rethink sustainability

    ‘Prosumer’ power: the rapid rise of decentralised energy

    In 1883, Cragside, the dramatic castle-like home of British industrial magnate William Armstrong, would have looked every inch the cradle of revolution. Known as “the palace of a modern magician,” Cragside drew a long list of visiting kings and prime ministers eager to see the first home ever to be powered by domestically-generated electricity. In effect, Cragside was both house and power station, with the entire estate, from the machinery in the outdoor workshops to the lights in the ostentatious drawing room, run by mechanical hydraulics and the world’s first hydroelectricity.

    That same year, a less-celebrated but equally far-sighted form of home electricity generation was being tested on a rooftop in New York – the world’s first solar panels, constructed by American inventor Charles Fritts. And just four years later, Scottish professor James Blyth built the first electricity-generating wind turbine, a 10-metre-high windmill, complete with cloth sails, that powered the lighting in his cottage.

    Those early adventures in domestic renewable electricity faced stiff competition. In London and New York coal-fired power stations had just come online, creating the prototype of today’s power grid, with large, centralised fossil-fuel-powered producers serving distributed consumers. It was a model that would win out for more than a century – now the rapid rise of the ‘prosumer’ is rewriting the energy rulebook.

    The rise of the ‘prosumer’ – homeowners and businesses who both consume and produce energy – is rewriting the energy rulebook

    The writing’s on the wall for fossil fuels

    Fritts built his solar array just five minutes’ walk from Thomas Edison’s Pearl Street power station, which was then generating enough electricity to light a total of 400 lamps for nearby homes and businesses. Meanwhile, Fritts’ solar panels operated at just 1% efficiency, and were capable of little more than registering a current – still, he was convinced they were the future, saying: “We may before long see the photoelectric plate competing [with coal-fired plants].” Though it’s taken longer than he expected, 140 years after those early experiments in decentralised renewable electricity generation, Fritts’ prediction is now coming true.

    Since 1975, the cost of solar panels has fallen by an extraordinary 99.8%, from USD 115 to USD 0.27 per Watt1. At the same time solar panels have become much more efficient, up from just 1% of sunlight being converted into electricity, to the average panel now achieving 20%2, with new innovations in mixed material panels – which incorporate silicon with a mineral known as perovskite – promising to raise efficiency to beyond 30%.

    Solar is now cheaper than any other form of electricity generation3. With costs continuing to fall, the future looks bleak for fossil-fuel power stations.

    Read also: Storage technologies: paving the way for a renewable energy future

    Solar power is uniquely scalable – the sun’s energy can be harnessed to power anything from a calculator to a country

    Power to the people

    The transformation of our energy systems runs deeper still, however. The rise of the ‘prosumer’ – homeowners and businesses who both consume and produce energy – is about more than the passing of fossil fuels.

    Solar power is uniquely scalable – the sun’s energy can be harnessed to power anything from a calculator to a country. For homeowners this easy scalability makes it the ideal candidate for the first ever widespread at-home electricity generation, putting not only power, but power generation itself, in the hands of the consumer.

    In many developed countries, the early adoption of residential solar panels was driven by generous public subsidies, including high rates for selling excess electricity back to the grid. Now the market has taken the reins. For homeowners, installing solar panels makes simple financial sense – with the cost of panels at an all-time low, and centralised electricity rates high, solar installations are creating cost savings even where subsidies have fallen away.

    This market-driven growth has become self-sustaining, with high adoption leading to further innovation and a continued fall in costs. Australia, one of the world’s sunniest countries, is the most committed to the “new” technology, with 25% of all homes having solar panels4, almost all of which have been installed in the last 15 years.

    Such are the efficiency improvements in solar technology, however, that northern hemisphere countries are playing catch-up fast. In the UK, for instance, cumulative capacity of at-home solar has risen more than 30-fold since 20105.

    Read also: The CLIC® Chronicles: Meet Glowee, the startup creating sustainable lighting from bioluminescent bacteria


    Democratising power

    For homeowners, solar installations bring three clear benefits – energy resilience, the chance to cut greenhouse gas emissions, and cost savings, the last of these coming both from reducing external power usage and from selling excess electricity back to the grid.

    The astonishing fall in the cost of electric vehicle (EV) batteries is underpinning this sea-change moment. With prices down 90% since 20106, EV and at-home battery systems are creating a distributed nationwide battery pack, cutting the wastage of excess electricity produced by solar on sunny days, and minimising the need for centralised energy storage.

