20141120 IEA-RETD RE-PROSUMERS Presentation

Is a Prosumer Revolution Imminent? Residential PV-Prosumers – Drivers and Policy Options (RE-PROSUMERS) Kristian Petrick

IEA-RETD Operating Agent IRED 2014, Kyoto, Japan, 20 November 2014

Background IEA-RETD

The mission of IEA-RETD is to accelerate the large-scale deployment of renewable energies RETD stands for “Renewable Energy Technology Deployment”. IEA-RETD is a policy-focused, technology cross-cutting platform (“Implementing Agreement”) under the legal framework of the International Energy Agency  Created in 2005, currently 8 member countries: Canada, Denmark, France, Germany, Ireland, Japan, Norway, UK.  IEA-RETD commissions annually 5-7 studies bringing together the experience of some of the world’s leading countries in RE with the expertise of renowned consulting firms and academia.  Reports and handbooks are freely available at www.iea-retd.org.  IEA-RETD organizes workshops and presents at international events. www.iea-retd.org

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RE-PROSUMERS

Study on the effects of large uptake of non-incentized residential PV by ‘prosumers’ PSG

Georgina Grenon (FR, chair), Michael Paunescu (CA), Lisa Dignard (CA), Otto Bernsen (PVPS , NL), Gaëtan Masson (PVPS, OA), Axel Strang (FR), Simon Müller & Cédric Philibert (IEA), Kristian Petrick (IEA-RETD)

IB

Meister Consultants Group

Published

http://iea-retd.org/archives/publications/eprosumers-report

Timeframe

January to June 2014

Motivation

Are prosumers just a hype? Or are they a valuable policy option?

Objective

Empower policy makers to make informed decisions with regards to the legal and regulatory policy options of large scale decentralised production of non-incentivised PV.

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RE-PROSUMERS

Agenda  Is a PV Prosumer Revolution Imminent?  No – Not Yet (Without Incentives and Enabling Policies)  But Policy Makers Need to Watch Key Drivers...  ... and Lay Out Potential Strategies Going Forward

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Is a PV Prosumer Revolution Imminent?

The cost to install PV has fallen dramatically, and is likely to continue to do so

Source: IEA 2014) Energy Technology Perspectives

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Global Cumulative Installed PV Capacity (MW)

PV market growth has exceeded early expectations 160.000 140.000

120.000 100.000 80.000 60.000 40.000 Est. 25-35% residential

20.000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: IEA-PVPS (2013); MCG Research

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Cumulative Capacity

IEA WEO 2006 projection 7

Is the PV Prosumer Revolution Imminent?

Socket price

Solar cost curves are close to the retail price in many countries (i.e. “socket” parity) …

Bubble size = Size of electricity market If a bubble is above the curve for a particular year, the cost of solar is below residential electricity in that country at that time

Source: Citi (2013)

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Note of caution: Available analyses appear to be “static” rather than “dynamic” as they compare PV LCOEs to the current retail price, rather than the NPV of projected consumer expenditures on electricity over time 8


The PV residential sector is a significant driver for decentralised power generation in various countries 35000

Some regions now have a very high share of “solar voters”

30000

MW (2012)

25000 20000 Non-Residential Residential

15000 10000 5000 0

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~25%

~20%

Germany

US

~85%

Japan

Source: IEA-PVPS (2013); SEIA (2014); PV Magazine (2013; 2014)

~70%

Australia 9

RE-PROSUMERS


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No Prosumer Revolution – Yet

PV costs must fall significantly below socket parity in order for non-incentivized growth to occur • To reach this phase it can still take a number of years • Regulatory conditions are crucial

Socket Parity

PV LCOE >

PV LCOE

Retail price

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PV LCOE ≤ retail price, but investment not attractive

PV LCOE < retail price; investment is compelling

Retail electricity rate

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For the time being, prosumers still need incentives and favorable regulations -> support schemes remain key  Mass non-incentivized prosumers are unlikely to arrive in the near-term  Incentives (e.g. FITs) above the retail electricity rate have driven the prosumer revolution to date  Mass prosumer expansion will require policies that compensate most/all of PV output (net metering, below-retail FITs, etc.)  Without support schemes, storage will be required – which adds cost

 Non-incentivized mass defection from grids not to be expected soon. US •

•

• •

Standard and streamlined interconnection in most states Net metering in many states Retail rates vary widely Most residential rates volumetric

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Germany

Spain

Colombia

• Guaranteed interconnection • FIT for 90% of production • 10% of output must be self-consumed or sold at wholesale • FITs below retail rates

