A Solar Powered 'Distributed Generation'

In part 1, (Solar Power: The Future Of Energy), we discussed the paradigm shift towards investing in clean energy that is disrupting the fossil fuel industry and highlighted that a tipping point for mass adoption in solar power is only a few years away, when solar power becomes cheaper than power from the grid (“god parity”).

Part 2 highlights how solar & battery storage will enable power generation to be decentralised and generated on-site, which is known as “Distributed Generation” (DG). Unlike centralised power generation, DG does not require to be transmitted over long distances.

Existing Energy Architecture Is A Century Old

As our demand for electricity continues to grow, our existing energy architecture is over a century old and becoming more and more inefficient to deal with the issues of living in the Information Age. In this system, a single point of failure can potentially lead to a devastating domino effect on homes and businesses as was illustrated in the ‘South Australian Blackout’ on the 28th of September 2016.

South Australia was hit by one of the worst storms in 50 years; there were at least 80,000 lightning strikes and 2 tornadoes that took down 23 power pylons, triggering the state’s electricity network to shut down leaving all of South Australia in darkness. Nigel McBride, the Chief Executive of Business SA, said that the cost to productivity alone could be more than $2 billion and that doesn’t even count stock.

Distributed Generation Needed to Strengthen Power Grid

Historically, Distributed Generation has been fuelled by diesel but Solar PV is fast becoming the choice for on-site power generation as the costs continue to fall. Given solar power generation peaks during the daytime, batteries can be used to store excess solar energy so as to avoid oversupply and disruptions to conventional baseload generation. In the past, building large-scale batteries has been too expensive but as battery cell prices continue to decline, battery storage increasingly becomes more economically viable.

This will enable local community grids and micro grid systems to proliferate. There could even be a mass movement to off-grid (similar to movement from fixed line telephony) and the cannibalisation of the incumbent grid ecosystem. For the time being though, the grid will remain useful as it offers backup power as well as a place to sell excess power that is generated on-site.

With distributed generation, energy security will improve and insulate the economy from interruptions, price shocks and energy shortages. Power failures caused by storms or falling tree branches will be localised to a small area and will no longer leave thousands of residence in the dark. The economic loss from long periods of outages will be minimised.

Power will be Digitised and become Data

A consequence of rooftop solar and battery installations reaching critical mass is that the power network will become an increasingly interconnected and complex web with hundreds if not thousands of distributed generation sites. To manage this complexity, power will need to be transformed into ‘data’ and digitised just as with content and information. This data will pave the way for a Digital Utility to provide energy services in real time, enabling data analytics of all aspects from generation to transmission of energy from every distributed generation site to every power consumer.

Today, Smart Grids and Smart Cities are being trialled and smart meters are being rolled out that provide consumers with their energy usage in real time. This enables the consumer to make choices to manage their energy usage more effectively. Smart meters with ‘in-home’ displays have helped reduce energy consumption from between 5-15%. Smart Appliances can automate the timing of appliances to run only during off-peak times, like washing machines, dryers and the dishwasher. With these improvements, consumers can opt to use power stored in batteries or profit by selling the stored power at the most costly period of the day.

The utilities are also saving time and money as faults and outages can be identified and corrected before a customer reports the incident. Faults can be pinpointed to the exact location, thus enabling utilities to determine if the fault is within the customer’s side of the meter or the utilities, which saves time and cost of dispatching a technical crew for no reason.

Power end users become power generators

With real time information, customers will have greater choice as to how they manage their power. Consumers may be able to choose who they buy their power from at various times; it may even be from a neighbour. Power consumers with additional capacity from their solar and battery storage will be able to become power generators and sell their clean power directly to another user who needs it more.

An example of how this can help communities is the Amaroo School Solar Project, which is one of the projects owned by VivoPower. This is the largest school rooftop solar project in Australia to date. The ACT Government has signed a 20year power purchase agreement that will generate $30,000 a year in school funding and will power the equivalent of 175 Canberra homes. Schools are ideal as they have term breaks with 6 weeks off during summer, which is prime time for solar generation as well as power consumption. A government initiative like this is beneficial on many levels, residents in the area who would like solar but cannot afford to install solar will be able to support their local school by purchasing power from the school, simultaneously helping school funding. Students of the school will also benefit from the firsthand experience of living in a sustainable environment.

VivoPower’s Strategy Aligned With the Disruption of the Energy Sector

In part 1 & 2, we briefly outlined the stages of the disruption that we envision in the energy sector. VivoPower’s growth strategy is aligned to take advantage of this transformation in the early stages and to continue to build up as the new energy architecture evolves.

VivoPower’s revenue model is akin to an enterprise software model. By installing cheaper & cleaner energy for Commercial, Industrial & Government customers, VivoPower’s solar power asset base grows. This provides investors with recurring long-term revenues and free cash-flow with further potential upside from technological innovation and the digitisation of power.

Arowana’s team will continue to support VivoPower to source and project manage the build of a range of solar PV projects and assets with long-term power purchase agreements around the world. As previously mentioned, Arowana has made public its intention to list VivoPower on the NASDAQ. Investors who are seeking a direct exposure towards VivoPower can invest in Arowana Inc (Bloomberg Code: ARWA US) on the NASDAQ. Post the merger, Arowana International (ASX code: AWN) is expected to own between 30% and 57% of VivoPower.

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Benn Lim is the Head of Retail Distribution of Arowana & Co., joining Arowana in 2015. Previously Benn was a Financial Adviser for over 12 years, managing financial investments for High Net Worth families. His career began with Commonwealth Bank’s Private Bank and more recently was a Director at UBS Wealth Management for almost 10years.

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