    As at-home solar and battery storage adoption grows, vast networks of “mini-power stations” are being built. With connection back to the central grid, these networks are becoming ‘virtual power plants’ (VPPs), serious contributors to the energy mix that can be called on to support national grids in times of energy stress, avoiding the need to switch on expensive, carbon-emitting ‘peaking plants’.

    In the US, industry estimates suggest that by 2030, VPPs could cut peak-time demand by 60 gigawatts, the average power consumed by 50 million American homes7. For governments, the rise of home solar promises to boost national energy resilience, cutting the need for fossil fuel imports and reducing vulnerability to terror attacks or natural disasters.

    For governments, the rise of the prosumer creates wider energy resilience, cutting reliance on fossil fuel imports and reducing vulnerability to terror attacks or natural disasters


    The rewiring of energy systems may not stop there. As power continues to be democratised, we could see peer-to-peer energy trading enabled by blockchain technology – electricity produced on the roof, stored in the car, then sold to nearby households on a localised grid, cutting energy companies out of the loop entirely.

    In some places this decentralisation will bring electricity to homes and communities for the very first time. Around the world more than 750 million people live without access to electricity, in regions where centralised production is either unreliable or not viable8. Here, solar panels paired with battery storage systems could enable the rise of solar mini-grids9 which operate entirely independently of national transmission, helping to reduce inequality and close the “energy access gap”.

    Read also: Storage technologies: paving the way for a renewable energy future


    Just getting started

    This paradigm shift in energy systems will create cascading impacts across sectors. New business models will be created, incumbent uses for land will be pushed aside, and property values will change, as decentralised solar adds significant new revenue streams.

    For investors the opportunity will be vast. In 2021, company earnings at 19 key solar equipment companies rose above capex investment for the first time. And since mid-2020, the indexed share price of major solar companies has quadrupled, outperforming both the MSCI World Index and broader renewable utilities.

    Despite this, there is still room for enormous growth in the sector. It is estimated that there is a further 200,000 square kilometres10 of available roof-space that could be adapted for rooftop solar, and that of the nearly USD 25 trillion in capex investment11 that is set to be deployed to electrify the economy and decarbonise power generation this decade, a significant proportion will go on battery storage and the cabling needed to enable smart-grid systems and the growing export of home-generated electricity. This will lead to a dramatic shift in profit pools, with rooftop solar growing from a USD 62 billion industry in 2021, to USD 265 billion by 203012.

    Some of this will be driven by new subsidies and policy, with governments recognising the importance of domestic solar in building energy independence, especially following Russia’s invasion of Ukraine. In the US, the Inflation Reduction Act will extend the Investment Tax Credit to 2035, enabling homeowners to claim back 30% of the cost of installing home solar.

    Read also: Hubert Keller on Bloomberg: from innovation to mass market – investing in net zero

    Meanwhile, the EU’s RePowerEU plan will frontload investment in the sector, bringing forward a massive rollout of solar-powered generation. Rooftop solar, the plan says, could provide more than 24% of the bloc’s entire electricity consumption, higher than the share of natural gas today. To push towards this, a phased-in legal obligation will require all new residential, public and commercial buildings to have rooftop solar, and all existing large public and commercial buildings to be retrofitted. The plan also makes clear the importance of encouraging prosumers: via tax exemptions, transparent payment structures for exporting electricity from home to grid, and by enabling peer-to-peer electricity sales.

    Installing solar panels at home may not look like a revolutionary act. However…covering just half of the world’s hundreds of millions of roofs in solar panels would provide our entire electricity needs…

    More than just a roof

    For thousands of years roofs have done more than just keep out the rain. In ancient Egypt flat rooftops were social spaces, where neighbours mixed, families ate, and householders slept on warm evenings. In many parts of the world this is still the norm, while in Western cities roofs are sometimes given over to gardens, terraces, or even swimming pools. Now the world’s roofs are finding a new purpose.

    Installing solar panels at home may not look like a revolutionary act. However, a study in the journal Nature found that covering just half of the world’s hundreds of millions of roofs in solar panels would provide our entire electricity needs13, with no need for any other forms of generation.

    While we may never reach that point, with a 15-fold increase in global residential solar capacity seen since 201014, and a further 7-fold increase anticipated between now and 2030, home solar15 has the potential to send shockwaves through the energy industry. In the process it could upend more than 100 years of power grid orthodoxy and drive the transition towards sustainability across multiple sectors.


    5 Bloomberg NEF
    6 Idem
    Explainer: What is a virtual power plant? | Reuters
    10 Lombard Odier research
    11 Lombard Odier projections
    12 Idem
    15 Idem

    Important information

    This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.

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