Solar Power and Battery Backup: Tesla and SolarCity's Dream Home

[3mp_kwh]

I think battery price reductions will eventually force the hand of utilities and they'll be the ones with the batteries.

The problem I see with this is there are more potential earnings locked up in demonstrating that new plant is needed. Batteries, like distributed grid and demand response, take that earnings stream away. My guess is wide adoption will be super slow, for two reasons. One, we overestimate the savvy of utilities (in recognizing the arbitrage before them). Two, people tend not to reach for long-term savings, through high, up front costs.

On the corporate side, most utilities see the earnings path through their regulated businesses, meaning away from the operating costs of their generation. Strategy follows the monolithic path of testing regulators, to see what can be passed on. A dollar of legitimized cost, turns into $1.10 of recovery. A dollar of savings? What to do when EIA is saying the sector's growth rate will be just 0.7%/yr? They're challenged.

 

[ItsNotAboutTheMoney]

The problem I see with this is there are more potential earnings locked up in demonstrating that new plant is needed. Batteries, like distributed grid and demand response, take that earnings stream away. My guess is wide adoption will be super slow, for two reasons. One, we overestimate the savvy of utilities (in recognizing the arbitrage before them). Two, people tend not to reach for long-term savings, through high, up front costs.

On the corporate side, most utilities see the earnings path through their regulated businesses, meaning away from the operating costs of their generation. Strategy follows the monolithic path of testing regulators, to see what can be passed on. A dollar of legitimized cost, turns into $1.10 of recovery. A dollar of savings? What to do when EIA is saying the sector's growth rate will be just 0.7%/yr? They're challenged.

The problem for utilities is that solar and batteries are getting cheaper and consumer solar+battery would completely mess with their model. If they try to keep loading up on generation, they'll just make it more obvious for consumers to switch, and solar leasing companies will happily make it very easy for the consumers. (There are also markets where generation and distribution are (supposedly) separated). A utility that invests in batteries across their grid would have economies of scale that would stop growth in consumer batteries in its tracks, raise generation efficiency, lower emissions, increase renewables, increase grid stability and generally allow them to meet any target government throws at them, with the nice bonus of more capital expenditure that allows them to have more guaranteed profits.

In fact, cheap static storage could kill residential solar in some locations, as the generators and utilities' ability to meet renewable targets and beat residential solar costs would likely lead to them lobbying away subsidies.

 

[Robert.Boston]

Southern California Edison just last week contracted for an 85 MW battery storage facility, so I think we're seeing the shift already. The contracts are with Stem, Inc. Interestingly, this is all behind-the-meter storage on customer sites.

Utilities don't have any incentive to build new generation; their incentive is to increase invested capital that they are allowed to earn regulated rates upon. While power plants have historically been an easy place to make those investments, battery storage is a big capital item, too.