MUNICH — Are traditional solar photovoltaic (PV) financing models dead? Are solar utilities dinosaurs, about to become extinct? For utilities, says Dirk Morbitzer, general manager of analysis firm Renewable Analytics, “the old times are gone. Utilities must embrace renewables or suffer the consequences.”
Morbitzer’s remarks, made in a double-session panel discussion early this week at Intersolar Europe in Munich, pointed to an emerging theme that may prove central to the conference. Indeed, Horst Dufner, project manager at Intersolar, told REW that distributed generation is an emergent force in the industry, as exemplified by the rise of community solar – there are now almost 700 community solar organisations in Germany alone – and that it is an issue to watch at the event (we’ll be watching).
In Germany, with FiTs being phased out or becoming less attractive, financing conditions changing, traditional investor groups less willing or unable to continue because they would need to put in more equity at higher interest rates, what some have called the “FiT and forget” (for the subsidy’s 25-year term) model may be yesterday’s news, said Christoph Aha, a partner at corporate law firm Beilen Burkhardt.
What this all means for utilities, the panel agreed, is that the role of big electricity provider may fast be becoming irrelevant – and this is nowhere more apparent than in utilities’ falling profits. One of Morbitzer’s slides was a graph of utility electricity prices sampled at 15-minute intervals over a period of years, showing lots of local variability but also an impressively definitive downward slide. Utility share prices are falling, and even the utilities themselves are saying publicly that, as one executive put it, “We used to be a very rich company, but we’re not anymore.”
The PV market, Morbitzer said, is becoming a savings market, with customers maximising self-consumption. For utilities, the problem with this is obvious and urgent: when customers become their own producers – what Jon-Erik Mantz of RWE called “prosumers” – they become competitive with their suppliers. And as utilities’ customer base erodes, so do their margins. With emerging energy storage technologies making self-consumption increasingly viable, margins will be eroded even further.
The Solar Utility of the Future
A number of alternative models were proposed for how the solar utilities of the future might function.
For example, Morbitzer proposed that utilities take on the role of service provider for small and medium businesses wanting to “go green”. The utilities would need to change their whole internal organisation, he said, to focus on customers who are becoming their own generators. And even if there is no longer a massive need for central power generation, he emphasised, there is still a crucial need for help for customers to plan, finance, build and operate PV and energy storage installations, something utilities are well equipped to do.
One utility executive on the panel pointed out pessimistically that PV companies already have plenty of experience in planning, financing, building and operating PV installations. Morbitzer countered that there are also plenty of areas in which utilities have needed experience that the PV companies don’t have – for example, he said, while PV companies have been installing things on the outsides of buildings for a long time, they’ve “never touched or even thought about what happens inside of buildings”. And, he said, the utilities are still in a relatively strong position, with more financing than PV companies.
Aha proposed a “lessor model” for Germany wherein the PV developer leases a plant to a commercial consumer, making the consumer the owner-operator and thereby avoiding charges such as the EEG surcharge, grid charges and the power tax and transferring responsibility and risk to the consumer. This is today’s top model for German bioenergy plants, he said, and it is robust because of the legal experience gained in the bioenergy sector. However, he said the German government is considering restricting this model in future.
He also proposed a “local sale model” whereby a utility would sell electricity to nearby consumers through a power purchase agreement and distribute it using a private, closed grid, thereby avoiding grid surcharges. However, in this model he said the utility becomes a grid operator and must fulfil the obligations attached to that role, incurring its costs such as metering, accounting and cabling, which could hamper viability.
Mantz’s proposal was for “virtual power plants,” which he said RWE is already implementing. Virtual power plants network decentralised power generation, offering support for direct and spot marketing. In the near future, said Mantz, flexibility will become a commodity; virtual power plants generate additional value from the flexibility they can offer the grid, he said.
A commenter in the audience perhaps summed it up best, proposing that the energy industry is now at the point where telecoms were 10 years ago. While some utility executives on the panel had joked that they were “all scared” after the presentations, the commenter proposed instead that this is an exciting time for utilities. We’ll see what else emerges on this topic in the coming days at Intersolar.
Lead image: solar farm Brigadel, courtesy E.ON Climate & Renewables