The Future of Distributed Energy in 2018

In our latest blog, we look ahead to see what the 2018 holds for the distributed energy technology sector.

Looking back at 2017 – a year of change

It’s fair to say 2017 was a year of phenomenal change within the energy sector, with some huge changes in generation, demand and infrastructure.  The transition to a cleaner energy future is well underway, with key positive trends solidifying, and gathering pace.  Most dramatically, we are seeing the death of coal as an energy source in the UK. Renewables generated more than three times the amount of electricity as coal over the past year; wind output exceeded that of coal on 263 days, and solar on 180 days.

Electricity use in the UK continues to fall, as improved energy efficiency in homes and businesses reduces the demand for energy. Critical here, is the switch to LED lighting, offering approximately 50% reduction in energy use in lighting – the largest subsector of electricity use in buildings.  Improvements in lighting efficiency also dramatically reduce the evening peak, meaning less power stations are required to ensure reliability of supply.

Electric vehicles sales to keep growing in 2018.

Of all the predictions we are making for 2018, this one is a no brainer! By the end of 2017, there were 125,000 plug-in electric vehicles on UK roads, up from 90,000 at the end of 2016.  At these kind of exponential growth rates we can expect to see over 200,000 electric vehicles on UK roads by the end of 2018.

This exponential growth of EV sales is partially driven by improvements in EV technology, but perhaps more importantly by increased social acceptance.  Concerns about local air quality and climate change, are making electric vehicles an increasingly attractive option. With and the lifecycle costs of EVs already being cheaper than petrol or diesel, it is also being seen as the economically rational approach as well.  An increase in EV ownership leads to a more widespread infrastructure, with charge points proliferating in the home, at work, and provided by councils in city centres.  All this normalises EV ownership, and alleviates concerns about range anxiety.  Put all this together and we can expect to see a snowballing of EV sales over the coming years.

The battle for EV charging infrastructure to hot up

One of the most fascinating aspects of the transition to EVs is that there is a multi-billion pound fight to be the key operators in this new marketplace – and all this is taking place in a way that it is virtually invisible to the end customer.

Put simply, if EVs are to replace fossil fuelled transport, then the market for petrol and diesel will be replaced by one for electricity.  At present access and charging for public EV chargepoints is controlled by a series of RFID cards, much like an Oyster card.  Whoever controls the EV charging infrastructure will be replacing the petrol industry, and that is a huge prize up for grabs.  Behind the scenes we’re seeing a 4-way fight to end up owning the new EV chargepoint market – traditional suppliers of petrol such as Shell and BP; electricity utility companies; big data companies; and the EV chargepoint manufacturers themselves.  Could there also be publicly owned, municipal, or community based solutions here as well? Who’s going to win?  We don’t know, but it will be fascinating to see how this plays out.

Solar PV market to recover in 2018

The PV market has been relatively quiet since the FiT cuts of January 2016, but we are beginning to see the signs of a recovery.  We are seeing increased levels of enquiries for PV from residential and commercial customers alike.  Local council tenders, often the yardstick of the health of the PV market are proliferating again.

This is following the classic profile of market confidence after Government FiT cuts.  After FiT reductions we see low levels of enquiries as the media message is typically that ‘solar doesn’t work after the FiT cuts’.  This isn’t true – the returns on solar PV are still strong, especially for commercial applications.  After all, the FiT is only a minor contributor to the economics of a PV system, and the majority of benefits come from not purchasing expensive electricity from your supplier anymore.  After a year or so, the public become aware of the continued good economic case and the market recovers.  This is the classic ‘solarcoaster’, and we’ve ridden the ups and downs eight times now (8!) since we were founded in 2006.  This year is looking like an ‘up’ for solar PV.

Synergies between EVs and Solar PV

Part of the recovery in the PV market has been driven by synergies between EVs and solar PV. Many new PV customers are also new owners of an electric vehicle.  Whilst they may not have considered PV before, the idea of running their car off their own electricity is instantly and automatically appealing.

The Zappi charger, which diverts (free!) excess solar PV generation directly into an electric vehicle, is a key enabling technology here.  Demand for the Zappi has outstripped their expectations since its launch a few months ago, and we’re expecting widespread adoption of this device through 2018.

We are also increasingly seeing customers wanting the full set of solar PV, battery storage and EV chargepoint, and this is a trend we expect to intensify throughout 2018.

Battery storage to continue to reduce in price

Much as we saw a dramatic fall in the costs of solar PV as it began to be mass produced, so we are also seeing the costs of battery storage technologies reduce, as they are similarly manufactured at scale (largely driven by the EV market).  Over the past 6 years, the cost of Li-ion batteries has fallen by 20% each year, and we expect this ‘learning curve’ to continue.

