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New solar threat to networks – death spiral for gas

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Australia’s energy utilities have added a new element to their push for solar incentive schemes to be removed, arguing that gas networks now face the same threat as the nation’s network of poles and wires – a “death spiral” scenario where rising costs push consumers to consider other technologies.

The Energy Network Association – which represents the distribution and transmission networks in the electricity and gas markets – has called on the federal government to remove the small-scale renewable energy scheme, which provides certificates for rooftop solar PV, and solar hot water systems, as well as heat pumps.

“To reduce pressure on electricity prices, we should stop subsidising technologies that don’t need it,” ENA CEO John Bradley said in a media statement accompanying its submission to the Energy White Paper. “Solar PV technology is now well established and is forecast to undergo significant growth without further subsidies.”

Bradley also said gas hot water systems – which provide significant emission reductions compared to the 4 million electric water heaters still in the market – are competing against subsidised heat pumps and solar hot water systems in distorted appliance markets.

The push to remove subsidies for solar comes as the ENA takes stock of the potential impact of the soaring gas prices that will be caused by the coal seam gas and LNG booms in eastern Australia.

It warns that the cost of wholesale gas supply will likely “significantly affect” residential customers through higher retail gas prices. But, if customers reduce gas consumption by looking at other technologies, then this could force even greater rises in gas prices because “infrastructure costs would have to be recouped over a smaller customer base.”

shutter gas

Gas image courtesy of ShutterStock

In effect, the gas industry is facing the same problem as the electricity industry, where rising prices are causing consumers to look at other options, forcing networks to try to recoup the cost of investment from falling volumes.

The ENA wants the Small-scale Renewable Energy Scheme (SRES) – which provides certificates for solar hot water and solar PV modules – removed. And it says the Million Solar Roofs program could increase those market distortions. As RenewEcoomy reported last year, there is considerable doubt about how the Solar Roofs program will be implemented, or what funding will finally be allocated.

If the solar schemes are not removed, then the ENA wants the SRES and other schemes extended to gas appliances, as well as solar hot water and heat pumps.

The submission comes as the gas industry grapples with rising fuel costs that is pushing generation out of the market, and flowing through to consumer bills. Last week, Stanwell Corp said it would close its biggest gas generator, Swanbank, because it was now too expensive to operate, and instead sell gas to the LNG producers.

Stanwell has blamed rooftop solar for rendering its 4,000MW of coal and gas-fired generators profitless in the last financial year. Meanwhile, the Queensland Competition Authority has flagged the first price rises from the gas boom, predicting it would be the biggest single factor in rising electricity bills in 2014/15.

The ENA is calling for the government to “intervene” and ensure that there are no blockages to gas supply in an effort to keep a lid on costs.

Network operators are caught between protecting their investment and coping with changes to fuel and delivery costs, and new technologies. The ENA recognises that the industry is going through fundamental change.

It was interesting, however, to note how the ENA responded to the CSIRO’s fascinating Future Grid report, which canvassed four scenarios for networks and consumers into the future.

One of them was ‘set and forget”, or business as usual, which can be discarded because it is improbable. Another was the “high renewables” scenario, which might be attractive but unlikely with the current government in place.

The other two scenarios predicted massive change, particularly through on-site generation and distributed energy. If the networks failed to embrace this, up to one-third of consumers may leave the grid in frustration. If the networks did respond, and embraced new technologies and business models, then “prosumers” could be providing nearly half of all generation on-site. Either scenario has major implications for incumbent industries.

ENA, however, dismissed the off the grid scenario because of the higher capital cost over business as usual. But it missed the point – the CSIRO modelling suggested that despite the higher upfront costs, the bills to consumers in this scenario would be cheaper, which is what will motivate them to take action in the first place. That is what is motivating households to spend money on rooftop solar, because ultimately it will deliver cheaper electricity. If the ENA can succeed in removing the remaining incentives, then the payback for such investment lengthens, making the investment less attractive.

The ENA describes the pro-sumer scenario, where nearly half of all generation is supplied on-site, on rooftops and at business sites, as “irrational”.

