Devolving power

WHO needs the power grid when you can generate and store your own electricity cheaply and reliably? Such a world is drawing nearer: good news for consumers, but a potential shock for utility companies. That is the conclusion of a report this week by Morgan Stanley, an investment bank, which predicts that ever-cheaper solar and other renewable-energy sources, combined with better and more plentiful batteries, will allow many businesses and other electricity users to cut the cord on their electricity providers.

Tesla Motors, an American maker of electric cars, recently said it will build a “gigafactory”, which by 2020 will turn out as many lithium-ion batteries as the whole world produced last year. These batteries can do more than power cars; they can also store electricity which is produced when it is not needed, and discharge it when it is.

So the factory’s huge output of efficient batteries will boost the idea of distributed generation—producing electricity in small quantities near the point of use, rather than in large amounts in a few places. In another indication that the idea’s time has come, GE has just set up a new business bringing together parts of its transport, aviation and engines divisions, to meet what it calls a “$100 billion opportunity”.

Small power stations are nothing new, but in the past they tended to use a lot of capital and energy relative to the sizzle they produced. Now it is possible to build small, cheap and efficient plants that produce power in the tens of megawatts (MW) at most (a typical coal-fired power station produces it in the hundreds). This not only cuts transmission costs but reduces the risk of widespread power cuts, and the economic damage that results.

Not all distributed-power schemes involve renewable sources, or batteries. Wesleyan University in Connecticut has installed a system based around an efficient engine running on natural gas (which fracking has made cheap in America). Besides generating about 95% of the electricity that the university needs, the set-up captures much of the engine’s waste heat to provide heating and hot water, cutting the institution’s net energy consumption by 30%.

In poor, volt-starved countries, a lorry-mounted aircraft engine can become a mobile gas-fired power station. GE recently installed 24 such units in Algeria, providing 30MW of power. Local difficulties meant it took six months; that was fast by the standards of big power stations, “but we could have done it in ten days,” says Lorraine Bolsinger, who heads GE’s new distributed-generation business.

Waste-recycling schemes are playing a role too: with the right bugs, anaerobic digesters can gobble up any kind of organic waste, from food scraps to cow dung, giving off methane that can be used to run a generator. But by far the most disruptive new power source is solar panels. Morgan Stanley reckons that if Tesla’s factory provides the cheap batteries it promises, Californian households will be able to run off a solar-plus-storage system costing just $350 a year. Buying electricity off the grid may cost them around $750 a year by then.

Morningstar, an investment-research firm, says that though distributed generation represents only 1% of America’s installed capacity now (compared with 20% in Germany), it could make up a third by 2017 and could “kill” utilities in their current form. Small-scale producers will dump their surplus power on the market at prices below those at which the utilities can recoup their cost of capital—and thus pay to maintain the grid.

America’s Electric Power Research Institute last month produced a paper highlighting the dangers of an unplanned move to distributed generation, using Germany as an example. The dash for renewables there has strained the power network and made life hard for utilities. This week one of the country’s largest, RWE, announced that it made a net loss of €2.8 billion ($3.8 billion) in 2013, its first annual loss in more than 60 years, as the rising supply of electricity from (subsidised) renewable sources undercut its prices.

In America two organisations more accustomed to scrapping with each other—the Edison Electric Institute, a trade body, and the Natural Resources Defence Council, a green group—have jointly urged regulators to revamp their rules, among other things to encourage utilities to keep investing in upgrading the grid. That way, they say, both large- and small-scale power producers will flourish in an age in which “power flows in two directions”.