THE

ECONOMICS OF
GRID
DEFECTION

HOMER ENERGY PRE-CONFERENCE WORKSHOP
20 MAY 2014
RMI advances market-based solutions that transform global energy use. We
engage businesses, communities, and institutions to cost-effectively shift to
efficiency and renewables, creating a clean, prosperous, and secure energy
future.


Our whole-systems expertise unlocks market-based solutions that can be
replicated and implemented now.
As an independent, non-partisan nonprofit, we convene and collaborate
with diverse partnersbusiness, government, academic, nonprofit,
philanthropic, and militaryto accelerate and scale solutions.
We boldly tackle the toughest long-term problemschallenges often
ignored by those held to short-term results.
Weve been a leader in energy efficiency and renewables for more than 30
years.
INTRODUCTION TO RMI
WHAT WE DO
WHAT
DIFFERENTIATE
S US
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RMIS SCOPE OF CURRENT ACTIVITY
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Program commitments
are dark starbursts
Favorable defection economics exist for a small minority of customers today, but will expand to millions of
customers by 2024 under conservative assumptions
Hawaii is the most favorable geography today, with hybrid systems at or near prevailing commercial and
residential rates
Approximately 20% of customers in both Mid-Atlantic and Southwest will see favorable economics within a
decade
Parity generally happens for commercial customers before residential ones

Achieving DoE targeted levels of technology advance and/or optimizing demand before installation of the system
brings forward parity economics by 5-10 years. In our most progressive case, all customers in the Southwest and
90% of customers in the Mid-Atlantic would see favorable defection economics within 10 years

Defection is suboptimal
From an economic perspective, the difference in cost between installing a 98% solution vs. a 100% solution
for a customer is dramatic, and unless we devise ways to share the benefits of these resources, there would
be an unnecessary over-investment
From a social perspective, the consequences of individual customer defection are even more tragic,
because those unable to physically install or afford these systems would pay an increasing percentage of
the cost for maintaining the grid.

All this leads us to conclude that the traditional utility business model is broken today. Utilities are making
investments now for customers that may not exist in the future

These systems can create value for customers, utilities, and the businesses that provide them. Migrating to a
system that enables the two-way exchange of value by a wide-range of producers and consumers will unlock this
value
REPORT KEY MESSAGES
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Key Messages
Study Overview
Results
Ongoing Research
PRESENTATION OVERVIEW
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STUDY
OVERVIEW
BACKGROUND AND MOTIVATION
SPIRALING EFFECTS THAT IMPERIL THE
TRADITIONAL UTILITY BUSINESS MODEL
one can imagine a day when battery storage technology
or micro turbines could allow customers to be electric grid
independent.

- Peter Kind, Disruptive Challenges report, 2013
Study Goal: Establish a fact-base for where and
when solar plus battery storage
hybrid power systems compete with
traditional utility service
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THESE FACTORS GIVE CUSTOMERS A NEW
SPECTRUM OF CHOICE
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WHERE WE LOOKED TO SEE IF IT COULD HAPPEN
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WE TESTED THE DISRUPTION THROUGH A VARIETY
OF SCENARIOS
Base Case
Accelerated Technology
Improvement
Demand-Side
Improvement
Combined
Improvement
PV Sunshot
Residential - $1.50/W
Commercial - $1.25/W
Efficiency Measures
Residential 30% Reduction
Commercial 34% Reduction
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HOW WE ARRIVED AT OUR RESULTS
Financial
Assumptions
ITC Eligibility
MACRS

Financial Analysis
Model







HOMER software
Cost
Projections
Solar PV
Batteries
Inverter
Diesel Fuel*
(*Commercial Profiles Only)
2 Load
Profiles
Residential
Commercial

Hybrid System
Results
Levelized Cost of Energy
Net Present Cost
kWh/yr
Replacement Costs ($/yr)
O&M ($/yr)
Emissions
Technical
Specifications
Solar PV
Batteries
Inverter
Generator*
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GENERAL
RESULTS
KEY ANALYTIC FINDINGS
BY 2025 MILLIONS REACH PARITY IN OUR MOST
CONSERVATIVE COMMERCIAL SCENARIO
With projected
declines in technology
costs parity arrives in
ALL of our locations by
2050

Assuming aggressive
price reductions (e.g.
DOE Sunshot) or
introducing demand
management, these
dates move forward by
nearly a decade


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WITHIN A DECADE EVEN LARGE GROUPS OF
RESIDENTIAL CUSTOMERS REACH PARITY
Despite small
systems, residential
customers will see grid
parity by 2050

With aggressive
technology price
reductions or demand
management, parity
arrives over ten years
earlier


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THE COMMERCIAL PARITY TIMELINE
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THE RESIDENTIAL PARITY TIMELINE
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EFFECTS ON CUSTOMERS AND REVENUE IN THE
SOUTHWEST BY 2024 (COMMERCIAL)
Base Case
$0.19
Demand-side Improvement
$0.14
Accelerated Technology Improvement
$0.12
Combined Improvement
$0.09
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EFFECTS ON CUSTOMERS AND REVENUE IN THE
SOUTHWEST BY 2024 (RESIDENTIAL)
Base Case
$0.46
Demand-side Improvement
$0.25
Accelerated Technology Improvement
$0.24
Combined Improvement
$0.14
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EFFECTS ON CUSTOMERS AND REVENUE IN THE
MID-ATLANTIC BY 2024 (COMMERCIAL)
Base Case
$0.24
Demand-side Improvement
$0.17
Accelerated Technology Improvement
$0.16
Combined Improvement
$0.12
States included in the Mid-Atlantic region for this graph: CT, MA, NJ, NY, PA, RI
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EFFECTS ON CUSTOMERS AND REVENUE IN THE
MID-ATLANTIC BY 2024 (RESIDENTIAL)
Base Case
$0.92
Demand-side Improvement
$0.44
Accelerated Technology Improvement
$0.47
Combined Improvement
$0.24
States included in the Mid-Atlantic region for this graph: CT, MA, NJ, NY, PA, RI
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ONGOING
RESEARCH
PLANS FOR COMPANION REPORT
TRANSFORMING THE CURRENT RELATIONSHIP
WITH ELECTRIC SERVICE
Grid
as
Backup
Battery
as
Backup
Transactive
System
Distributed resources and the grid can be complementary

