U.S. utilities face up to $48B revenue loss from solar, efficiency

Energy demand could drop by more than 15% due to new energy technologies by 2025

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Energy utilities face losing between $18 billion and $48 billion a year in the U.S and up to €61 billion a year in Europe by 2025 as solar power and energy conservation initiatives grow, according to Accenture.

The Accenture analysis, based on extensive modeling and a survey of global utilities executives, estimates that energy demand could be reduced by more than 15% due to new energy technologies by 2025.

For example, researchers at the Australian Centre for Advanced Photovoltaics at the University of New South Wales announced that they've achieved 40.4% efficiency in converting sunlight to electricity by using commercially available solar cells combined with a mirror and filters that reduce wasted energy.

The average conversion ratio for solar cells is around 16% to 18%, according to Amit Ronen, director of George Washington University's Solar Institute in Washington. The best solar cells are able to convert as much as 20% of the sunlight they absorb into electricity, he added.

Accenture's "Digitally Enabled Grid" study found that utility executives are "notably more concerned" about the impact of renewable energy on their revenue streams than in the past.

This year, 61% of utility executives surveyed by Accenture indicated they expect significant or moderate revenue reductions as a result of distributed electricity generation, such as solar photovoltaic (PVs), compared to 43% last year.

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Companies are increasingly recognizing the benefits to renewable energy based on a distributed grid, where solar is on their own rooftop or microgrid, where renewable energy is generated and stored on site in batteries, autonomous of the conventional power grid.

Accenture conducted telephone interviews with 85 utility executives from 20 countries between July and October.

PVs, electricity storage such as lithium-ion batteries, electrification of heating and transport, energy efficiency, energy conservation and demand response, are all poised to reduce utility revenue, Accenture stated.

The cost of rooftop solar-powered electricity will be on par with prices for common coal or oil-powered generation in two years, and the technology to produce it will only get cheaper, according to a recent report from Deutsche Bank's  solar industry analyst, Vishal Shah.

One of the factors spurring growth is the expiration of the federal government's solar investment tax credit (ITC). That measure, passed in 2008, offered a 30% tax credit for residential and business installations for solar energy. When it expires in 2016, the tax credit will drop to a more permanent 10%.

"Consequently, we expect to see a big rush of new installations ahead of the 2016 ITC expiration," Shah stated in his research document.

Even adoption of energy efficiency and distributed generation "will become possible without subsidies, which will lead to greater market penetration as a result of shifting consumer sentiment, falling technology costs and a moderate rise in electricity prices, especially across Europe," said Valentine de Miguel, global managing director of Accenture Smart Grid Services, in a statement.

Accenture largely agreed with Deutsche Bank that Solar PV is already at grid parity - equal to or less than the cost of power purchased from the grid - in many states.

solar and utilities Accenture

Utility companies are under increasing internal and external pressure to address the complexity, cost implications and opportunities of the future grid.

Accenture's analysis suggests that by next year, rooftop solar will be at grid parity across Australia and most EU member states, except less sunny ones like Sweden and Poland, and in Spain, where there are regulatory barriers to solar PV deployment. Japan will reach parity in the next few years, followed by the rest of North America, with the exception of Canada and some U.S. states with the lowest electricity prices.

The sharp decline in solar energy costs is the result of increased economies of scale leading to cheaper photovoltaic panels, new leasing models and declining installation costs, according to Shah.

Distributed has a long way to go before it beats grid

As part of its research, Accenture conducted its second annual survey of global utilities executives and found that despite popular reports of a looming utilities "death spiral," in which consumers migrate off the grid or use it only as backup, such a scenario us s unlikely and uneconomical for a large number of consumers due to natural limitations on viability and cost constraints.

The vast majority (79%) of utility executives said that it won't be cost-effective for consumers to go off-grid without subsidies until 2030 or beyond. In addition, by 2035, just 12% of customers in North America are expected to become energy self-sufficient, compared to 11% in Europe.

"While the 'death spiral,' as commonly defined, is a myth, the demand disruption caused by the growing adoption of energy demand-disrupting technologies is a real threat to utilities' business models," de Miguel said. "And in addition to the financial pressure, this will cause significant operational challenges for utilities, increase technical stress on the grid and open the market to new competition for energy products and services."

Nearly two-thirds (61%) of utility executives expect grid faults, or interruptions, to increase by 2020 as a result of low-voltage connected distributed renewable generation, up from 41% last year. More than half (53%) also expect an increase in grid faults from deployments of large-scale renewables, also up from last year (33%).

A significant majority of utility executives expect continued competition from new entrants in data-related services (92%), distributed generation (87%) and beyond-the-meter energy efficiency and demand response solutions (90%), as well as in a number of new areas, such as plug-in electric vehicles (PEVs) and associated charging infrastructure (81%).

"In order to navigate through this demand disruption, utilities will need to fundamentally transform their business models, including the creation of distribution system operations services to manage a more complex and distributed grid," de Miguel said. "As part of this transformation, they should focus on engaging with regulators to secure the long-term viability of the distribution business. This includes the adoption of new tariff structures, opening up new markets and aligning subsidies; investing in grid optimization, such as automation, sensing devices and real-time analytics; and developing new customer products and services."

Copyright © 2014 IDG Communications, Inc.

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