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  • Wolf Messthaler

    Australia needs to look overseas to help understand the changes that
    will come with more and more efficient renewable energy sources!

    the signs are set clearly in WA !

    an eminent upgrade to intelligent smart grid operation and an Australian
    wide distribution to level renewable harvest will support to meet
    demand more reliable. 40% instant wind power complemented by 60% concentrating solar tower technology with long
    term storage will create base load and should be the long-term focus.

    lets think ahead to a solution focused strategy.

  • Giles

    This from Alan Pears, who struggling with DisQus.

    “On the gas death spiral, the gas industry has much more to worry about than solar.

    In colder states, the gas heating load is looking very fragile for a number of reasons. First, more energy efficient houses use much less gas for heating, and this is compounded by improving efficiency of gas central heaters. Further, as more people want cooling in more efficient homes, it is much cheaper to install reverse cycle a/c for both heating and cooling than to install gas heating and a separate cooling system. The improving efficiency of reverse cycle a/c also means the running costs and ghgs can be similar or even lower than gas on grid electricity.

    For cooking, induction electric cookers and electric ovens offer a very good alternative to gas. Indeed, many people with gas cooking install electric ovens already.

    For hot water, the latest electric heat pump technology is very impressive and, if prices come down to somewhere near the Japanese prices, they will be the obvious choice.

    Gas fixed supply charges (I pay almost $200/year) are also a barrier to staying connected to gas, especially in areas where heating is not a big issue. On the climate change front, greenhouse intensity of electricity is declining, while for gas it’s going up as methane leakage problems and other issues affect gas. Further, given the urgency of climate response, we do have to consider the much higher 20 year global warming impact of gas relative to its 100 year impact that is used for official greenhouse inventories.

    Lastly, maybe the gas industry should have pulled the builders of the Queensland LNG plants into line by insisting that they lock-in their gas supply without disrupting the whole eastern seaboard gas market? The LNG driven price increases make renewables competition look like a minor problem.

    As many have pointed out (including Amory Lovins in RenewEconomy -http://reneweconomy.com.au/2014/renewables-disrupt-utilities-thats-good-thing-57196 – , on what basis can propping up incumbent industries that have failed to respond to change be justified? I have been calling for the gas industry to provide a zero emission pathway/strategy for 15 years to no avail.”

    Alan Pears

  • MrMauricio

    The government and the gas companies only have themselves to blame by failing to protect domestic customers who were the backbone of the industry until the headlong rush to export the nations gas and they then saw fit to charge domestic customers the same price. Penalising the cost effective replacement seems strange for a free enterprise government when solar and wind are now competitive with the high prices of gas and electricity-without subsidy.Most of us will abandon gas and stay with one energy source because of the prohibitive costs of a gas AND electricity daily connection fee(40cpd+105 cpd) while steadily increasing our solar input.

    • Rockne O’Bannon

      But, just for the sake of argument, the government actually did the RIGHT thing, right? if Australia can sell a lot of gas at very high prices and replace that demand with cheap solar, then most people will be better off. Keeping all the gas at home for the sole purpose of keeping it cheap…is…is what exactly? Well, it is something Malaysia would do, let’s put it that way.

      I think we are agreeing, and you are right that penalizing the better technology does not make anyone better off.

      Repeat after me everybody: if fossil fuels are expensive, that is better in the long run for alternative energy. If you do that enough, you don’t need to subsidize alternative energy.

  • Ronald Brakels

    Gas is facing difficulties. Expanding rooftop solar means lower electricity prices during the day and it also results in less hydroelectric power being used in the day which means there is more available for use in the evening which is helping to keep a lid on prices then. And exports are in danger because there is nothing to stop importing nations such as Japan from doing the same. (Actually that’s exactly what Japan’s doing.) But I have to point out that no one’s forced anyone to remain in the gas industry. It’s been very clear for a very long time that the world has to cut greenhouse gas emissions and companies involved in gas have had plenty of time to run down their capital and make a graceful exit from the fossil fuel industry. