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Should Australian towns buy back their grids?

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(Editors note: This is part of a series of interviews and stories that will run over the next few weeks looking at Germany’s Energiewende, and the transition of Germany’s energy grid to one dominated by renewable energy).

Last week, the state-owned network operators in NSW revealed they had doubled their profits in the past year, skimming a profit of around $350 per customer. The profit margin of the big network operators in NSW accounted for 15 per cent of an average customer’s bill – that’s more than carbon price and renewable incentives combined.

In Queensland, there is a similar margin of profit, at least for the south-east Queensland network operator Energex. The question is now being asked by some communities, and some townships: Are we better off owning the networks ourselves, and directing excess earnings to local needs? And who will be the first in Australia to develop a not-for-profit network operator?

Australian communities are not alone in wondering whether network operations are best served by big corporations, or local co-operatives, particularly given the boom in rooftop solar, and the so-called democratisation of energy. In Germany, local communities are buying back the grid by the hundreds, to make sure that they operate to the benefit of the customers, and to remove the single biggest impediment to the rollout of renewable energy and energy efficiency measures. In the US, the city of Boulder recently voted to do the same.

schoenauThe first to do so in Germany was Schönau, a small village of 2,500 people in the Black Forest in the south-western corner of Germany. It’s a story worth telling, because it has become a famous battle, and many of the same issues, and the same arguments and fear campaigns, are emerging all over again – in Germany, Australia, the US and elsewhere – as the traditional energy operators seek to protect their investments against the growing impact of private ownership.

The story of Schönau, however, actually pre-dates the arrival of cheap domestic solar. Like much of the energy politics in Germany, nuclear is at the heart of what happened in Schönau.

It started soon after the Chernobyl disaster, which blew radioactive fallout across much of the country. “There was an atmosphere of helplessness, nobody knew what to do,” says Sebastian Sladek, now the managing director of Elektrizitätswerke Schönau (EWS), the local grid operator that is now owned by several thousand community members. “The police officers came to the market, collecting salads and vegetables and taking them away. There was no information. The citizens had no idea how to protect themselves.”

Sladek says fear and anger were the prime motivations to start a new project. At first it was symbolic. The local grid operator sourced around 40 per cent of its electricity needs from nuclear energy, and so a newly formed community group decided to try and use energy efficiency and energy savings to reduce the town’s consumption by a similar amount, and remove the need to buy any nuclear power.

They approached the local grid operator Kraftübertragungswerke Rheinfelden (KWR) for help, but didn’t get far. “They told us it was a crazy idea,” Sladek says. “They said ‘we want to sell electricity, not save it’. They said our ideas would ruin their business.” They threatened court action if the energy efficiency campaign continued.

The community group, which was led by Sladek’s parents, quickly concluded the grid operator was not interested in a new environmental focus, so they decided to do it themselves.

In Germany, local councils are responsible for operating the local distribution networks, and usually award a 20-year contract to a professional operator to do the job. KWR’s contract in Schönau was due for renewal in 1994, so in 1990 they came to town and offered the local council 100,000 Deutschmarks if they would sign an early renewal out to 2014.

It was obviously a bribe, and one that would be illegal now. But the Schönau citizens decided the only thing they could do was to respond in kind. So they created their own co-operative. Forty people got together, with their own assets, and decided to offer a similar sum to the council.

The council still wanted to accept the KWR offer, reasoning it was a big company, so the co-op insisted on a referendum. They won 55 per cent of the vote.

This, says Sladek, was when Schönau started to attract national attention. The media came to town and instantly found a hero: Sladek’s  father, a local doctor and a big bellied man with a large beard, became the face of the project. (You can see interviews with Sladek and his father here).

But KWR was not ready to give up. They forced another referendum, and what followed was a period of intense campaigning that divided the conservative town of farmers and small business people right down the middle.

The biggest employer warned that handing the grid to a collective would cause prices to rise, the lights to go out, and would force industry to move and jobs to be lost. All the local businesses sided with KWR, the local butcher placed an ad in the paper announcing he was distancing himself from the views of his wife, who supported the Co-op. Meetings of sporting and other clubs were cancelled because of the divisions.

In the end EWS won again, with 52.5 per cent of the vote. The co-op had a mandate, but had to buy the grid back from KWR. Even though it was probably not worth more than 4 million DM, KWR demanded 8.7 million DM. It was a deliberate move, because either it would leave EWS without the capital to run the network, or would provoke a long-running court campaign that would favour the incumbent.

EWS then launched what might have been the first crowd-funding project in Germany. They raised 2 million DM in two weeks. KWR took fright, admitted they had made a “mistake” in their calculations and offered the grid for 5.7 million DM. EWS took it, and still took KWR to court, where it later got the price reduced to 3.5 million DM.

So, in July 1997, EWS started operating the local network. The co-operative is now owned by 3,500 people, it has bought the networks of eight neighbouring communities , as well as two local gas networks. It has buried all the wires, and now generates more than 35 per cent of its electricity needs during the week, more than 100 per cent on the weekends.

It has built more than one dozen local co-generation plants, and when the solar PV tariffs were introduced in 2000, it added an extra premium and by 2001 it was the solar capital of the country, with more PV per capita than anywhere else. Despite all this, its prices – around 26.75c/kWh, are at the lower end of German retail prices. Most notably, it is 10 per cent cheaper than the prices offered by KWR parent company EnBW, which still relies mostly on coal.

Now, hundreds of other communities have followed their lead. A referendum in Hamburg recently voted to do the same thing, Stuttgart has also agreed, and Berlin just failed by a narrow margin. In fact, Berlin voted overwhelmingly for the idea, but because the local utility succeeded in having the referendum separated from the recent national poll, the turnout fell just short of the required forum of 25 per cent.

Ironically, the same game is being played out in the national arena, this time with the “energiewende”, the German energy transition away from nuclear and towards renewables.

The same arguments are being used – energy efficiency and rooftop solar are destroying businesses and jobs, the lights will go out, and prices will rise. The irony is that German retail electricity prices have risen little beyond the long term average, and have not increased at all as a percentage of GDP. Most German industry does not pay any of the renewable tariffs,  and their electricity costs (based around the wholesale price) have actually fallen. But the campaign against the EEG (feed in tariffs) has intensified.

“The big utilities have had a very deep sleep in the past 15 years and just hoped for political support,” Sladek says. “The real thing going on in the German electricity market is a conflict of production market. One quarter of that market has lost to citizens. We now have 25 per cent green electricity, established by and through the EEG (feed in tariffs) and most of this is owned private individuals, communities and small companies. The big companies don’t like it.”

(Thanks to Craig Morris, a Freiburg based journalist who writes the Energy Transition blog (EnergyTransition.de), for allowing us to share some of his videos. More will be featured in our other stories. They can be found here).  

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  • Claude Walker

    Excellent article, Giles, but would it be possible in Australia with our much larger grid (and less dense population)?

    • sean

      which variable do you believe would have an impact on running small electricity co-ops?

      • Claude Walker

        Both: larger networks are more expensive to buy, less dense populations make large networks less economically viable.

        • sean

          so being privately owned somehow subsidises this? i think not.

          the costs for power in australia will be higher for those who live in more isolated regions, but i doubt they would be cheaper if someone else is making a profit out of it.

          • Claude Walker

            obviously… i never said that being privately own subsidises anything. I simply make the point that it would be a lot harder for a co-op to take over a much larger network.

  • Albert Sjoberg

    The opening paragraph puts the lie to the rhetoric about grid tied solar having to pay its fair share of the grid costs.

    I would love to see break down of how this would be workable in regional areas. Who actually owns what network assets in Australia?

    • Claude Walker

      Private companies mostly. Some are traded on the ASX (eg SKI or SPN)

  • Stan Hlegeris

    Notice that the price of electricity there, in dismal grey Germany, is already more than 11% lower than in Queensland.

    Towns here in Australia, where solar generation is dead easy and dead cheap, ought to be able to do far better.

  • John P

    Some years ago I consulted with a group of likeminded families living on contiguous properties in Central Victoria.
    They had a proposal to set up a central solar power plant to service all properties.
    The proposal didn’t proceed – possibly for a range of reasons.
    From my point of view, it seemed that the biggest problem related to land titles and associated legal issues.
    These factors need not be the killer but they do matter.

  • Mick

    I would be very curious to see if we could wrestle ownership of the cables etc from the grasp of Powercorp.

    We should take a fresh look at the people behind Hepburn Wind and go from there

  • Michel Syna Rahme

    It would be interesting if RenewEconomy could put together a piece outlining what the challenges are, and how similar action could be taken by communities here in Australia and its different states. If advocates, at a community level, of such action had a verified map of what was necessary to attempt to accomplish such a positive move through the Australian NEM, that would indeed assist with promoting and convincing other members of those same communities to support and adopt similar solutions through referendum, or through pressure on local council. If German communities can do it, we can do it!!!
    All that is required is a majority from each community, so real pressure for change can be applied! For that we need plain English information and a roadmap!

    • Jonathan Prendergast

      I can tell you it is all possible (with caveats). In some forms, it already happens. Typically caravan parks own the grid within the caravan park. The caravan park owner/manager pays for electricity to the gate, then manages everything from there, including metering and charging each caravan owner. Same for shopping centres and their retail tenancies. Great savings are being made by group buying and also the reduced network charges of being a HV customer. Regulation is in place to allow these things to happen, within certain limits.

      But why would a network owner sell? Convincing them without overpaying would be a major challenge.