Will the last energy giant to leave your home please turn off the lights! Scottish Power has installed just short of 50 batteries in solar-equipped homes across Britain to understand how the technology, paired with real-time data fed to a smartphone app, translates to bills. The Lewises’ have dropped by a fifth. It is no idle experiment. Scottish Power is dipping its toe into waters that threaten to capsize it and the rest of the industry. Since 2010, Europe’s top energy utilities — including Scottish Power parent Iberdrola — have written off an astounding €104bn (£81bn) of assets, according to Jefferies, the investment bank. From their 2007 highs the market values of the top utilities have shrunk by more than €400bn — losses on a scale comparable to the big banks in the wake of the financial crisis. And the reckoning is far from over. Iain Conn, chief executive of Centrica, owner of British Gas, recently told The Sunday Times that the industry was “on the edge of a revolution”. Paul Massara, former chief executive of Npower, put it in more stark terms: “The energy supply business is facing a life-or-death moment.” Three forces have come together to turn the industry on its head. Climate-change rules are snuffing out dirty old power plants with astonishing speed. Since March alone, four coal-fired stations capable of powering 8m homes in Britain have shut. At the same time, plunging fossil fuel prices have led to sharp cuts in energy bills, hollowing out the balance sheets of the incumbents. And some renewable technologies, for years reliant on government subsidies, have become so cheap they can be built with little or no support. Solar panel costs have plunged 70% in five years. The result has been an explosion of what the industry calls “distributed generation”. In place of the few dozen giant power plants that were controlled by the top suppliers, hundreds of thousands of wind turbines and solar panels are springing up. Most are not owned or operated by the big six. The incumbents are being gradually cut out of the power production game. They are also getting elbowed out of the supply market, where web-savvy supply companies are luring away their customers with cheaper deals and customer service that isn’t terrible. In 2012, less than 1% of British homes were supplied by non-big six companies. That figure is now close to 15%, and rising. More than 40 companies are fighting it out for a share of the household market. As the big six struggle to stem the tide, a fourth factor has emerged that threatens to supercharge the revolution: batteries. FOR decades electricity storage has been a holy grail for the industry. Power is a fleeting commodity. You can’t put in a barrel and stash it underground. For intermittent sources such as wind, this has been an Achilles heel. If the breeze is blowing at times of particularly low demand, National Grid pays turbine owners to turn them off because it has nowhere to send the power. North Star Solar, have begun devising solar and storage deals that require no subsidy or upfront investment, the way mobile companies offer free iPhones in exchange for a long-term service contract. His company recently signed up the first council in Britain to a deal under which it will fit 10,000 homes with solar panels and batteries. He claims the kit will slash bills by a fifth and pay back his company over 20 years. Simon Virley, UK chairman of KPMG’s energy advisory practice and a former Cabinet Office official, said such contracts raise the prospect of homes becoming largely self-sufficient. He said: “This presents a significant challenge for the conventional power generators. They have to find a way to make money by selling a lot less of the product they produce.” EDF is clinging on for dear life to Hinkley, a project that, whether it happens or not, is likely to serve as a reference point for a time of immense change in which the industry desperately sought the right answer. Many will have got it wrong.
Sunday Times 5th June 2016 read more »