Research released in January by the energy services company Energy for the People and the not-for-profit Alternative Technology Association found that regional towns and new housing estates in Victoria could function viably without connecting to centralised electricity and, in some scenarios, centralised gas grids by 2020.
Entitled What Happens When We Un-Plug: Exploring the Consumer and Market Implications of Viable Off-Grid Energy Supply, the research sits with a growing body of evidence, validating the hypothesis that viable stand-alone energy supply will be with us before 2020, including The Economics of Grid Defection by the Rocky Mountain Institute, research by Morgan Stanley into off-grid tipping points and, most recently, the views of the Independent Market Operator in Western Australia.
If you have followed the rapid maturing of the solar power industry, where panel production costs dropped 80 per cent in two years (from 2009-2011) it will be no surprise that cheap stand-alone power is around the corner. Factory built, modular and very cheap, once economies of scale are reached, battery technologies are set to mirror the solar story.
The energy market’s collective blind-spot on solar power uptake has set a concerning precedent. Failing to predict falling energy demand is one thing – failing to predict that customers will leave the grid altogether escalates utility death spiral risks. We live in dynamic, global markets meaning only a few nations and handful of companies need to take energy innovation seriously for profound impacts to reverberate across the globe.
A number of scenarios were examined as part of our research, including regional townships where the local community buys back the electricity grid and employs a specialist energy services company to retrofit homes, install and maintain stand-alone power infrastructure.
For towns currently using bottled gas for space heating, or where the cost of upgrading the electricity network is just $2000 per home and natural gas is already available, the right combination of household retrofits and stand-alone power infrastructure can be cost-effective today and will certainly be cost-effective by 2020. Those figures will rightly spook some network companies and highlight the only real constraint on viable stand-alone energy supply today is ensuring electricity supply through winter, when solar production is down and, in the Victorian climate, when energy demand is typically high.
In greenfield housing developments where the cost of capital for energy infrastructure is kept to 7 per cent for an initial 10-year investment period (subsequently rising to 8.6 per cent) or where 1 per cent of home construction costs can be saved by reducing the size of a home, stand-alone power infrastructure – with natural gas providing space heating – will be cost-effective before 2020. That implies developers and planning authorities overseeing major residential housing projects today should be considering stand-alone power infrastructure as connecting to the grid is likely to mean locking in high energy costs for households to come.
Importantly, for a house that doesn’t want to compromise on energy use or comfort, and where natural gas for space heating exists, by 2020 it may be cost-effective to install an individual stand-alone power system through a bulk buy scheme. This implies no exit strategy for the local network business, just the mass-market leaving the grid of their own accord. Of course, customers who are willing to adapt their behaviour, or conserve energy during 10-20 days of winter, will leave the grid cost-effectively sooner than 2020.
In cities, the transition to stand-alone power is constrained by roof space and air pollution limiting the role of back-up generators. We found that stand-alone power was unlikely to be a viable city solution before 2020 without significant step-changes in solar PV and battery cost and technology performance.
For state and federal governments grappling with political fallout from rising power prices and pressure from incumbent energy businesses to preserve their asset values, the message is clear. Status quo energy investment will see stranded energy assets and, potentially, power prices spiralling upwards as customers leave the grid in an unplanned way. A hands-off management process or business as usual will not work.
Conversely, if the transition to stand-alone power infrastructure is proactively managed, network business can exit their increasingly unprofitable assets by selling them back to communities. Further, by unwinding historical cross-subsidies from city to regional consumers, power cheaper for our cities and suburbs are likely to be reduced. For centralised generators, a viable exit strategy is less clear.
For leaders with the courage and vision, the opportunity is to create a political story with serious currency – a way through the energy market transition muddle that creates more winners than losers.
It is critical to note the research was conducted in Victoria. Compared to the rest of Australia, Victoria’s solar resource is poor, the winter climate relatively harsh and grid-supplied electricity prices are some of the lowest in the country. This makes Victoria a “worst-case” scenario for stand-alone power infrastructure and would suggest the viability of stand-alone power will be more cost-effective, more quickly, in most other energy market states and regions.
A new era of local, reliable, cheap, clean energy is dawning. It is backed by an irresistible intersection of falling energy storage costs, cheap solar energy, rising energy prices and high levels of customer dissatisfaction with energy companies. It brings undeniable risks, but it also brings opportunity for those who can embrace the emerging future.