• Previously utilized FIT • PV LCOE below retail rates • Introduced tax on selfconsumption • Introduced fixed charge, which makes onsite PV less attractive

• High retail rates • Only onsite CHP generation at palm oil plantations can feed into grid • PV cannot feed-in • Draft law might introduce net metering 12


Grid defection and wholesale competition scenarios for residential sector are unlikely in the near-term  Grid defection with storage?  Estimated 2030-2050 breakeven for US and Australia  Onsite load management and energy efficiency can accelerate timeline by a few years (but not decades)  Wholesale competition for residential PV generators?  Uncertainty because of RE impact on wholesale prices  Wide range of wholesale competition dates (for Italy and Spain range between 2025 and 2040)

Defection LCOE vs. retail electricity price (Residential base case) [Y-AXIS 2012$/kWh. Source: RMI (2014)

Even if forward-looking scenarios are conservative and onsite load management and energy efficiency accelerate the case, there is little room for non incentivised mass defection www.iea-retd.org

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RE-PROSUMERS


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Policy Makers Need to Watch Key Drivers

A complex picture of drivers and national specifics influence the different stakeholder groups STAKEHOLDERS Prosumers

Governments

Grid Operators

Generators

Consumers

PV Supply Chain

DRIVERS

Economic Drivers

Behavioural Drivers

Technology Drivers

National Conditions

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Drivers can have enabling or constraining effects on prosumer uptake…

Economic drivers

Constrain prosumers High PV system costs

Low PV system costs

Low electricity prices and fixed charges

High electricity prices and volumetric rates

Low self-consumption ratio

Hassle factor, lack of trust in technology, policy uncertainty

Nat. cond.

Technology

Behavior

Low insolation

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Enable prosumers

n/a

High self-consumption ratio

High insolation Environmental awareness, energy autonomy, “cool” factor PV technology breakthroughs

Additional storage costs

Improved self-consumption ratio

Additional EV costs

Improved self-consumption ratio

Decreasing energy demand

Available roof space, tenant ownership 16


… and Stakeholder Interest are crucial, too. Constrain prosumers

Stakeholders

Decreased revenue for TSOs and DSOs, grid investments to accommodate prosumers Reduced generator revenues

Increased retail electricity rates for other consumers

Reduced tax income, potential for stranded assets www.iea-retd.org

Enable prosumers

Prosumers can reduce T&D investments

Prosumers create new business opportunities Economic, social, and environmental benefits created for all consumers

Increased resilience of energy supply; improved energy security 17

Technical Challenges

Solutions exist to increase the capability of grids to accommodate more prosumers Categories Utility- and System Owner-led Solutions

Examples       

  Prosumer-led  solutions   Interactive Solutions

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  

Grid reinforcement: Advanced voltage control for HV/MW transformers On-load tap changer, static volt ampere reactive control, booster transformer Adopting storage controlled by the distribution grid operator Network reconfiguration Advanced closed-loop operation Improved Data and Forecasting Incentivize prosumer storage Encourage greater self-consumption via price incentives Curtail solar PV power output PV orientation Adoption of advanced or “smart” PV inverters Demand response via local or market price signals SCADA-based techniques Voltage and VAR control technologies

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Policymakers need to keep all of these in mind when considering if, when, why, and how to take action  Some of the drivers are less clear than others.  Economic drivers are well identified and anaylzed  Technology drivers will have different impacts  PV breakthroughs will accelerate prosumer scale-up;  Other technology trends, such as smart grids, batteries, and electric vehicles may enable prosumers by improving the self-consumption ratio in place of net metering.  However, they add additional cost…  and may also add additional “hassle” if they are a prerequisite for prosumers.

 Some stakeholder drivers are difficult to predict. Prosumer behavior, for example, could overwhelm economic considerations – this type of diffusion is poorly understood www.iea-retd.org

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Opportunities and risks need to be clearly articulated and balanced – and stakeholder interests aligned Opportunities / Benefits Political benefits • PV popular with voters • “Energy Democracy” Economic benefits • Job creation • Decrease fuel imports

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Grid benefits

Challenges / Costs / Risks Decreased TSO/DSO revenue

Grid expansion and upgrades

• T&D deferral

• Reduced revenue

• Cost to expand grid

• Avoided losses

• Risk of “death spiral”

• Risk of stranded assets

Environmental benefits

Incumbent generator risks

• Emissions reductions

• Generators lose revenue

• Water conservation

• Risk of bankruptcy

Decreased tax revenues • Lower tax payment from the retail rate

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RE-PROSUMERS


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Potential Strategies Going Forward

To define a policy strategy, governments need to evaluate all drivers and balance opportunities and risks 1. Evaluate drivers and conditions

2. Balance opportunities and risks

Are the conditions in place to support nonincentivised consumer scale-up?

