Power suppliers have long enjoyed a natural monopoly. But the arrival of budget batteries coupled with cheaper solar power will allow a growing number of consumers to pull the plug on old-fashioned electricity networks in 2016 and beyond.
Solar panel prices have already plummeted, and batteries look set to follow in the near future as manufacturers hone new technologies and ramp up production. Tesla says it can slash the cost of its own batteries by more than a third with a bigger, better factory. That’s plausible: costs dropped by 14 percent on average every year between 2007 and 2014. Broker CLSA reckons they will tumble by a further 70 percent over the next five years.
The prospect of being able to generate, store and manage their own power may prompt some customers to leave the grid. In parts of developing economies where electricity has yet to arrive, power networks may not be needed. More than a fifth of India’s population does not have access to electricity. Rather than waiting for infrastructure to expand, Prime Minister Narendra Modi’s government is offering a 30 percent subsidy to encourage homeowners to use solar to become self-sufficient.
Energy companies’ initial responses to this potentially existential crisis have ranged from denial to defensiveness. Doing nothing is not a great option; but actively resisting the shift is worse. In Australia, industry lobbyists initially tried to fight special subsidies for renewable energy and raise fees for homes with solar panels. Though such bullying tactics will burn solar home-owners in the short term, it only encourages them to seek ways to harvest and hoard their own energy.
Some power companies have decided to embrace change. Australian utilities AGL Energy and Origin Energy now sell solar panel and battery sets to their own customers. Though there’s a risk the move will dim demand for conventional electricity, the bet is that clients will stay connected to the grid in order to sell their extra volts back to the utilities. In that case, the grid will survive as an exchange where energy is traded between large and small producers and consumers.
Others would be wise to heed their example and take action. Battery power is about to deliver an electric shock to the old system: utilities will have to see the sunny side if they are to survive.
This view is a Breakingviews prediction for 2016. Click here to see more predictions.