10.06.2014
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Photovoltaics

Grid parity still doesn’t matter (but grid defection does)

Germany is now focusing on the direct consumption of solar power, which remains prohibitively expensive. But a recent survey found that PV + storage could be competitive with power from the grid by 2020. The result could be a disastrous wave of grid defection.

Renews is a regular publication by German renewables organization AEE. Issue 70 (PDF in German) focus is on Eigenverbrauch, which I generally translate as “direct consumption.” Essentially, it is when you consume your own solar power without it ever having to touch the grid. You have two options towards this goal: simultaneous consumption and production; and power storage.

The issue is very hot in Germany right now partly because the government aims to clamp down on the trend by applying the renewables surcharge to renewable power consumed directly. Small arrays, however, will remain exempt.

The study speaks of an average retail rate in Germany of 28 cents per kilowatt-hour, with the highest new feed-in tariffs for PV coming in at 13 cents. Germany reached grid parity for PV at the beginning of 2012, and solar power from new arrays now costs less than half as much as retail electricity.

Americans assume that households will naturally switch to net-metering after grid parity. The policy to promote direct consumption was implemented in Germany, however, does all the problems that net-metering does not fix: as the share of solar power in total supply increases, peak solar power on the grid needs to be spread more evenly across the day.

 - The bluish area at the bottom is power consumption for a typical German household across a 24-hour timeframe. The yellow area is solar power production, obviously on a summer day (power is produced for far longer than 12 hours). Only around 30 percent of the solar power produced can be consumed directly as a rule of thumb in Germany – the area where the yellow and blue overlap. To increase that rate further, you have to shift power demand and store some of the power produced.
The bluish area at the bottom is power consumption for a typical German household across a 24-hour timeframe. The yellow area is solar power production, obviously on a summer day (power is produced for far longer than 12 hours). Only around 30 percent of the solar power produced can be consumed directly as a rule of thumb in Germany – the area where the yellow and blue overlap. To increase that rate further, you have to shift power demand and store some of the power produced.
Volker Quaschning

I spoke out against policy support for the storage of solar power back when it was implemented in 2009, but Germans continue to like the idea. The main problem I see is twofold: first, solar will need to be stored seasonally for Germany to meet its peak power demand in dark winter evenings; and second, storage makes everything expensive, so we should try to limit storage is much as possible.

The Renews article contains a section on the pros and cons of direct consumption, so I was interested to see whether they address my concerns. They do not, which is not surprising – that discussion would undermine everything else they say. But they do provide an interesting overview.

The KfW bank now offers up to six and 60 euros per kW of battery storage for solar up to 30 kW of PV. In return, the system can only sell 60 percent of its rated capacity to the grid at any one time. The goal is to reduce peak solar power production.

One option is the use of electricity for heat, a strategy that Denmark is also pursuing. But go on vacation for two or three weeks in the summer, and you will not be able to store very much of the heat produced. And by the time the winter comes, it won’t be available.

Renews gives the example of a family of four that consumes 4,000 kilowatt-hours of electricity per year. 1,200 can be consumed directly (simultaneously), and a heat pump with thermal storage increases that number to 1,800. A 5 kW battery pack brings the figure up to 2,800.

Battery storage is still prohibitively expensive. Renews puts the figure at between 24 and 82 cents per kilowatt-hour. On the other hand, by 2020 PV + storage is expected to reach grid parity.

Therein lies the problem – Germans will go for PV plus storage in the 2020s when the combination costs 30 cents per kilowatt-hour, and there is little anyone can do to stop them. This option is bad in terms of the overall cost of the energy transition; onshore wind power is a much better option at 5-9 cents per kilowatt-hour, but then people don’t get to say they make their own energy at home.

Renews speaks of “macroeconomic costs” without mentioning this problem; instead, the article says that the best way to increase the share of solar power consumed directly is to build smaller arrays “although there is enough roof space for a larger system. That would mean that potential roof area is wasted.” They describe the situation in the US very well, but they do not address the problem of seasonal storage of solar power.

Feed-in tariffs will probably no longer be offered for PV once 52 GW is installed, but Renews says that 90 GW or more could nonetheless be built thanks to direct consumption. In other words, households will defect from the grid, making this wonderful piece of infrastructure for more expensive for everyone who has not defected or cannot defect. And once again, Renews has nothing to say on this matter. (Craig Morris)

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14 Comments on "Grid parity still doesn’t matter (but grid defection does) "

  1. Ulenspiegel - 12.06.2014, 14:01 Uhr (Report comment)

    K.F. Lenz wrote: ""Grid defection" is a term suggesting that this behavior is morally questionable. It is not. Anybody building solar and storage capacity is doing the planet a big favor by helping to transit away from fossil fuel earlier."
    Here you make at least one assumption that is very likely wrong: Converting a house to an 100% off-grid oparation mode requires in Germany that you use a non-electric heating system. With this limitation you have to provide evidence that the overall result (electricity + space heating) is better than alternatives.
    If you can't, the grid defection is indeed a little bit questionable. :-)

  2. Karl-Friedrich Lenz - 12.06.2014, 07:31 Uhr (Report comment)

    "Grid defection" is a term suggesting that this behavior is morally questionable. It is not. Anybody building solar and storage capacity is doing the planet a big favor by helping to transit away from fossil fuel earlier.
    The problem is mitigated by the fact that only one fourth of German electricity is sold to households in the first place. Even if a large number of them off the grid, that won't necessarily affect the remaining users in a dramatic way.
    And even those who count on generating most of their energy themselves may still want to pay a small amount as insurance as a fixed tariff to stay on the grid.

  3. heinbloed - 12.06.2014, 02:08 Uhr (Report comment)

    @ Craig Morris:
    Why do you write
    " Germany is now focusing on the direct consumption of solar power, which remains prohibitively expensive. "
    when this in't the case?
    You said many times before that it is worth it to consume self-generated PV instead of buying electricity from the utility.

  4. photomofo - 11.06.2014, 17:58 Uhr (Report comment)

    Germany's heating season lasts 5 or 6 months. PV production is not zero during this time but I understand what you're getting at. I also agree that Passive House (or a comparable standard) is an essential part of the solution. The thermal storage wouldn't only work with PV - I'm only saying it would benefit PV significantly. Traditionally thermal storage has been used at night when electricity is cheap. In a high penetration German renewables scenario the thermal storage would mostly be charged with wind.
    The idea of going off-grid during the summer is akin to disconnecting your power when you go on vacation. This is not something that people typically do.

  5. Ulenspiegel - 11.06.2014, 09:06 Uhr (Report comment)

    @photomofo
    The German housholds need the most of the heat in winter, when the PV production is zero, therefore heat is only a small solution of the storage problem. Reduction of heat demand in winter is better: In a Passiv Haus you have the chance to increase your heat demand in summer to around 40% of the annual damand and covering this completely by PV.
    You are right with your assessment that complete grid defection is stupid, you have no chance to use efficient heat pumps, that are very important part of the solution in winter, on level of the consumer and on a national level.
    OTOH a partial defection during summertime with a relatively small battery system is very likely possible and in the current market design even profitable within the next few years.

  6. Tilleul - 11.06.2014, 02:02 Uhr (Report comment)

    District heating in Denmark has a 50% share of the market and it's still increasing : that means big and dirty cheap thermal storages. They are actually able to make seasonal storage of solar thermal heat.
    BTW germany has a few seasonal storage made around the country at a district level
    Also the Power2Heat concept is not only about converting electricity to heat but also about transforming baseload CHP into highly efficient flexible power plant thanks to large scale thermal storage.
    You'll have a quick explaination here :
    http://www.solar-district-heating.eu/Portals/0/Publicdownloads/S%C3%B8rensen-Dronninglund and Marstal-SmartDistrictHeating-updated-jen%5B1%5D.pdf
    Also you forgot that when you are talking about thermal storage, you need also to consider cold storage, it's already quite common to do peak shaving with cold storage in buildings or district cooling schemes. Actually we are already storing large quantity of electricity in the forms of energy services, the shape of the consumption profile is vastly driven by the way we bill electricity. Change it and the profile will change accordingly.
    Also regarding your last comment, grid defection will appear simply because the grid is not the cheapest way to power every places on earth... Renewables were existing before the EEG... Why ? Because it was cheaper to use solar home system, hybrid system or renewable mini grid than expanding the grid.
    No need to worry, we'll have a same situation than the telecom industry : we already have wired network and wireless networks, now we have the choice between wired power and wireless power (either at the building, district, or city level)... Having the choice of choosing the best infrastucture or even both infrastructurse has enable us to get cheaper cost and better services in the telecom industry, that will be the same in the energy industry. You should remember that when AT&T invented mobile phone in the 80s they were advised by McKinsey to not develop the infrastructure needed because they already had a phone line network (though pretty understandable when you think they predicted a total market of 900 000 mobile phone user in 2000's... it turned out to be 120 times more...), that advice did not turned out well...

  7. photomofo - 11.06.2014, 02:00 Uhr (Report comment)

    "Americans assume that households will naturally switch to net-metering after grid parity."
    I don't see this. The numbers who think net-metering is going away appears to be increasing. I suspect Germans will follow the lead of the Australians - very low prices on excess feed. Hopefully you'll be able to implement some sort of structured value based payment.
    Grid defection is a really dumb idea. You'd need 40 kWh of batteries and a back-up diesel generator. How noisy and gross would a community full of defectors be? RMI and Renews are completely out to lunch. Lux projected the cost of batteries at $400 per usable kWh in 2020. So you'd need $16,000 worth of batteries, a $5000 diesel and the hassle of refueling it compared to paying a $25/month grid fee... This is a turd of an idea.
    Can we imagine some batteries in a typical household? Sure... This is hardly grid defection. The reason this idea is getting so heavily promoted at the moment may be because all the battery companies are desperate. Their market is over-supplied by double and the government loans that have underwritten 50% of the battery projects in the last few years are all drying up.
    Craig... You're misunderstanding and mischaracterizing one of the key benefits of self-consumption. The low hanging fruits for increasing self-consumption are smart water heaters and smart heat pump space heating systems. Technically if you're dealing with a Passive House type building all you need is a smart water heater with some extra tank capacity to cover both water and space heating. If this system can be operated in a way that is coordinated with the rooftop PV system it can most definitely also be operated in coordination with the availability of cheap energy (or clean energy) on the grid. PV is a natural driver of the adoption of smarter appliances but in the future you need not have a PV system at all to benefit from load management.
    Maximum autarky rates by my estimates will end up somewhere between 50 and 75% assuming batteries stay exorbitantly expensive. This means the grid will continue to provide an essential function.
    It's a pity that people think of batteries when storage comes up. Batteries cost upwards of $1000/kWh currently. Thermal storage costs $15/kWh. It's an amazing discrepancy. And German homes use around 3 times as much heat as electricity if I recall correctly. Why are batteries in the conversation at all?

  8. David - 10.06.2014, 22:54 Uhr (Report comment)

    Yes I agree that photovoltaics may be a fantastic technology for most parts of the world but at these high latitudes they at best can only supplement other generation technologies. For this reason I am not that worried about storage. You would have to build an over dimensioned PV system to have any hope of covering meaningful energy demand for the winter months. It gets worse if we think of a house with heat pumps and an EV. Conversely you would generate more energy than you could store or use during the summer months due to its over dimensioning causing the market price to plummet hence making further systems uneconomical. I suspect most people will only partly supplement PV systems with storage to cover summer use for this reason but they will not be very economic since summer and winter prices should diverge further in particular if heat pumps take off.
    I also suspect governments will rather lower electricity taxes than see mayor defection. Cost of electricity production is around 5 eurocents in DKK but add all taxes and you end with 30 cents. Production prices in summer are lower than in winter due to Scandinavian hydro. Germany is not quite so lucky with wind and hydro but they do have a lot of taxes that can be lowered as needed to ensure enough customers remain. Further extending capacity to Scandinavia and pumped hydro in the alps should further increase the summer-winter price divide.
    The US situation is different. Taxes are about nonexistent but electricity waste is about 50% probably due to the enormous distances involved in a mostly AC system. PV+storage makes more sense as demand for air-conditioning coincides with PV production and 4-6 hour storage that takes into the late evening will soon become economical.
    Finally lower taxes/prices on electricity make heat pumps and EVs more attractive greatly increasing demand when PV+storage is unable to deliver in the north. An average Norwegian household uses 17,000 kWh a year all because of heat pumps and low prices.
    Storage is important for PV but PV is just not that important in the north.

  9. Ulenspiegel - 10.06.2014, 15:26 Uhr (Report comment)

    For the utilities it would be IMHO the lesser of two evils to provide larger storage systems as partner in some kind of energy cooperative:
    An owner of a rooftop PV system could buy a certain share of storage which is not located in his house. And for 1 kWh bought storage capacity the owner of the PV system is allowed buy a certain amount of electricity (~250 kWh) for the same price he gets for excess production from the utility, actually a 1:1 exchange.
    The consumer could tailor his storage needs perfectly and would increase local consumption of electricity. OTOH The utility can provide storage much cheaper than the consumer could buy himself, i.e. the uitility could make some money even in summer time, and has during winter time a lot room to provide storage for other customers or own services (wind power, cogenration of heat and power etc.).
    This is better for the utility than grid defection of many consumers, in addition, some (smart grid) applications are much easier and cheaper with larger storage units.

  10. Gaston - 10.06.2014, 13:29 Uhr (Report comment)

    In The Netherlands we have a regulated fixed kW based distribution grid service fee for residential consumers. The typical costs are less than 25 Euro per month for a 3x25A grid connection, independent of the energy use or production. We have proof: it works! And after some initial resistance by grid operators all are very happy with it now.
    At the same time residential solar production is netted with the yearly consumption, and as long as you don't produce more per year than you consume, you effectively get for your solar the average commodity price of 23 cents/kWh. Since 2013 solar is starting to take off in The Netherlands, based on the positive business case of these 23 cents/kWh.
    More than half of the residential commodity price of 23 cents/kWh is tax, which is also part of the netting for residential solar. Understanding our Ministry of Finance, we can expect this tax to be not returned for solar power injected into the grid within a few years. This will reduce the business case for solar, but create a case for residential storage. This business-case will be much better than any grid-based storage and may dominate the future 'flexibility' theoretically available to the market.
    The main issue I observe is the fact that residential and small commercial consumers are currently effectively disconnected from the market. They cannot benefit from extreme low prices, but also don't feel it when prices are very high. Their behavior is therefore not connected to what is best for the system: low consumption at hours of scarcity (high price) and high consumption at hours of abundance (low price). The existing and future flexibility (electric vehicles, heating, batteries) of these consumers may be crucial to maintain the future system commodity and capacity balances. As long as we don't connect these consumers they may become 'terrorists' to the system, or even worse, as mentioned will not only financial disconnect but physically as well.

  11. Gaston - 10.06.2014, 13:25 Uhr (Report comment)

    In The Netherlands we have a regulated fixed kW based distribution grid service fee for residential consumers. The typical costs are less than 25 Euro per month for a 3x25A grid connection, independent of the energy use or production. We have proof: it works! And after some initial resistance by grid operators all are very happy with it now.
    At the same time residential solar production is netted with the yearly consumption, and as long as you don't produce more per year than you consume, you effectively get for your solar the average commodity price of 23 cents/kWh. Since 2013 solar is starting to take off in The Netherlands, based on the positive business case of these 23 cents/kWh.
    More than half of the residential commodity price of 23 cents/kWh is tax, which is also part of the netting for residential solar. Understanding our Ministry of Finance, we can expect this tax to be not returned for solar power injected into the grid within a few years. This will reduce the business case for solar, but create a case for residential storage. This business-case will be much better than any grid-based storage and may dominate the future 'flexibility' theoretically available to the market.
    The main issue I observe is the fact that residential and small commercial consumers are currently effectively disconnected from the market. They cannot benefit from extreme low prices, but also don't feel it when prices are very high. Their behavior is therefore not connected to what is best for the system: low consumption at hours of scarcity (high price) and high consumption at hours of abundance (low price). The existing and future flexibility (electric vehicles, heating, batteries) of these consumers may be crucial to maintain the future system commodity and capacity balances. As long as we don't connect these consumers they may become 'terrorists' to the system, or even worse, as mentioned will not only financial disconnect but physically as well.

  12. James Wimberley - 10.06.2014, 11:30 Uhr (Report comment)

    The other argument against home storage is that it's *always* going to be more expensive then grid storage. Unlike the case with solar panels, where households and utilities can buy the same modules, there are very large economies of scale in going from a home 10kwh battery pack to a 1 GW pumped storage facility. Grid operators will always have access to a wider range of storage technologies suitable for different scales.
    Craig: you are a consistent supporter of FITs as a support mechanism, even below socket parity as in Germany today. But this system automatically creates a large incentive to home storage. The householder installing today gets a 13c/kwh FIT. The value of self-consumption is 28c/kwh less the 6.3c surcharge, or 23c/kwh. This 10c gap is the incentive for storage. It's a lot - as much as many Americans pay for grid electricity. Expect a home storage boom, sensible or not. Cutting off new FITs at 52 GW won't help - the legacy park of FIT holders will be quite big enough.

  13. Thomas - 10.06.2014, 11:05 Uhr (Report comment)

    I consider this critical view of (maximizing) own consumption problematic, because it implies that it's against the nature of the system to go down that route. This is a transformational challenge, as we go from a system build, regulated & organized to be a one way (top-down) supply chain to something else.
    Let's not forget, that maximizing own consumption is currently the only working incentive for households & businesses to put storage on the grid. While I would argue that grid tied storage capacity should be regulated to fulfill grid-services (store during peak solar hours, provide balancing power to local grid operators,...) or that people should pay a kW based grid service fee instead of a per kWh fee, I don't think that the talking point of us heading toward a "disastrous wave of grid defection" is accurate.
    Besides, when we go into macro-economics, the cost sharing of infrastructure / investments becomes irrelevant (While prices for some increase, the overall cost remains unchanged) and we would have to include the avoided externalities from conventional power into the calculation to evalute the benefits.

  14. Mahdi - 10.06.2014, 10:57 Uhr (Report comment)

    There is a possibility of seasonal heat storage. My colleagues here in Ostrava, CZ experiment with "hot dry rocks". You just need to drill the hole in a good place and you can have summer to winter heat storage with about 80% of the heat recovered.

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