Given the trade offs, is support for prosumers a national policy objective?

3. Define policy strategy www.iea-retd.org

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Prosumer strategies are required to sustain growth and to enable industry transition Prosumer Strategy Choices

1. Constrain prosumers

Restrictive policies to avoid structural changes to utility business and regulatory paradigms www.iea-retd.org

2. Enable prosumers

Enabling policies like compensation for surplus production and transparent interconnectoin rules

3. Transition to prosumers A

Incremental

B

Structural

New regulatory and policy approaches / paradigms for utility regulation and grid management 24


Policies for Constraining Prosumers

1. Constrain prosumers

 Restrictions on net metering or onsite consumption  Restrictive roll-over policies for excess generation (i.e. how long can excess power be banked?)  Increased customer charges or demand charges  Standby charges for onsite generation

 Regulations prohibiting onsite generation, or grid connection  Rules prohibiting onsite storage  Tax on self-consumed generation

 Tax on solar system components

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Policies for Enabling Prosumers  Connecting to the Grid  Permission to interconnect

2. Enable prosumers  Compensation for Electricity Fed into the Grid

 Interconnection rules

 Amount that will be compensated

 Interconnection application and review fees

 Compensation level: Above, at, below retail rate

 Interconnection cost recovery

 Certainty of compensation level: Fixed contracts, retail or wholesale compensation

 Interconnection transparency

 Feeding into the Grid  “behind” or “in front of” the meter

 Efforts to Reduce Soft Costs  Remove or reduce cumbersome bureaucratic procedures  Reduce or eliminate fees and costs

 Support PV marketing efforts in order to reduce installer acquisition costs

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Policies for Transitioning to Prosumers Incremental approach Prosumer compensation mechanisms

Examples



Buy-all/sell-all arrangements or hybrids with net metering



Net excess generation purchased at full retail rate, or (in islands) at, or near, the avoided cost rate



Time-varying prices (this could be positive or negative, depending on the jurisdiction and level of PV penetration)



Pure volumetric tariffs ($/kWh), i.e. without fixed charges



Decoupling utility revenues from power sales



Lost revenue adjustment mechanisms or performance-based incentives



Allowing peer-to-peer power sharing



Encouraging new, prosumer-friendly business models



Shift electricity sales tax to other income sources



Tax incentives or credits for solar system components, or investments

Rate Design

Ratemaking Market Reforms Tax Reforms

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3.A Incremental Transition to prosumers

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Policies for Transitioning to Prosumers Structural approach Innovative business models New product and service offerings New operational models

Emerging technologies

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3.B StructuralTransition to prosumers

Examples 

Utilities become neutral managers of grid infrastructure, brokers of new customer relationships, partners with prosumer service providers, or even financiers of prosumer infrastructure



Instead of selling electricity as a universal bulk commodity, utilities could make differentiated offerings based on individual requirements.



Selling specific “services” such as light, heat, or load management



Strengthened and more sophisticated grid operators



Distribution grids to adapt management mechanisms of transmission grids, e.g. locational pricing, forecasting, and real time visibility



E.g. smart grid infrastructure that will reconfigure the utility-customer relationship to be more integrated, interactive, and price responsive.



Utilities will have more visibility and control at the distribution level, customers more opportunities to react to electricity market 28


Policies for Enabling Prosumers  Connecting to the Grid  Permission to interconnect

2. Enable prosumers  Compensation for Electricity Fed into the Grid

 Interconnection rules

 Amount that will be compensated

 Interconnect. application & review fees

 Compensation level: Above, at, below retail rate

 Interconnection cost recovery  Interconnection transparency

 Feeding into the Grid  Connect “in front of” or “behind” meter

 Certainty of compensation level: Fixed contracts, retail or wholesale compensation

 Efforts to Reduce Soft Costs  Remove or reduce cumbersome bureaucratic procedures  Reduce or eliminate fees and costs

 Support PV marketing efforts in order to reduce installer acquisition costs

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High-level framework for situating different jurisdictions in terms of their engagement with prosumers (1/2) Prosumer Scenarios

Drivers

Policies

Strategies

No Prosumers

   

Weak conditions, e.g. low retail electricity prices No policies or rules permitting interconnection or feeding into the grid No regulatory or policy strategies for addressing prosumer challenges Examples: The Gulf Cooperation Council member states Constrain Prosumers

    

✔

Good conditions for prosumers, such as high retail prices and low installed costs Policies or laws that specifically prevent prosumers or that penalize prosumer development through fines or taxes No policies or rules permitting interconnection or feeding into the grid No regulatory or policy strategies for addressing prosumer challenges Examples: Some Latin American and Caribbean (LAC) countries, Spain

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High-level framework for situating different jurisdictions in terms of their engagement with prosumers (2/2)

  



Prosumer Scenarios

Drivers

Policies

Enable Prosumers

✔

✔

Strategies

Conditions are in place to create a competitive environment for prosumers Enabling policies allow prosumers to rapidly emerge on a non-incentivised basis. Policy makers and utilities do not anticipate, plan for, or react to the challenges introduced by prosumers. Prosumer development conflicts with incumbent business models Examples: European countries that experienced PV booms during the past 5-10 years.

