Studies Indicate Economic Barriers Likely to Limit ‘Grid Defection’

April 23, 2015

“Grid defection” has become a popular term to describe customers adopting rooftop solar or other distributed generation resources and battery storage to leave the electric grid – and utilities.

A number of studies addressing the topic have been published by financial analysts and energy-industry organizations recently. Their conclusions run the spectrum of possibilities for the relationship among utilities, customers and the grid.

Studies from Moody’s, the Electric Power Research Institute (EPRI) and a report published in Energy Policy ($) and highlighted in The Washington Post point out that the economics of remaining tied to the grid will outweigh potential benefits for customers to go off the grid for years to come.

Moody’s analyzed customer data to conclude that the size of a solar-battery storage system needed to leave the grid is much larger than commonly believed.

“To support grid defection, we believe the size of the battery needs to be very large, something akin to two-months’ worth of consumption,” the report said.

Moody’s said that battery prices for a residential solar-battery storage system would need to drop from a current level of about $500 per kWh to $10-$30 per kWh to attract broad customer interest.

The EPRI report focused on rooftop solar-with-battery-storage systems in Southern California. While the prices of solar panels and storage continue to drop, the report said that “the levelized cost of energy (LCOE) over the 25-year life of the solar photovoltaic system remains about three times the levelized cost of energy from the utility grid.”

Studies from Barclay’s and the Rocky Mountain Institute (RMI) say that falling costs for rooftop PV solar panels and storage batteries will make the possibility of grid defection a reality in some states in the near future.

After publishing The Economics of Grid Defection in 2014, the Rocky Mountain Institute released a follow-up, The Economics of Load Defection, in April.

The latest report predicts “the number of customers who would actually choose to defect is probably small.” But it pointed to “load defection” as a greater concern for utilities, saying that optimally sized, grid-connected solar-plus-battery systems will be more economically attractive and could lead to quicker adoption by customers. Those with systems will remain on the grid but take less electricity from it, creating “substantial load loss” for utilities.

RMI said that grid-connected systems are already more cost-effective in Hawaii (which has the country’s highest retail electricity prices, 33 cents per kWh) and could surpass grid-supplied electricity in expensive markets such as Westchester County, N.Y., in 2024 and Los Angeles County in 2026. The other markets included in the study would see grid-connected systems become economic for customers much later – San Antonio in 2038 and Louisville in 2042.

In the Energy Policy report, co-authors Rajab Khalilpour and Anthony Vassallo created a model that weighed a number of factors, such as system sizes, configurations and costs, home energy use, net metering policies and other incentives. The results in part echoed Moody’s, saying that “100% grid independence is only possible with a very large PV-battery which is subject to significant capital costs.”

Selling back excess energy to a utility is also an economic incentive for customers to remain connected to the grid, the report said.