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New Zealand electricity network operator Vector intends to broaden the rollout of its solar storage package for homes, saying it is clear that rapid developments in costs and technologies mean the nature of the electricity market is changing – and utilities needed to adapt, or face oblivion.

In an exclusive – and remarkable – interview with RenewEconomy, Vector CEO Simon Mackenzie says the success of the solar storage leasing package offered by the company earlier this year is confirmation of a fundamental change in the electricity industry. (You can read full interview here)http://reneweconomy.com.au/2013/interview-vector-ceo-simon-mackenzie-69896

So much so, Vector is to expand its solar battery lease offering to larger scale commercial businesses. He expects up to half of all new homes, and a third of consumers overall, to generate, store, and manage their own electricity.

Not surprisingly, Mackenzie speaks of a “new economic reality,” which means that the core of the industry is moving from centralised generation and transmission networks to the consumer. But he says most network operators simply refuse to accept this.

“To be blunt, I think there are a lot of utility operators who are stuck in the old paradigm; that it is a remote generation brought to the market by transmission, connected in by distribution and it’s a one way flow,” Mackenzie says.

“The way we look at it is that consumers now expect … to have the utilities services delivered to them the same as they have banking services, telecommunication or any other type of services, so that they are accessible. They want choice, they want information, they want to choose whether they want to manage it themselves or have it managed for them.”

Vector attracted huge interest earlier this year when it rolled out a leasing option that combined rooftop solar and battery storage and control devices. We wrote about it in June and it has been one of the most read stories of the year.

The Vector offering was for a 3kW solar PV array (Trina), an inverter (Schneider) and a 10.7kWh lithium-ion (Kokam). It will allow householders to use all the electricity produced on their rooftop, provide for nearly half of their total consumption and smooth out the peaks.

Vector offered a $NZ1,999 up-front payment, and leasing options over 12 years that meant that the entire package would amount to a reduction in the household’s electricity bills.

Most readers assumed that the offering was heavily subsidised by Vector, given current estimates of the cost of the various technologies – particularly battery storage. Mackenzie says it wasn’t.

First of all, he notes, there has been no government subsidy for rooftop solar in New Zealand, which is why there are comparatively few rooftop systems, even in a (relatively) sunny city such as Auckland. But when Vector did its calculations, it took into account the network benefits of the installation, rather than just the cost of technology.

“No, it wasn’t heavily subsidised,” Mackenzie says.  ”It was just by recognising the network benefits from a regulatory perspective on asset deferral and capital and how that fits with network control, as opposed to trying to load it all on to the customers, as well as the customer, from an affordability perspective, paying an upfront cost.”

This is important because it goes to the two schools of thought about the economics of battery storage. As we highlighted in this article, the cost of battery storage does not (yet) make sense if a consumer bears all the cost. But as we highlighted here, it does make sense if the network benefits are brought into account – and if those benefits are shared between network and consumer.

Mackenzie says that it is clear that the electricity supply industry is moving into the home, and away from the centralised, engineering-on-a-massive scale, planning perspective.

This is the aspect that Mackenzie says utilities don’t get. He says many think they have “done their customers a favour,” simply by stringing a cable to their premises.

“I think that their business models are built on the old paradigm. I don’t think they are customer focused. If you don’t embrace the technology and the consumer space, you will be either substituted by other operators that are in that space, or your business will fade off and become much more intermittent and volatile.”

Mackenzie expects the cost of solar PV will continue to fall – although not as rapidly as the last few years, and the cost of lithium-ion batteries has dropped 50 per cent in the last year, and will continue to fall rapidly. “The economics of those two combined are competing with grid. Grid parity is coming closer as we speak.”

That means that transmission and large generation, which used to be seen as the centre of the industry, is now just moving back to being a “big battery from the outside. The future will be based on what is happening inside the home.”

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The full interview is at http://reneweconomy.com.au/2013/interview-vector-ceo-simon-mackenzie-69896