Prosumer Transition – Incremental and Structural ✔ ✔ ✔ Approaches  Conditions and enabling policies are in place.  Policy makers have identified clear objectives for supporting prosumers, near-term financial and technical boundaries and pathways to make the required grid infrastructure investments and support the development of alternative utility business models.  Examples: Some jurisdictions have implemented incremental transition approaches, e.g. Hawaii. No countries have yet to articulate an integrated roadmap for prosumer scale-up. www.iea-retd.org

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Conclusions

Prosumer scale-up will require policies to sustain growth and to enable industry and markets transition  A prosumer revolution is not here yet.  Support policies are currently the primary determinant of prosumer emergence.  But major drivers, especially economic ones, are accelerating the case for prosumers.

 Policy makers should duly evaluate drivers and conditions, as well as opportunities and challenges.  And lay out the policies needed to enable and encourage prosumers.  RE-PROSUMERS provides a framework to define thsese policies. www.iea-retd.org

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Contact Website: www.iea-retd.org Contact: [email protected], [email protected]

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THANK YOU!

For additional information on IEA-RETD Online: Contact: Report:

www.iea-retd.org [email protected] http://iea-retd.org/archives/publications/re-prosumers-report

But – policymakers need to watch the drivers

A complex picture of drivers and national specifics influence the different stakeholder groups Drivers / Effect Stakeholders +

Prosumers Save money

+ + +/Economic

+/+/-

-

PV Supply Sector

Governments

Utilities

TSOs

Bring down costs of elec supply Propose the creation Seek the creation of of new jobs new jobs Seek security of supply

Grow through new Save on grid business models extension costs

Avoid costs of (keeping) incentives schemes Avoid losing taxes revenues

Avoid cannibalising Avoid increased existing business costs models Avoid lower revenues

Make (more) money

Self consumption ratio Own home fit for PV Own insolation level

-

www.iea-retd.org

The report provides a description and discussion of all drivers

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A complex picture of drivers and national specifics influence the different stakeholder groups Drivers / Effect Stakeholders + + +

Behavior

+/-

Prosumers Perceive PV as "cool" Increase sense of independence Show status and prestige Trust in local policies

PV Supply Sector

Governments

Utilities

TSOs

Action against climate Green its bottom change line

Green its bottom line

Capture political return (1 rooftop equals >1,5 votes)

Openness to change

Openness to change

+/+/-

Perceive as hassle/unsafe to install/maintain

-

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A complex picture of drivers and national specifics influence the different stakeholder groups Drivers / Effect Stakeholders +

+

Technology

Prosumers

PV Supply Sector

Governments

Differentiate through Possibility of doing it Take leadership more competitive oneself position offers Accelerate technology Interest for breakthroughs on the technology market (PV, smart grids, storage…)

Utilities

TSOs

Take leadership position

Take leadership position

Address supply concerns

Address supply concerns Address grid safety concerns

+ +/+/+/-

Address safety concerns

-

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A complex picture of drivers and national specifics influence the different stakeholder groups Drivers / Effect Stakeholders +/National Conditions

+/+/-

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Prosumers

PV Supply Sector

Administrative Lobbying power burden Residential buildings fit for PV

Governments

Utilities

Existing regulatory Supply obligations framework Residential buildings Degree of fit for PV concentration Compensation structure Fit of existing infrastructure

TSOs Supply obligations Degree of concentration Compensation structure Fit of existing infrastructure


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… and national conditions can also impact prosumer development Available roof space

Rooftop space not a near-term limitation; rooftop PV could supply 20-40% of electricity demand in US and Europe

Share of rental property

Renters do not have an incentive to invest in PV; 30% rental property in EU vs. 35% in US

Electricity demand trends

Flat or declining demand increases competition between prosumers and other generators

Renewable energy development

Non-prosumer renewable energy development may “crowd out” prosumers

Existing grid infrastructure

Large, modern grids more able to absorb prosumers than small, old or remote grids

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