CHAPTER 1. DECENTRALISATION: A new mega-trend in the European power sector

For an increasing number of consumers in Europe, distributed generation combined with other
smart solutions represents the perfect way to control their energy bill. Other behavioral factors may of course play a role in individual decisions, but in essence, economic benefits probably
remain the key consideration of people who invest in on-site generation. Indeed, the fact that solar generation costs are today low and expected to decline1 further is perceived as a strong hedging strategy in a context of increasing electricity prices.The economic benefits for these new types of consumers (prosumers), however, depend on the policy arrangements at the retail level. In particular, the regulatory treatment of “selfconsumption” – i.e. the fact that on site power generation is used below a given connection point either instantaneously or in a deferred manner via storage – and the remuneration of the excess of electricity injected into the grid will to a large extent determine the financial benefits for consumers.

In order to shed some new light on this debate, SolarPower Europe has developed three policy
scenarios for residential consumers in Germany, the UK and Portugal

A “reference” scenario which assesses the economic benefits for consumers under
the current market conditions. In this case, we considered the regulatory arrangements
in place in these three countries in June 2015. Self-consumed electricity is usually
valorized at the full retail price while the excess of electricity is generally remunerated
above wholesale price levels.

A “market integration” scenario, in which the excess of distributed generation (i.e.
not self-consumed but injected into the grid) would not benefit from any form of financial
support and would be remunerated at average wholesale price levels. This is to reflect a
situation where the level of support schemes for solar would be progressively phasedout. In this scenario, the self-consumed electricity is remunerated in the same way as in
the reference scenario.

A “constraint” scenario, in which the self-consumed electricity would not be valorized
at the full retail electricity price. This is to reflect a situation where the self-consumed
electricity would be exposed either to grid charges or taxes, or both. The excess
electricity in this scenario is remunerated in the same way as in the reference scenario.

CHAPTER 2. CONSUMER BENEFITS – KEY FINDINGS

In order to present the impact of the different scenarios on the economic benefits of endconsumers in a consolidated manner, shows the Internal Rates of Return (IRR) achieved in each scenario in each country. This basically gives an indication to the
consumer on the return they can expect in relation to the initial investment made.

Generally speaking, combining solar with storage in the reference scenario proves economically feasible today. However, and very importantly, solar alone remains a better deal in such a scenario. It indeed achieves either better or very similar economic results than solar combined with small batteries, while solar combined with large batteries likely remains the least beneficial variant with regard to medium timeframes (five years and more). This is because the additional investment costs associated with larger batteries reduce the monetary benefits to an extent which cannot be compensated by higher self-sufficiency rates. In the case
of Germany, our sensitivity analysis shows that a tipping point may be reached when cost of batteries will be reduced by 30% and 70% for small-size and large-scale batteries respectively. In the UK, on the contrary and based on the regulatory framework in place in June 2015, there was no strong business case for storage. In Portugal, the reference scenario can be considered as a “market integration” scenario, since according to the schemes in place in June 2015 the excess of electricity is already valorized only at the average wholesale price and does not benefit from any feed-in tariff.

CHAPTER 3. THE PROSUMER: A driver for innovative business models

The shift towards a system where the generation assets are located close to and/or owned by
the end-consumers may represent a disruptive change for energy suppliers. However, it also
creates new opportunities. Prosumers have new, different needs which therefore require new,
different offers.

Paradoxically, consumers who face higher retail prices are not necessarily less satisfied with the
cost-performance of their supplier when compared to consumers in countries with lower prices
(Opower, 2013). This suggests that consumers may not only evaluate their suppliers on the
actual cost per kWh but also on additional elements such as services, billing information, support,etc. Almost 60 % of consumers globally – especially those between 18 and 34 years – show for instance interest in investments that increase their self-sufficiency (Accenture, 2015).

CHAPTER 4. NEW BUSINESS MODELS, NEW BENEFITS FOR THE ENERGY SYSTEM

The fact that consumers can derive real economic benefits from distributed generation will trigger new value propositions. As seen above, these new offers are also likely to incorporate system services.Today, as the second most deployed smart technology in the energy system (after smart meters), solar can provide system services such as voltage support (reactive power) and negative balancing power, i.e. ramp down. When combined with batteries, solar is also capable of providing positive balancing power (i.e. ramp up), can support black starts5 and can limit the injection peak during mid-day (thereby reducing grid impact).

This shows that in a decentralized energy world, system services can and will have to come more from the flexibility created at the consumer level by distributed generation, storage and demand response. More importantly, these distributed flexibility assets will be able to provide better services if they are aggregated.

CHAPTER 5. CONCLUSIONS AND RECOMMENDATIONS

The analysis conducted in this report shows that solar – alone or in combination with storage – can bring real economic benefits to a growing share of European consumers. With prosumers comes the need to develop new business models to ensure that self-generation and consumption is made smarter and benefits the whole system.

Source:SOLAR POWER EUROPE