Widespread customer defection from electric grid possible by 2025

Rocky Mountain Institute, CohnReznick Think Energy and HOMER Energy

A new report from the think tank Rocky Mountain Institute (RMI), microgrid modeling software company HOMER Energy and consulting firm CohnReznick Think Energy (CRTE) details the potential for appreciable customer defection from the electric grid in major markets by 2025 without incurring higher costs or lower reliability.

The report, “The Economics of Grid Defection: When and Where Distributed Solar Generation Plus Storage Competes With Traditional Utility Service,” shows that as the hybrid combination of solar photovoltaic (PV) and battery storage become cost-competitive with retail grid electricity rates, migration of customers away from the grid could happen well within the 30-year planned economic life of typical utility investments such as central thermal generation plants and transmission infrastructure.

The first installment of two reports outlines the possible scenarios in five U.S. regions – Hawaii, California, Kentucky, Texas and New York – and identifies when solar PV and storage combinations could disrupt existing utility business models. The continuing decline of solar PV and battery storage costs, coupled with increasing retail electricity prices, has resulted in grid parity today for commercial customers in Hawaii. The most optimistic projections, based on certain solar and efficiency targets’ being met, depict grid parity for millions of residential and commercial customers in New York and California within this decade.

Key Takeaways

  • A considerable number of utility customers likely will see favorable defection economics within 10 years;
  • Utilities likely will experience significant revenue decay before defection; and
  • The likelihood of favorable long-term customer defection signals the eventual demise of traditional utility regulatory models.

“Solar plus storage represents a fundamentally new paradigm,” said Jon Creyts, RMI managing director. “While other distributed generation options still require some degree of grid dependence, solar plus storage provides an opportunity for customers to cut the cord to their utility entirely. To remain competitive, utilities need to understand how to leverage hybrid systems within the electricity system.”

Even before total grid defection becomes a reality, utilities will see further revenue decline because solar-plus-battery systems sized to meet most of a customer’s load will become cost-effective sooner. In addition, other motivating factors such as customer desire for increased power reliability and low-carbon electricity generation are driving early adopters ahead of grid parity.

The best way for property owners and developers to compete, said Mark Crowdis, CRTE founder and president, is to understand how distributed generation and storage is rapidly changing energy economics.

“By assessing the impact of these new technologies and the innovative contracting approaches that support them, property owners can be at the leading edge of this new market, ensuring long-term financial savings for their properties,” Crowdis said.

The second installment of the report will offer solutions for how utilities might rethink the threat of such hybrid resources and unlock opportunities through new business models within existing regulatory frameworks or under an evolved regulatory landscape to better capture the value of distributed resources.

As storage and control technologies improve, opportunity exists to incorporate increasingly more renewable energy sources into the grid to balance and optimize those power sources, said Peter Lilienthal, HOMER Energy CEO.

“Properly regulated, these hybrid technologies can be a benefit to the larger grid, rather than a threat as they are sometimes depicted,” he said.

Click here for report

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The Clarion Energy Content Team is made up of editors from various publications, including POWERGRID International, Power Engineering, Renewable Energy World, Hydro Review, Smart Energy International, and Power Engineering International. Contact the content lead for this publication at Jennifer.Runyon@ClarionEvents.com.

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