility recovers most of its residential fixed costs on the basis of residential customer energy use.  As a result, when a customer reduces the energy used by installing a PV system or solar hot water system, the customer’s contribution to the fixed costs decreases, but there is not a proportionate decrease in the utility fixed costs.  When DG (Distributed Generation) is a small portion of the utility energy mix, this imbalance is insignificant compared to the costs and problems involved in modifying the overall utility rate structure to better match revenues by customer class with the costs of serving the customers. The above APS illustration (other utilities are similar, but APS has provided a good graphic representation at a metering workshop) illustrates the mismatch.

This is the overall result of literally dozens of rate structures that are available to APS residential customers that range from fixed flat rates (energy not charged for such as street lights) to billing based on energy used and demand by time of use.  While the revenue values are accurate, the allocation of costs between residential and commercial customers is not an exact science, but this is close.  The variable revenue is based on both energy consumed and demand charges that reflect the peak loads imposed on the utility and the amount of equipment required to provide the energy.

 The obvious question is ‘Why do these percentages not have a closer match?’  There are hundreds of reasons ranging from the need to provide universal service to customers within the service territory to a political need to treat some customers differently.  That is beyond this discussion.

 The proportion of fixed and variable (energy and demand) customer charges in a rate is of high interest for DG (Distributed Generation- such as customer PV systems) because DG sources reduce variable charges.  The variable part of a utility rate includes Energy (measured in kilowatt-hours) and peak demand (measured in kilowatts).  Peak demand is reflective of customer “usage” or “burden” on the utility distribution system. 

Impact of DG

As renewables such as solar and wind become more significant in the mix of generation resources in Arizona, they will affect how each utility addresses the operational and revenue issues.  Solar and wind bring both benefits and challenges into the generation and usage related issues in operating a reliable utility system (a legal requirement placed on the utilities).  A customer benefit may be a challenge to the utility.  Society as a whole benefits when the environment is improved, but is this benefit reduced if the utility reliability is reduced? 

DG brings many benefits to the Utility; PV systems help utilities avoid the most expensive power for much of the afternoon, save costs of adding infrastructure (customers make the investment), and reducing loading on transmission lines. 

The overall discussion of the costs of solar vs. benefits of solar are beyond the scope of this report.

The need for Storage

 In commercial-scale electricity generation, the ‘duck’ curve is a graph of power production over the course of a day that shows the timing imbalance between peak demand and renewable energy production.

The dip in this curve, increasing in proportion to installed solar capacity, illustrates the utility problem in meeting demand in the early evening.  Energy storage can be used reduce the ‘head’ by transferring energy from daytime to evening. 

The role of storage 

The concept is simple, but expensive to implement- Store excess energy from periods of low demand relative to energy availability, and use the energy during peak times. The storage can be batteries, pumped water, compressed air, etc.  There is both a value and a cost with using energy storage.  The value of storage in a utility connected situation depends highly on the usage pattern and the selected utility rate schedule.  Taking APS bundled standard residential summer rates (May 2017, subject to change in a few months) as an example: 


On-Peak period

$ per kWh

$ per kW








$ 0.24477

$ 0.06118

No demand charge



$ 0.08867

$ 0.04417

$13.500 per On-Peak kW


Before considering homes with PV systems, the possible effect of storage on energy costs is as follows:

  • Under TIME ADVANTAGE storage can be used to shift Off-peak energy worth $ 0.06118 per kWh to On-peak periods when the energy is worth $ 0.24477 per kWh, a savings of $0.18359 per kWh.
  • Under the COMBINED ADVANTAGE rate, the energy cost savings is only $0.0445 per kWh, but proper usage of storage during On-peak periods can reduce demand charges by $13.500 per On-Peak kW. Savings depend on using the storage when it produces the most savings. 

 Under TIME ADVANTAGE if the lifetime cost of the storage is less than $0.18359 per kWh, then there is a savings.  It is difficult to calculate this lifetime cost because storage (typically batteries) life depends on many variables such as depth of discharge, ambient temperature, cost of the capital involved, etc. (Estimate the cost per kWh shifted by dividing the cost of the battery system by the total number of kWh that will be shifted over the life of the battery) 

Under COMBINED ADVANTAGE it is far more difficult to project savings that will be mostly due to reducing the demand charges.  Most utility customers who select the COMBINED ADVANTAGE rate will take steps to either manually or automatically reduce demand.  Manually includes changes in life style such as limiting high energy use during the peak periods (A/C off, water heater off, no baking, etc.) or automatically with a device called a load controller.  While it is easy to look back and see when peak usage occurred and when storage could have been used, it is very difficult on an instantaneous basis to determine when to commit limited storage to reduce monthly demand when a future period may occur after the battery has been discharged.  Some companies are providing an internet ‘cloud’ service wherein a computer learns usage patterns  and applies services such as weather forecasting and utility rates to determine the most likely period of high demand and when to us any available storage.  The same process is used to recharge the battery with lower cost energy. 

Adding PV to the analysis 

If a home has a PV system, the foregoing analysis is more difficult and depends on the relative sizes, and the utility policy for instantaneous excess local generation (net metering, etc.).  The following discussion assumes net metering and the APS EPR-6 rate (soon to be modified).  Under the current May 2017 net metering policy an APS customer using TIME ADVANTAGE or COMBINED ADVANTAGE rate plans will have essentially two net metering accounts, On-peak and Off-peak.  Any excess generation remaining on either account is credited at $0.02868/kWh (off-peak) or $0.02943/kWh (on-peak) at the end of the year.  Any excess on-peak kWh cannot be used to meet off-peak usage.  If the relative size of the PV system results in excess off-peak energy and a need for on-peak energy, storage may be carefully used to shift some off-peak energy to on-peak periods.  This has to be done carefully as shifting too much may result in an annual surplus in the on-peak account that is worth only $0.02943/kWh. 

Some families have adapted well to TIME ADVANTAGE, such that a PV system that faces South to West and is sized to produce only 65-70% of the annual usage will produce 100% of the on-peak energy.  This means that any increase in PV system size will only serve to produce excess on-peak energy worth only $0.02943/kWh and off-peak energy worth $0.06118/kWh.  It is difficult to justify the cost of storage in such a situation. 

Private storage vs. Utility storage 

In theory, utilities could use high capacity storage to shift vast quantities of energy in order to level the balance between generation and demand.  At present (May 2017) utility scale storage is still in the research mode. Tucson Electric Power (TEP) is testing a 10 MW , 4-hour battery and SRP plans on testing a similar system.  APS has a few feeder storage systems (2 MW).  When and if such storage becomes economically viable, it will be more cost effective than local customer storage. 

Residential solar users considering adding battery storage to their PV system need to consider if the additional cost of a battery system will produce savings that justify the additional investment. Since future utility rates (On-Peak, Off-peak, excess, demand as per the earlier discussion) are not well defined, the exact savings cannot be calculated. 

Cutting the cord?

 Some advocate having a home PV system with storage that is large enough to disconnect from the utility.  For most families, this is simply not economically practical.  Residential energy needs have a summer and a winter peak (low spring and fall usage).  The winter peak corresponds with lower levels of sunshine (and longer periods of cloudy weather).  A careful analysis of expected worst case PV system output on a monthly or even daily basis vs. the expected energy needs will determine the required system component sizes and the costs.  This also means that any excess PV output that exceeds storage will have to be controlled by regulating equipment (simply disconnected) as seasonal energy storage is not likely to be practical. A reliable standalone PV system may cost more than the residence, if it can be installed on the property.