It's Almost Cheaper to Go Off the Grid

Solar energy is becoming so efficient and the price is dropping so much that it could soon be cheaper for homeowners to create their own energy and drop off the grid altogether, a development that could start something that’s being called the “utility death spiral.”

It's the democratization—or the complete destruction of—of the power grid.

Until recently, it didn’t make that much sense to drop off the grid, from an economic and reliability standpoint, because there were few good options for actually storing the solar energy your panels were generating. So, traditionally, people have used solar as a means to cut down on their energy bill, not get rid of it altogether. The development of better and cheaper lithium ion batteries (partially driven by the electric car market) has made worrying about what to do during cloudy days a thing of the past for many people who have already dropped off the grid, and a new report by the Colorado-based Rocky Mountain Institute think tank suggests we could see a “mass defection” from the grid within the next 10 years.

“The coming grid parity of solar-plus-battery systems in the foreseeable future, among other factors, signals the eventual demise of traditional utility business models,” according to the report, called The Economics of Grid Defection. The report continued:

Rising retail electricity prices (driven in part by rising utility costs), increasing energy efficiency, falling costs for distributed energy technologies such as solar-plus-battery systems, and increasing adoption of distributed energy options are fundamentally shifting the landscape of the electricity system. Our analysis shows that solar-plus-battery systems will reach grid parity—for growing numbers of customers in certain geographies, especially those with high retail electricity prices—well within the 30-year period by which utilities capitalize major power assets. Millions of customers, commercial earlier than residential, representing billions of dollars in utility revenues will find themselves in a position to cost effectively defect from the grid if they so choose."

It’s great news that the price of solar is coming down and that it’s finally becoming a legitimate alternative to being connected to the grid, especially considering how the stability of the grid is becoming a bit more shaky. But for those wanting to stay on the grid, people defecting off of it could cause some major headaches.

The economics of the grid system, from an energy company’s point of view, is based on having a certain number of customers to sell that power to. As customers jump ship, prices will increase until, eventually, it makes a lot more sense to make your own power than it does to stay on the grid.

“Even before mass defection, a growing number of early adopters could trigger a spiral of falling sales and rising electricity prices that make defection via solar-plus-battery systems even more attractive and undermine utilities’ traditional business models,” the report says. “The so-called utility death spiral is proving not just a hypothetical threat, but a real, near, and present one.”

It’s something that power companies have begun to consider, as well. In a January 2013 report, the Edison Electric Institute said that, “due to the variable nature of renewables, there is a perception that customers will always need to remain on the grid. While we would expect customers to remain on the grid until a fully viable and economic distributed non-variable resource is available, one can imagine a day when battery storage technology or micro turbines could allow customers to be electric grid independent.”

When is this all going to happen? In some places, it should be happening already, from a rational economic point of view, anyway.

According to the report, businesses in Honolulu, Hawaii, can actually save money right now if they switch off the grid and buy a diesel generator to run at least part of the time when solar isn’t feasible. That’s a function of both Hawaii’s absurdly high energy prices and it’s near-perfect weather, but other parts of the country are about to see a similar phenomenon.

In roughly a decade, it’ll make sense for businesses in suburban New York City to get off the grid; a couple years after that, Los Angeles will follow. People with already cheap power, such as those in Louisville, Kentucky, and San Antonio, Texas, should make the switch before 2050, according to the report. Generally, it’ll take a few extra years for it to make sense for consumers to move off the grid. And that’s assuming no disruptive improvements in battery or solar panel technology, which is a pretty huge assumption to make, considering how the industry has advanced over the past several years.

Right now, you've only got fringey, self supporting types willing to take the plunge. But soon, it could make too much sense not to.