Re-inventing the electricity industry with storage

The costs of electricity storage are falling faster than many expected and utilities must decide now how they want to interact with this additional energy landscape.

No matter what side of the fence you are on, everyone is agreed that electricity companies will be very different in a few years’ time.

In the broader context, change is inevitable of course and we need look no further than the business world to see that sustainable businesses adapt and prosper, leaving others in their wake. Although they come from a history of public ownership where things move more slowly, utilities are far from immune; transformational change is happening all around us at an ever faster pace.

We already have a “new normal”, compared to just a few years ago.

Just how storage will fit in the utility business models of the future remains to be seen, but clearly there are some great examples around the world of what it might look like.

In New Zealand, for example, Vector Energy has jumped in boots and all to trial new business opportunities in demand management energy efficiency, solar and energy storage solutions. Although it’s not clear what the future market will look like, they clearly see opportunities to monetise the value of load shedding in residential and commercial applications.

Vector is a privately owned network company, but has diversified income from metering services, demand management, load shedding incentives and other activities. The metering part of their operations is a crucial piece of the puzzle if Australian experience is anything to go by; lack of granular data is a common excuse for lack of action here.

In 2013, Vector commenced a trial on 50 homes with an integrated offer of solar PV, lithium storage, data monitoring, finance and load shedding. Although they are subsidising the current offer, they see this type of solution as logical and inevitable.

Whether lithium – or some other technology – is the ideal solution is just one of the many topics that will be covered at the Australian Energy Storage Conference scheduled for May 8 and 9 this year. A leading cast of experts with real world technologies and first-hand experience will present their latest findings; an ideal opportunity for utilities to check their technology positioning.

Storage solutions will in all likelihood be technologically diverse allowing utilities to target specific network issues. For example, using PV to directly heat water is an emerging market niche in Australia and abroad. The massive reductions in PV cost coupled with the simplicity of installation compared to solar thermal installation provide increasingly compelling economics.

The transformative part of this equation is unravelling how utilities can derive increased income by selling less energy. This is no mean feat and will require regulatory intervention and a major change in the business models they currently employ in Australia to work.

Some parts of this equation are concisely clear, however.

The first is consumer demand. The desire for increased energy independence has created an overwhelming community desire for PV. Similarly, those with PV can now see that storage is the next logical step. It’s a simple psychological leap that increasing numbers of early adopters are already taking and as costs fall, wider adoption becomes inevitable. It’s no longer a question of if; it is now only a question of when.

Of course, wider adoption could happen in several ways. Like PV, it could be pulled through by community demand once the economics become compelling enough. This is far from ideal because it will happen despite utilities, in less optimal ways and, if history is any gauge, faster than they expect. Messy disruption.

Alternatively, adoption could be forced on utilities in the same way California has done. By setting mandatory minimum network capacity requirements, utilities have limited say in when, how, what type or how much storage is deployed; they simply have to adapt or face penalties. Compulsory disruption.

It is entirely probable that we will see more markets take the incentive approach too, like we have seen in Germany and more recently, Japan. These countries have taken a high level position that storage makes sense for their own individual reasons and offered funding support to drive adoption in much the same way PV markets have been incentivised. Incentivised disruption.

Utilities are faced with major challenges which vary dramatically around the world; and even geographically in Australia. They now have a decision to make with respect to storage; get in early and choose their own hand which suits them best in exchange for early adoption, or face the consequences of an inevitable market surge and play the hand they are dealt, for better or for worse.

In the last month I have spoken with five different storage solution providers all offering different technologies, solutions and angles on what will work best. There was one consistent story across them all – costs are falling faster than they expected.

Attending the 2014 Australian Energy Storage Conference is starting to look like a necessity for utilities, if you ask me.

Nigel Morris is director of Solar Business Services.

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