Utilities at risk of solar and storage technology uberisation

Worldwide studies are showing rapid development and decreasing prices in solar and storage technologies. What could this mean for utilities?
Published: Fri 03 Aug 2018

During the past 12 months, the costs of renewable energy technologies have continued to decrease, becoming more and more competitive compared to traditional electricity generation resources. Batteries storage costs decreased also by about 20%.

Additionally, all customers increasingly expect services which offer better energy management, fairer prices and transparency, more sustainable generation and also more ways to save - and earn - money.

These were the findings of Capgemini in its World Energy Markets Observatory (WEMO) 2017.

So what does this mean for traditional utilities? Regardless of size or locational setting, all players in the energy market must be aware of the changes in consumer behaviour and technology, lest they suffer the effects of uberisation.

The term ‘uberisation’ is defined as “subjecting (an industry) to a business model in which services are offered on demand through direct contact between a customer and a supplier, usually via mobile technology,” according to the Collins English Dictionary, and stems from US startup Uber’s disruptive ridesharing service.

Based on the expert insights from Capgemini, we unpack the changes in the energy market to find out what utilities can expect and prepare for in the coming years from solar photovoltaics (PVs) and storage disruption.

Solar PV and storage market developments

Fierce competition between Asian and local solar PV manufacturers has driven down the price of the technology, although often at the peril of efficiency, says the WEMO report.

However, development of more efficient solar cells has continued. The report says: “Manufacturers have been able to create solar panels that are nearly 30% efficient, and in 2016 high-end commercially available cells had an efficiency between 19-21% generating 25% more electricity than average cells and reducing the area required for a given watt of power output. In France’s CEA-LETI labs, efficiency of 46% was reached. However, super-high-efficiency panels are typically made of more expensive materials and are not yet cost efficient.”

Although lithium-ion is concerning due to its non-sustainable material nature, the report also notes a cost reduction in batteries, noting a change from $1,000/kWh in 2010 to less than $300/kWh in 2016, as well as in other viable storage technologies.

Due to the intermittent nature of solar PV, Capgemini’s WEMO reports potential extra costs of around 30% for poorly managed solar PVs due to grid disturbances. Pairing local generation with energy storage serves as a more cost-efficient and stable solution for consumers seeking to save on energy spending.

These reductions in price and the opportunity for more efficient local production create new opportunities for consumers and utilities alike - but also for new market entrants.

Incentivising PV-battery adoption

Driving a majority of this uptake in renewable technology are new carbon reduction regulations and consumer interest.

Where historically, customers may have been indifferent or resigned to utility spending, recent years and changes in engagement have spurred a rise in demand for more eco-friendly production and consumption.

In its WEMO report, Capgemini cited a number of innovative schemes across Europe to encourage and incentivise the uptake of PV-battery systems.

For instance, Germany’s 2013 incentive programme encouraged PV-battery adoption by providing loans and grants to help finance self-consumption acquisition. The German Energy Storage Association estimates 200,000 units will be sold by 2020, and analysis of new PV systems sold and installed in 2016 revealed that half were paired with batteries. Following this success, the programme was extended to 2018.

In the UK, self-consumption is encouraged by generation tariff premiums, and consumers also continue to receive feed-in tariffs for surplus PV energy exported. This alone is enough to significantly incentivise retrofitting panels with batteries, and enabled solar installers to recover from a slow year in 2015 by offering further battery installation services.

The Swedish government has a scheme, which will run through to the end of 2019, wherein it will finance up to 60% of system costs for residential storage up to SEK 50,000 (around €4,800), on the condition that it is paired with a grid-connected renewable plant.

The report anticipates: “In 10 years’ time (or less), technology improvements and digitalisation will enable non-subsidised renewables, combined with mass storage, to have a significant share of the electricity mix, contributing to decarbonised energy consumption.”

Leveraging PV-battery technology

The potential benefits for utilities go beyond improving grid balancing and overhaul issues, providing an opportunity for better demand response mechanisms and new revenue streams.

Thanks to new entrants to the sector creating more media disruption, such as German home energy storage systems providers, Sonnen, the incumbents fall further into the recesses of consumers minds when they think of innovative energy services.

If utilities continue to be hesitant in offering new services, namely PV-battery systems, they run the risk of uberisation at a time when revenues are already shrinking.

Should this occur, utilities may enter the PV-battery market too late at a point where it is oversaturated by other suppliers. Furthermore, opportunities to best utilise the technology for grid balancing benefits may be lost.

Consumer interest in PV-battery will continue to rise not only as energy engagement rises, but also in tandem with other technology developments such as EVs become more commercially available. Utilities can therefore position themselves to offer a variety of services to consumers that enable and encourage developments such as peer-to-peer and vehicle-to-grid.

In an upcoming webinar featuring key insights from experts at Capgemini, “Creating an effective business model with solar and storage technology” we will explore the business models and new revenue streams available to utilities for PV-battery services.