The Economics of Grid Defection: When and Where Distributed Solar Generation Plus Storage Competes with Traditional Utility Service

Author:  Abromowitz, Jeffery | Bronski, Peter | Creyts, Jon | Crowdis, Mark | Glassmire, John | Guccione, Leia | Lilienthal, Peter | Madrazo, Maite | Mandel, James | Rader, Bodhi | Richardson, John | Seif, Dan | Tocoo, Helen
Organization:  Rocky Mountain Institute | CohnReznick | Homer Energy
Report Date: 
2014
Report Summary: 

This RMI Study found that distributed electricity generation, especially solar PV, is rapidly spreading and getting much cheaper and distributed electricity storage is doing the same, due mostly to largely to mass production of batteries for electric vehicles. This trend is undermining traditional utility business models and the report found that solar power is already starting to erode some utilities’ sales and revenues, with a considerable number of utility customers will likely see economics that make it favorable to withdraw from utility service within the next decade.

Key Take-Aways: 
  • Declining costs for distributed energy technologies and increasing adoption of those technologies are transforming the electricity market and suggest grid parity for solar battery systems is coming sooner than anticipated.
  • Utilities will likely experience significant revenue decay befor this customer defection trend, and the likelihood of favorable long-term customer defection signals the eventual demise of traditional utility regulatory models.
  • The point where solar battery systems reach grid parity (economic and technical service equality with the electrical grid), is well within the 30 year planned economic life of central power plants and transmission infrastructure. 
  • An important question will be how utilities adjust their existing business models or adopt new business models—either within existing regulatory frameworks or under an evolved regulatory landscape—to tap into and maximize new sources of value that build the best electricity system of the future at lowest cost to serve customers and society.
Key Facts: 
  • States such as Hawaii are already at grid parity for solar battery systems, and states such as New York and California could see grid parity in 2025 and 2031, respectively.
  • Solar PV’s levelized cost of energy is expected to continue to decline through 2020 despite the likely end of residential and renewable energy tax credit and the reduction, from 30% to 10%, of the business energy investment tax credit.