All this should mean lower prices for installed battery storage systems across the board, but whether this is passed to consumers will depend on having a competitive market for home batteries.  At present Tesla offer the cheapest unit price (per kWh of battery capacity), and further cost reductions are likely to depend on whether Tesla’s competitors are able to challenge their price point.

Additional battery functionality

Currently home batteries are used to store excess generation from solar PV for use in the evening and at night-time. In the coming year we expect to see additional functionalities being offered, often just as a simple firmware upgrade.  These will include:

• The possibility to charge batteries from cheap night-time electricity such as Economy 7. This will allow batteries to be used by those without solar PV, essentially using cheap electricity all day.  For those with PV, it will allow partial filling of the battery with cheap electricity in winter, topping up with solar in the day, thereby allowing the cheapest possible electricity to be used in the house in the evenings.
• We’re seeing a lot of interest in being able to power the house from a home battery system in the event of a power cut. This is complex, as the system will need to operate in accordance with UK grid connection regulations, but some home batteries already have back-up power options and we expect all major manufacturers of batteries to follow suit in 2018, including Tesla.
• We are also hopeful of seeing novel electricity tariffs being introduced this year to support home batteries. A time-of-day tariff will give differential electricity rates at different times of day, and could reward you generously for discharging your stored solar electricity to the grid at times of peak demand, between 4pm and 7pm.  Even more advanced, real-time pricing would monitor the live electricity market price.  This will allow you to charge when cheap and discharge when expensive, and so benefit from ‘playing’ the electricity markets, whilst simultaneously stopping the most expensive and polluting forms of conventional generation being used.
• We also expect to see the first vehicle to grid offerings hit the UK in 2018. Here, the car battery can also be used to provide storage for the home without the need for a dedicated storage unit.  Leading the way are Nissan and electricity supplier OVO, who are jointly launching a package of EV technology and electricity tariffs to support this.

We’ll be blogging in more detail about all of these over the coming months.

Policy remains a bit of a muddle

Energy policy for microgeneration, and renewables in general, remains somewhat contradictory.  With the Department for Energy and Climate Change being subsumed into BEIS (the department for Business Energy and Industrial Strategy) it was unclear what sort of prominence would be given to the issue of climate change and the green energy sector.  While some where concerned this would lead to a sidelining of the green agenda, optimists argued that this was a good opportunity to reframe the economy along green growth lines. This seems to be the case – the launch of BEIS’s Clean Growth Strategy affirmed the importance of energy efficiency and clean sources of generation, and the department has also launched a major energy storage initiative.

That said, whilst BEIS outlines a clear overall vision of what they would like to achieve, this carries the hallmarks of an inconsistent approach between Government departments, particularly the Treasury.  The last Autumn budget suggested no new policies for renewable energy until 2025 due to budget constraints, which runs contrary to the vision of Clean Growth forming the backbone of the UK’s post-Brexit economy.

This is also symptomatic of a wider split on energy policy within Conservative ranks.  Broadly, the dramatic cost reductions seen in renewables means there is now a split between conservatives that favour the cheapest forms of generation (i.e. economically rational) and conservatives that favour traditional incumbent institutions and traditional means of generating electricity.  In simple terms it is a fight between economics and politics.  With only a small Conservative majority, policy can be dictated by a few hardliners – which has resulted in a focus on gas (including fracked gas) and nuclear (including the horrendously expensive Hinckley C).  Onshore wind and solar PV look to be less well supported in policy terms, although that hasn’t stopped the first subsidy free solar farms being built. We expect more subsidy free solar projects to follow in 2018, as economics wins the day.

Importantly, this policy shortfall could see the end of Feed-in tariffs for solar PV.  At present, FiTs are only announced until the end of March 2019.  If this is not extended, or no alternative put in place, we are likely to see another rush on solar PV towards the end of 2018 and into the first quarter of 2019, as people rush to get the last of the available funds.  We welcome the start of subsidy free solar – with levelized costs of electricity as low as 4p/kWh generated by solar it is already cheaper than purchasing electricity from a utility.  However, if you are planning a project (particularly a commercial project with longer timescales) and would welcome the additional income from FiTs, it would be wise to start project development in earnest now.

Summary

In conclusion there is much to be excited about in the distributed energy sector in the coming year.  EVs and battery storage are both taking off exponentially, with a host of new products and functionalities becoming available in 2018.  We are expecting a strong year for the solar PV market, as the rooftop sector picks up again, and subsidy free solar farms get developed as PV prices continue to fall.  The energy transition is looking unstoppable.