I can still remember my vacation in Hawaii: walking on beautiful white-sand beaches; snorkeling in the cool, clear waters; and hiking on the rocky shores. It all seems like a dream now, but Hawaii isn’t a dreamland for everyone. For electric utilities, Hawaii is an archipelago of nightmares.

A big wave washes into Hawaii

Image of a massive wave curling over itself in the surf of Hawaii

A recent New York Times article, Solar Power Battle Puts Hawaii at Forefront of Worldwide Changes, explains why. According to the author, the Hawaii Electric Co., popularly known as HECO, in response to a rapid rise of residential solar installations, stopped approving applications for new installations in certain areas. As a result, a backlog of thousands of applications piled up. The article is relatively balanced. It notes the technical problems that the wave of installations poses for the utility—including the potential for excessive amounts of uncontrolled solar electricity flowing into the grid and overloading circuits—as well as the financial impacts. It also notes the frustrations expressed by the obstructed applicants who pay some of the highest electricity rates in the US. Even though the state utility commission recently ordered HECO to process the applications, it’s currently mulling over a set of proposals made by the utility to change the rules for remunerating solar panel owners for the power they feed back into the grid. Solar installations have started again, but both installers and advocates strongly oppose HECO’s proposal, and tensions continue to simmer.

As if the article weren’t distressing enough for utility executives, it ends with their ultimate nightmare. The author quotes a local installer who’s encouraging his customers to combine their solar panels with batteries and disconnect from the grid altogether. Indeed, he gets the article’s final word: “The lumbering big utilities that are so used to taking three months to study this and then six months to do that—what they don’t understand is that things are moving at the speed of business. Like with digital photography—this is inevitable.”

He predicts that photovoltaic (PV) panels combined with batteries will do to the electric utility industry what digital cameras did to the photography business—turning Kodak into a mere shell of its former self. He’s not alone in making this prediction, as evidenced by headlines such as Why Tesla’s Battery for Your Home Should Terrify Utilities and Why Your Next Home Might Be Battery-Powered. Are they right? Has the advancement of the electric vehicle (EV) industry driven down the cost of lithium-ion (Li-ion) batteries to the point that homeowners and businesses will combine them with similarly cheap solar panels to become electrically self-reliant? Perhaps leaving the grid in droves?

One part of that scenario seems likely. Two researchers from Stockholm, Sweden, documented 80 estimates of EV battery-pack prices from scientific journals, news media articles, industry consultants, and manufacturer press releases. In their recently published paper Rapidly Falling Costs of Battery Packs for Electric Vehicles, the researchers concluded that EV batteries from market leaders Tesla and Nissan currently cost about $300 per kilowatt-hour (kWh) and have been dropping at about 8 percent per year for the past six years. That seems downright pokey compared to solar panels, which have been dropping in price by about 14 percent per year, on average, over the past 37 years, according to Is Moore’s Law Really a Fair Comparison for Solar? However, it’s fast enough to get the job done.

Should that 8 percent rate continue for another nine years, the cost of EV batteries will be cut in half, down to the $150/kWh level. At that price, the authors assert that EVs will become cost-competitive with gasoline autos. The study’s researchers don’t make this assertion, but it only follows that as the costs for Li-ion batteries decline, the technology will find its way into a wide variety of applications, including portable power, backup power, and renewable energy storage.

So when will batteries get cheap enough to entice hordes of homeowners to stock up on panels and batteries and escape the grid? According to two researchers from the University of Sydney, the answer to that question is never. In their study Leaving the Grid: An Ambition or a Real Choice? released in March of this year, the researchers detailed the extensive work they did to arrive at their conclusion. They developed a model of the economic performance of residential PV systems, and used it to model a wide variety of system sizes, with and without batteries. They entered copious amounts of data, including electric load profiles, solar insolation, solar panel and battery performance, panel and battery cost, and electric rates. They ran their model repeatedly and produced dozens of figures and charts.

In the end, the Sydney researchers concluded that for a solar panel and battery system to be large enough to be a home’s sole source of electricity, it would have to contain lots of extra panels and batteries that would rarely get used. For example, in one location, the researchers calculated that to increase the portion of household annual electricity consumption produced by solar from 52.1 to 99.6 percent, the solar array would need to be 8 times as big, and the battery bank nearly 6 times as big. Much of these additional panels and batteries would essentially be kept in reserve for the most extreme conditions.

The researchers further concluded that homeowners who had such excess panel and battery capacity would be far better off connecting their systems to the grid so they could sell their excess electricity production to the utility. In retrospect, the Sydney researchers needn’t have done so much work. They rediscovered one of the main reasons why we have utilities. It would be far too wasteful for all of us, both individually and societally, to buy all the excess equipment we’d need to have our own autonomous highly reliable electric supplies. Instead, we depend on the utilities to aggregate our loads, damp out our individual peak loads through diversity, and invest in whatever power capacity is required.

Once we accept this conclusion—that it makes no economic sense for solar homeowners who have access to net metering and the grid to ever disconnect from the grid (although some will likely do so for noneconomic reasons)—several other things follow logically. Solar homeowners don’t need to buy enough panels to meet their entire load. Nor do they need to buy any batteries at all (although they might buy a few to get a little backup power). Their access to both the grid and net metering means that they get free backup and storage service from the utility. Without the grid, and all those free services, we wouldn’t have a rapidly growing rooftop solar industry.

So, there you have it. Cheap batteries are unlikely to hurt utilities. Indeed, more batteries will lead to more revenue for utilities as those batteries power new applications, like EVs, or require constant trickle charging for backup power systems. If batteries get cheap enough, utilities will probably buy plenty themselves to damp out power fluctuations due to solar and wind installations. It’s almost like utilities have a new friend.

If utilities have nothing to fear from batteries, what storage and backup power–related problem threatens them? Part two of this blog series will reveal the answer.


Jay - great blog post thanks for the insights - looking forward to Part II - Andrew

You're welcome, Andrew. Thanks for commenting on my post.

This topic is eclipsing many others in our industry right now so thank you for bringing a clear and concise read to it as well as the references! Despite the conclusion (pragmatically correct) solar and battery storage are disruptive technologies to the utility industry and thankfully so. The need for PUCs to catch up and allow utilities a broader range of business transactions around DG is critical and lagging. Shine that sun on the topic again in Part II.

Thanks for commenting on my post, Cathy. I would also support more flexibility from regulators when it comes to utilities engaging in DG. I hope you'll continue to read and comment on my posts.

Contributing Authors

Board Member, Senior Fellow

Jay Stein is focused on expertise development, research skills development, quality control, new product development, and technology assessment. Jay is a specialist in HVAC, high-tech industrial process technologies, and the IT industry; he works closely with the E Source Technology Assessment Service.