Predicting the future – what I think lies in store for domestic solar

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Not too long ago I had the pleasure of attending a seminar where the eminent Australian economist Ross Garnaut discussed the processes Australia (sh/c)ould go through in order to reduce our emissions. It was a challenging set of tasks that would see a dramatic impact on our operating expenses, taxes and on political frameworks in the short-term, but might not only effectively reduce Australia’s emissions but see Australia move towards being a world leader in technology and low commodities prices. The central tenet was that Australia should be moving to renewable energy sources and changing modes of transportation as quickly as possible.

I walked away from the seminar not only inspired by the practical and rational framing Garnaut placed a low-emissions economy within, but also the extent to which he was confident in making predictions. I have come to realise that this isn’t something I’m confident doing. My research has taught me to restrict my statements to the evidence before me, and my past in the public sector had me limit my predictions to linear regressions based on previous experiences. In neither case am I given the opportunity to say what I actually think might happen with solar energy in the future, so I’m taking the opportunity to talk about it here.

Firstly, the price of domestic solar panels is probably close to bottoming out. We have made incredible gains in cost reductions from increased scales of economy and international competition. Technological advances will see us increase the efficiency, reliability and durability of systems but the price probably won’t decrease much further. At the moment you might be able to get good panels on sale for $1.50 per watt. This probably won’t change significantly, but prices will standardise and converge somewhat as word gets out about the dodgy systems and a few mid-level trusted players push out high-cost competitors.

Conversely, the introduction of residential-scale batteries will change everything. The price of batteries will plummet in future years, meaning that within the next five years a combined PV-battery system will be affordable in the way systems are currently affordable – that is, they’ll still require a large up-front investment for a PV system large enough to warrant the installation of a battery, but ‘average’ households will consider it affordable in the long-run.

What we are likely to see in the short term is a drop in the number of people installing PV systems. The people who were considering installing a system will hold off until battery prices drop over the next few years. Additionally, the sweet-talk of the premium feed-in tariffs will drop and there will be reduced enthusiasm for many as word from the number of people installing over-sized systems and getting lower-than-expected financial benefits will filter through community groups. The extent of the drive towards over-sized systems is a potential problem for the solar industry – many consumers won’t have understood the difference between ‘capacity’ of a system and ‘units’ consumed a day and will be dissatisfied when they realise that their peak consumption is only partially covered by solar. (However, these people will still install a system if they move into a new house and experience the shock of paying full bills again – the churn of systems through the sale of houses will promote greater interest in solar).

What happens after the next few years will be entirely determined by what happens with tariff structures. Tariff structures will have to change significantly to respond to reduced demand, particularly from individual households, and will negatively affect solar installers. The likelihood will be to initially have higher network costs for all domestic consumers, a time-of-use tariff to acknowledge that peak demands of solar users is still a pressure for the system, and even more contentiously people choosing to go ‘off-grid’ but remain within connection range of the grid will have to pay to maintain access to the grid, even if they don’t use it. Telstra instituted this for some time as households transitioned to mobile phones. It will take some time for consumers to adjust to the new tariff structures and decide whether solar energy will be cost-effective for them. This will be assisted by increased technology for households, including smart-meters that might be adopted in the roll-out of time of use tariffing. However, technological benefits will be limited to those with a sound level of energy literacy and interest in technological solutions for household problems. In spite of the literature on smart appliances and such, the mismatch between both gendered roles in household chores and those interested in technological solutions (it was hard to write that sentence!) and the whole-of-house investment required will limit interest in smart-appliance technologies. (As a side note I don’t support the use of ‘smart appliances’ – simple mechanisms to turn off appliances completely will be more practical and efficient. I think a ‘dead switch’ app – remotely enabling householders to disconnect individual power points – may takeoff, but little else will).

Governments will, eventually, realise that reducing the carbon intensity of the electricity grid will be popular. At this point, multiple forms of renewable energy will be favoured. Peaking by biomass will be useful, and the increased use of large-scale batteries will assist in smoothing. This is particularly the case for small-grid and off-grid regions, who will benefit from reduced demand for fuels. The cost of this transition, particularly given the loss of equity in stranded assets, will be considerable. Bipartisanship in generating solutions is preferred, but unlikely. It seems the golden days of bipartisanship for policies like the Renewable Energy Target are over.

The introduction of electric cars and batteries will cause greater problems for energy utilities in having to plan for demand and peak capacity. Greater information will be made available on the interaction between incumbent energy generators, renewables, batteries/cars and the grid. This will include that problems for the grid associated with the intermittency of embedded generation have been overstated, but also continued evidence that the reduction in peak capacity is driven by energy efficiency and reduced industry as opposed to small-scale solar systems. The introduction of batteries, however, will shift towards a reduction in peak capacity, but may coincide with increased monitoring of the system (and therefore increased network costs) to better understand where to distribute electricity within a two-way flow electricity grid.

Additionally, we’ll see a democratisation of small-scale electricity grids, with retirement villages, gated communities and fringe-of-grid towns introducing their own disconnected system. The effect of this on the cost structure of the network operator will be dependent on where these solar communities form. If it is at locations that would have required grid-extension (where it is more cost-efficient for communities to do so anyway, in order to avoid headworks charges) there will be cost benefits for the network operator, if it happens within grid, there will be a further disparity between network costs and those required to pay for them.

Privatisation of the network provider is a wild card. It could result in more efficient, high investment and well-planned pricing structures, or it could go the way of the Western Australian regional rail network and result in rapidly eroding physical assets, reduced operation and everyone being really annoyed.

So those are some thoughts, based on what I have seen in the media, journal articles, through my interviews and just generally making some wild assumptions. Your thoughts would be appreciated!

 

(Clipart from here)

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