A new catchphrase advocating removal from the grid has sparked debate amongst those following the development and commercialisation of new energy technologies.

The catchphrase of “Let’s disconnect from the grid!” does not represent some kind of hippie back to nature fad, as some of you may fret.

As I mentioned in my February article, even the CSIRO Future Grid Forum, with its multitude of industry and government stakeholders, considered leaving the grid a possibility important enough to dedicate one of the four of their major future scenarios to it.

But why would anyone want to disconnect from the grid? It’s a fair question. When people talk about disconnecting from the grid, the questions they are really asking are: “How can I shield myself from these incredible and incredibly persistent electricity price increases, and how can I simultaneously reduce my carbon footprint?”

The answer to both is to become self sufficient through a combination of technologies and energy efficiency measures including solar power, batteries, and a move towards more energy efficient appliances.

A recent joint report by the organisation Energy for the People and the Alternative Technology Association (ATA), provided a great analysis of the viability of disconnecting from the grid.  The desire to disconnect is motivated by three recent trends:

  1. The bulk of the price rises have been driven by increases in the distribution network component of electricity prices (see figure 1, pp. 4, from “Electricity Network Regulatory Frameworks”, Volume 1, Australian Productivity Commission, Inquiry Report, 2013).
  2. Solar photovoltaic (PV) panels and their installation costs have fallen dramatically in the last five years and continue to fall.
  3. Battery technologies now seem set to follow solar PV, making domestic and commercial scale deployment feasible in the near future.

Once batteries are available at economic prices, households and business can theoretically be entirely self sufficient when it comes to their energy needs.

This means energy consumers who are either angry with their energy utility for recent price increases or who have done the maths and are willing to take a punt that electricity and gas prices will continue to increase, may choose to invest in a combination of solar PV and batteries  while making changes to more efficient appliances at their home or premises.

While this is already technologically possible right now, it remains on the costly side due to the cost of batteries, and is uneconomical compared to current electricity prices. However, the report by Energy For The People, and the ATA, entitled What Happens When We Unplug?, shows that disconnection will be viable by around 2020 based on fairly conservative assumptions.

It seems like a reasonably straightforward proposition. As long as technology costs continue to fall, and electricity costs continue to rise, this would be inevitable.

There is a fallacy in the argument that eventually households and small business will leave the grid en masse. This fallacy is based on the assumption that electricity prices will continue to rise independently of the behaviour of customers and the aggregate demand.

The prices consumers face are set by a combination of market forces (for the wholesale price of generation), and regulators such as the Australian Energy Regulator (for the price of transmission and distribution network services). Generation prices are subject to competitive market prices and therefore generators will simply have to find ways to lower their costs to try to get their product to be more competitive.

The more difficult problems lies in the way network prices are set. Under the current methodological paradigm, regulators around the world set network prices according to their assessment of the efficient cost of delivering network services.

Is this the correct paradigm now? I believe it will change as government policies change to reflect the new technological landscape. The logic goes like this: consumers do not buy network services or electricity generation services. We are in fact purchasing the ability to power our appliances, or the total energy provision service.

As consumers, we don’t really care how this happens. And the job of regulators and governments is to make sure we get this the cheapest way possible, subject to environmental and climate policy constraints.

The conclusion is then straightforward: if the lowest cost of providing energy services is actually a combination of technologies in a stand-alone configuration (e.g. solar plus batteries plus some energy efficiency measures), then this is the benchmark according to which the price of network services should be set.

However, there is another option, the cost of which is harder to calculate but probably gives the best value for consumers. This would be a combination of grid and consumer energy services.

This is not an easy cost to calculate, as it can depend on multiple variables that will continue to change (such as costs of new technologies), and the exact geographical location of the consumer. The location is important since the system is not homogenous and different customers can in fact have varying real costs of supply.

How this all plays out and what it means for the commercial viability of various companies along the supply chain is hard to predict, and the debate will likely become heated and controversial.

electricity chart