Week 1 – Session 10

Towards a low-carbon
electricity mix

Sidney LAMBERT-LALITTE

MOOC ENERGY TRANSITION

IFP SCHOOL
Introduction
Hi everyone, welcome to this final video of the week dedicated to the decarbonization of the
power sector!

If you remember the last video, one of the main barriers preventing the widespread
deployment of alternative electricity sources was due to the fact that so far, they haven’t
been competitive with conventional means of power generation. This is about to change.

Grid parity
As the levelized costs of electricity generation from solar PV or wind resources decline, at
some point, this cost will be lower than the retail electricity price paid for power purchased
from the utility. This is known as “grid parity” or “socket parity”.

But because the LCOE varies from one region, one technology, or one site to another; and
because retail power prices are also different in each market, the time when each technology
will reach grid parity is uncertain.

But when it does, this changes everything! Why? Because it becomes cheaper to produce
your own power from a solar installation on your roof than to purchase it from the grid. Each
kilowatt-hour consumed from your own installation saves you money!

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 The role of self-consumption
This is a huge incentive to develop installations everywhere it is economically profitable. This
will boost the capacity installed in the decades to come. Consuming the electricity you
produced on-site is what we call “self-consumption”. However, there remains many technical,
economic and policy obstacles to a massive deployment of such installations.

A self-producer’s objective is to maximize its self-consumption rate, which is the part of

production that is consumed on-site. Without any incentive, the producer will probably
undersize its installation, to save on the system CAPEX and maximize its self-consumption
rate. This contradicts the objective of expanding low-carbon installed capacities.

From a general welfare point of view, such installations should maximize the self-production
rate, meaning the share of consumption that is produced directly on-site, so that it minimizes
the need to purchase power from the grid. It is this self-production rate that reflects the true
energy independence of a self-consumer.

How to maximize this ratio? Well, several options are available to match on-site electricity
supply and demand. One is “demand shifting”: for solar, this means trying to move from
night consumption to solar peak-production periods, in the middle of the day. If we take the
example of France, electricity tariffs are designed to encourage people to consume more at
night.

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To develop PV production, there is a need for incentivizing consumers to shift part of their
demand during the day: for instance, by running domestic water heaters when the PV
installation is producing or charging electric vehicle batteries at this time of the day.

Another option would be to store power for night usage. This is becoming possible with cost
reductions in battery packs. However, we have only reached grid-parity for standalone
systems recently, and only in some specific regions.

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Adding batteries will increase the whole system LCOE and affect the competitiveness of
such installations, hence the rationale for self-consumption. But the cost of solar and
batteries will keep decreasing in the future and retail power prices will increase, so you can
be sure that grid-parity will be reached for solar plus storage installations in the coming
years.

Finally, we can also aggregate supply and demand at a broader level, such as a whole
building or a block of buildings, to improve the “collective self-production rate”. Solar PV
production can be sold to consumers at the same nod of the local distribution grid, hence
reducing the need to purchase electricity brought from utility-scale power plants over long
distances.

These types of installations are expected to boom worldwide in the coming decades. But
power markets will need to be reformed in order to foster their expansion in a fair manner.

Let me give you just one simple example: in many countries, a significant share of the
electricity bill is used to maintain the existing grid, shared by all electricity consumers. These
taxes are often indexed on the electricity consumption of each household: in such a case,
self-consumers will pay less taxes because they will purchase less power from the grid,
leaving a heavier burden on households that cannot afford to pay for self-consumption PV
systems.

Power market regulators also need to ensure that this development of low-carbon
decentralized installations indeed reduce the need for back-up fossil plants, and effectively
lower the cost of maintenance for the transportation and distribution electric grid.

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As we have mentioned before, the grid of the future will be diversified, with centralized and
distributed installations, large or small scale, baseload and peak adapted plants to match any
type of demand.

Digitization, technological innovation and adapted policies will also play a key role in making
tomorrow’s power affordable, reliable and decarbonized.

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