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Is renewable energy a huge threat to the electricity sector?

One in five Australian homes now has solar panels installed, around 1.5 million homes, and more Australians are considering switching to renewable energy.

A survey by Energy Consumers Australia (ECA) found that 90% of households were looking at renewable energy alternatives, including solar panels, battery storage and smart meters to combat rising power bills. Three-quarters of Australians think their power bills are too expensive.

A massive and sustained increase in power bills over the past few years has prompted many to install solar panels, and the pace of growth shows no sign of slowing anytime soon. Government incentives such as solar rebates have also prompted many to find ways to cut their power bills.

No longer are Australians just looking at changing a few light bulbs over, many are also considering going ‘off-grid’ with the installation of batteries.

Rosemary Sinclair, CEO of ECA has told  50% of households are turning to solar panels and 28% are looking at battery storage. Batteries are designed to address a number of the issues with solar generated electricity. Solar power is generated throughout the day, peaking when the sun’s at its highest point, around lunchtime usually. But consumer’s peak electricity usage occurs in the early mornings and evenings, when we’re getting ready for work, or coming from work and preparing the evening meal. Lights get turned on, electronic devices such as TVs are activated and ovens, cooktops, and hot water systems are all in heavy use.

Batteries allow households to store up the solar power generated and use it during those peak times. They are also becoming more popular as the government has cut back on solar generation feed-in tariffs.

In Brisbane, my energy retailer gives me 6 cents for every kilowatt hour (kWh) of energy that goes from my solar system back into the grid. In return, I get charged 22.24 cents for every kWh I use. Only the energy generated from my solar system that I don’t use goes back into the grid, which would be great if our house used its electricity during the day and none during the evening and night.

Adding batteries would allow me to store up that energy, saving it for peak times. But it’s a major threat to the energy retailing companies including Energy Australia, AGL Energy Limited (ASX: AGL), Origin Energy Limited (ASX: ORG), not to mention the electricity generators and distributors like Ausgrid, Energex, Ergon Energy and Powercor if hundreds of thousands or even millions of Australians chose to go ‘off-grid’.

Luckily for them, there are a number of factors stopping households from rushing out and disconnecting from the grid. Firstly, battery technology is still in its early days, they tend to be big and bulky (about the size of a large fridge) and only store energy for a few days. That’s not great if you have a week of cloudy or rainy days.

Secondly, they are very expensive and the payback period is likely in the 15+ year range.

Another issue is that households still have a need for a backup – which could involve staying connected to the grid, but only drawing power when the batteries are depleted and the solar system is not generating power.

Foolish takeaway

The changes in the electricity sector are likely to be evolutionary rather than revolutionary, which should allow the retailers like Origin and AGL, the generators and wholesale distributors time to adjust to the disruption in the sector. The problem is that solar panels and battery storage systems are likely to become much cheaper as time goes by, and much more efficient. That could see the sector forced to take drastic action.

You might want to avoid Origin and AGL...

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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