GRID DEFECTION HAS REAL TRADE-OFFS


Reduced capacity needs on the grid
Contributions to ancillary services
Transmission congestion relief
Access to fast-ramping resources
Peak shaving and demand
response capability (upgrade deferral)
Reduced environmental impact
Improved resiliency


Reliability (stable voltage and
frequency, redundancy)
Virtual storage
Start-up Power
Access to upstream markets
Risk reduction
Diversification of supply and
demand sources

GRID BENEFITS DER BENEFITS
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Rather than a threat, solar-plus-battery systems
offer new and expanded values that we are not
taking advantage of

New or revamped business models can unlock
these values

A forthcoming companion piece to this study will
investigate design principles that unlock the
potential value of these systems while sharing the
benefits across stakeholders

SEEING THE POTENTIAL THREAT AS AN
OPPORTUNITY
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THE REPORT IS THE PRODUCT OF A TEAM
EFFORT
OUR PROJECT PARTNERS:
Galen Barbose, Lawrence Berkeley National Laboratory
Kristin Brief, Ambri
Nicholas Chase, U.S. Energy Information Administration
Ali Crawford, Sacramento Municipal Utility District
Cummins Power Generation
Julieta Giraldez, National Renewable Energy Laboratory
Allan Grant, Corvus Energy Limited
Rob Harris, PowerSecure Solar
Eric Hittinger, Rochester Institute of Technology & Aquion Energy
Grant Keefe, Distributed Sun
Dave Lucero, EaglePicher
Lee Kosla, Saft Batteries
Paul Komor, Renewable and Sustainable Energy
Institute (University of Colorado)
Christopher Kuhl, ZBB Energy Corporation
Tom Leyden, Solar Grid Storage
Marc Lopata, Microgrid Solar
Jim McDowall, Saft Batteries
Pierre Moses, Make It Right Solar
Jeremy Neubauer, National Renewable Energy Laboratory
Scott Reeves, EaglePicher
Armando Solis, Hanwha Q Cells USA
Matthias Vetter, Fraunhofer Institute
Ted Wiley, Aquion Energy
OUR SUPPORTERS:
THOSE THAT OFFERED CRUCIAL INSIGHTS
AND PERSPECTIVES:
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1. Near-term grid parity, and thus defection risk, exists for both
commercial and residential customers; we are entering an era of
greater customer empowerment

2. Grid parity for the majority of US electricity customers arrives
within the 30-year economic life of typical utility power assets

3. Parity Defection

4. Defection is sub-optimal and can lead to uneconomic and
inequitable outcomes

5. The speed of disruption in the electricity sector is outpacing
regulatory and business model reform; we have <10 years to fix
before problems compound significantly and need to make rapid
progress
REPRISE: KEY MESSAGES
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Creating a clean, prosperous,
and secure energy future

TM

Utility Load Profile Load Size
(kWh/yr
)
Rate Projection
(low)
Rate Projection
(high)
Hawaiian Electric
Co.
Honolulu
Residential
14,479 0.62%
3%
Honolulu
Commercial
722,700 0.34%
Southern California
Edison
Los Angeles County
Residential
7,914 0.10%
Los Angeles County
Commercial
586,557 0.10%
CPS Energy San Antonio
Residential
15,247 0.90%
San Antonio
Commercial
670,504 0.70%
Louisville Gas &
Electric
Louisville
Residential
12,837 -0.50%
Louisville
Commercial
604,809 -0.40%
ConEdison (NY) Westchester County
Residential
11,927 0.30%
Westchester County
Commercial
577,431 0.10%
RETAIL PRICE PROJECTIONS USED IN OUR
STUDY
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APPENDIX
TRENDS IN RETAIL ELECTRIC PRICE INCREASES
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TRENDS IN RETAIL ELECTRIC PRICE INCREASES
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TESTING THE ASSUMPTION SCENARIOS
Accelerated Technology
Improvement

Portrays the impacts of sharply
decreased total installed PV costs
along with aggressive battery price
projections.

DOE SunShot PV goals included as
our PV costs.
DOE battery target included as our
battery cost.

Factors driving to these prices:
Scaling of the large format, lithium
ion battery market
New battery chemistries
2nd use application for EV
batteries
Reductions in solar balance of
systems costs




Demand-side
Improvement

Portrays the impact of full
implementation of cost effective
energy efficiency and demand
management to shift the load profile,
especially during allowed periods of
capacity shortage.

Efficiency is the lowest cost energy
solution. Reducing the total load of
the system reduces the size of the
PV and battery assets necessary to
meet the consumers load. A smaller
system reduces the total capital cost
of the hybrid system.

Demand management capabilities
that enable consumers to shift their
load profile in response to seasonal
weather patterns, also reduce the
necessary size of the system.
Combined System
Improvements

Portrays the lower cost technologies
considered in the accelerated
technology improvement scenario,
coupled with the efficient and flexible
load profile in the demand-side
management improvement scenario.

Combining innovation and efficiency
creates a total system improvement,
that brings hybrid systems to grid
parity much sooner than any of our
other scenarios considered alone.










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LOS ANGLES GENERATION MIX IN 2024
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