Residential renewable power generation and storage will become profitable for London households by 2030.
This could cause a major disruption to the UK utilities sector, report researchers from the Centre for Climate Finance & Investment at Imperial College Business School, in a new study.
The Centre’s findings chart a step change in the energy consumer experience, at a time of rising customer concerns about energy prices and mounting criticism of the profit margins enjoyed by UK power distributors.
Although consumers are unlikely to leave the power grid completely until after 2030, their gradual withdrawal from traditional utilities to the comparable cost – and service – of renewable energy will have significant implications for electrical utilities and investors. London households can already profitably reduce what they consume from their electricity supplier, but the disruptive force of cheaper battery storage presents a potential game-changer for one of the world’s largest industries over the next decade.
For example, the mass adoption by consumers of a cheaper alternative may provoke a price hike on remaining consumers, prompting even further reductions in demand. This feedback loop has been referred to as “the utility death spiral”.
Grid parity vs. firm power parity
Until now, existing energy pricing models have systematically understated the potential of renewable technologies to provide a similar service at a lower cost than grid supplied electricity. The notion of “grid parity” has been at the heart of research in the past.
The Centre has developed a new framework, called “firm power parity”, which is more accurate as it charts the milestones at which on-site renewables deliver the same service – in addition to the same cost – as conventional energy supplies.
Dr Charles Donovan, Director of the Centre for Climate Finance and Investment at Imperial College Business School, said:
“The concept of grid parity does not capture the increasingly complex changes in the relationship between electricity producers and consumers and is flawed on several levels. Firstly, electricity generated from renewable energy is, by its very nature, intermittent. What’s more, different consumers face different prices for their electricity – with residential consumers paying the most. Finally, the price that consumers pay for their electricity is not necessarily static. The framework created by the Centre takes these points into consideration and differentiates between consumer types and energy services provided.
“There is no doubt that technological innovation is moving the world towards a cleaner energy system. The results of our research are exciting as they show we will soon be entering a period where reliable and profitable solar power production by residential energy consumers becomes a reality in relatively cloudy places like London. The new concept of firm power parity that we have developed is more suited to the competitive landscape that renewable technologies currently find themselves in. Firm power is what’s available when the sun is not shining.
The results of the Centre’s research suggest the outlook for consumers in Munich is far more favourable than it is for Londoners, in terms of the profitability of onsite solar photovoltaic (PV) power generation and day storage. However, the outlook for London is an order of magnitude better than in Johannesburg, South Africa. The other cities featured in the study include New York, Santiago and Bangalore, all of which are progressing at a rate just behind London.
Dr Donovan added: “The UK government has a big problem on its hands: solar and storage technologies are advancing rapidly and will bleed revenues from the utilities sector, yet we need a financially healthy industry to enable large-scale investments in smarter, more flexible electric power networks. The transition ahead is going to be messy. For example, the expensive baseload power to be generated by Hinkley Point C may not even be needed if consumers make the profitable switch to onsite solar and storage indicated by our model.”