Distributed electricity generation, especially solar PV, is rapidly spreading and getting much cheaper. Distributed electricity storage is doing the same, thanks largely to mass production of batteries for electric vehicles. Solar power is already starting to erode some utilities' sales and revenues. But what happens when solar and batteries join forces? Together they can make the electric grid optional for many customers—without compromising reliability and increasingly at prices cheaper than utility retail electricity. Equipped with a solar-plus-battery system, customers can take or leave traditional utility service with what amounts to a 'utility in a box.'
This 'utility in a box' represents a fundamentally different challenge for utilities. Whereas other technologies, including solar PV and other distributed resources without storage, net metering, and energy efficiency still require some degree of grid dependence, solar-plus-batteries enable customers to cut the cord to their utility entirely.
Notably, the point at which solar-plus-battery systems reach grid parity—already here in some areas and imminent in many others for millions of U.S. customers—is well within the 30-year planned economic life of central power plants and transmission infrastructure. Such parity and the customer defections it could trigger would strand those costly utility assets. Even before mass defection, a growing number of early adopters could trigger a spiral of falling sales and rising electricity prices that make defection via solar-plus-battery systems even more attractive and undermine utilities' traditional business models.
How soon could this happen? This analysis shows when and where U.S. customers could choose to bypass their utility without incurring higher costs or decreased reliability It therefore maps how quickly different regions' utilities must change how they do business or risk losing it. New market realities are creating a profoundly different competitive landscape as both utilities and their regulators are challenged to adapt. Utilities thus must be a part of helping to design new business, revenue, and regulatory models.
Our analysis focuses on five representative U.S. geographies (NY, KY, TX, CA, and HI). Those geographies cover a range of solar resource potential, retail utility electricity prices, and solar PV penetration rates, considered across both commercial and residential regionally-specific load profiles. After considering many distributed energy technologies, we focus on solar-plus-battery systems because the technologies are increasingly cost effective, relatively mature, commercially available today, and can operate fully independent of the grid, thus embodying the greatest potential threat.
We model four possible scenarios:
- Base case—Uses an average of generally accepted cost forecasts for solar-plus-battery systems that can meet 100% of a building's load, in combination with occasional use of a diesel generator (for commercial systems only)
- Accelerated technology improvement—Assumes that solar PV and battery technologies experience more aggressive cost declines, reaching or surpassing U.S. Department of Energy 2020 targets
- Demand-side improvement—Includes investments in energy efficiency and user-controlled load flexibility
- Combined improvement—Considers the combined effect of accelerated technology improvements and demand-side improvements
We compare our modeled scenarios against a reasonable range of retail electricity price forecasts bound by U.S. Energy Information Administration (EIA) forecasts on the low side and a 3% real increase per year on the high side.