Power to the People by the People | BetaShares

Power to the People by the People

BY iClima Earth | 12 May 2022
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Power to the People by the People

Our global power industry was built around large, centralised power stations, usually fired by coal or natural gas. The success of these installations was based on production at a large scale over a long time, and the process of conversion, transmission and distribution was incredibly inefficient. While this system still dominates today, the plummeting cost of renewable energy means that there is now an increasingly attractive alternative: distributed generation. Distributed generation is where energy is produced at the point of consumption, defined as ‘behind the meter’. This negates the need for costly, inefficient and increasingly uncertain transmission, offering the consumer autonomy over their energy supply.

The cost of renewable energy has fallen due to a combination of capital cost reductions, operational improvements, better system design and technological breakthroughs. In California, distributed solar generation reached $83/MWh in 2020 compared to $192/MWh for grid electricity. This figure is without the further reduction of the 30% federal Investment Tax Credit (ITC). Indeed, Vibrant Clean Energy estimates that the U.S. economy alone could save a cumulative $473 billion in electricity bills between 2020 and 2050 by switching to distributed generation.

The benefits of this setup, where energy consumers become ‘prosumers’ (both producer AND consumer), go beyond falling bills and energy security for the asset owners. Intermittency is one of the biggest problems facing a grid powered by renewable energy, but prosumers can mitigate this by discharging energy back to the grid at peak times, helping to balance supply and demand. They can also contribute to frequency stabilisation. New technologies such as smart metering, smart thermostats, AI based software and 5G connectivity will make all this increasingly practical, but one component will always be most important – storage.

There are two main types of storage at the point of use: stationary, where multiple battery or fuel-cell-based storage units are aggregated to form a virtual power plant (VPP); and mobile, in the form of vehicle to grid connectivity (V2G). According to IRENA, we could see a fleet of 269 million Electric Vehicles (EVs) on the road by 2030, representing up to 69% of total storage capacity and contributing to a 14% growth in electricity demand. Electric vehicle companies could play a key role in managing the intermittency of this increasing demand, encouraging users to recharge at times of low demand such as in the middle of the day.

The Solactive/iClima Climate Change and Environmental Opportunities Index contains a diverse array of solutions for this novel landscape, including distributed energy resources (DERs), storage units, V2G and EV charging, smart systems and essential components. Our innovative methodology assesses distributed renewable energy resource (DRER) revenue as a percentage of green revenue. Standout companies include Sunrun, EVGo, Stem, Proterra and, of course, Tesla.

While the direction of travel is clear, we are still at the bottom of the S shaped curve of adoption. According to SunRun, only 3% of U.S. homes have residential solar installations on their rooftops. A standout case is Australia, where one in five homes has a solar system, obtained at $1.2 per watt, in contrast to the U.S.’s $4. With installation times up to twelve times shorter than the U.S., Bill Nussey argues that the discrepancy is primarily due to Australia’s single national regulation versus the U.S.’s ‘patchwork’ landscape. Sunrun’s calculations show that there are a further 77 million potential beneficiaries of distributed generation across the U.S. if this issue can be addressed. If this situation is replicated, the world over. Disruption is imminent.

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