Utility business model is in danger – and Australia is the proverbial ‘canary in the coal mine’

The point when the cost of solar electricity generation falls below that of the cost of the network is the real threat to traditional utilities, a new report has warned.

It’s known as “god parity” – meaning that even if the cost of coal-fired, gas-fired or nuclear generation were free, it would be too expensive to compete with solar – and according to Charles Yonts, an energy analyst with Hong Kong-based CLSA, it will be the new normal for energy networks, sooner than we think.

“In this new world, baseload power (ie the stuff that we have all relied on for most of the time for our entire lives) will be like needing a mainframe,” Yonts writes in a new report.

“There will have to be some large generation systems, just like big data centres today, but most generation and storage will be distributed.

“This lends itself to further analogies with the internet – an Internet of Energy …  Just like we upload / download data now, we will upload/download energy; a transactive economy.”

Australia is the proverbial canary in the coal-mine on this issue. Solar generation costs are about 10-13c/kWh, below what most customers pay for network costs. As battery storage costs come down further, it will be inexpensive enough for millions to potentially get off the grid and/or build microgrids.

Yonts’ source for these forecasts is Tony Seba, the Stanford University academic who predicts that Silicon Valley will make oil, nuclear, natural gas, coal, electric utilities and conventional cars obsolete by 2030.

“By 2020, rooftop solar in sunny areas like the US Southwest will generate electricity onsite at less than the cost of transmission and distribution,” Seba wrote in a blog last year.

“This bears repeating, a house, a business, or a Big Box store in Los Angeles, CA, or Phoenix, AZ, will generate solar for less than what their centralized generation utilities charge the ratepayer for transmission and distribution costs. This means that it won’t matter how much these conventional generation facilities cost.

“Even if the utilities miraculously invented a new technology that used the ‘God Particle’ to generate electricity at a cost of zero  (remember the nuclear promises of ‘too cheap to meter’?) they will not be able to compete with solar self-generation.”

At this point, Seba says, centralised generation will not have a business model, and most utility-scale generation assets will be stranded.“The only way utilities might even stay alive after that is to work through the regulatory system to maximize short-term cash flow at the expense of ratepayers,” he says.

© 2015 Solar Choice Pty Ltd

Giles Parkinson

Giles Parkinson regularly contributes unique content to Solar Choice News. Giles is the founder and editor of clean energy industry news service RenewEconomy. He is a journalist of 30 years experience, a former Business Editor and Deputy Editor of the Financial Review, a columnist for The Bulletin magazine and The Australian, and the founding editor of Climate Spectator.
Giles Parkinson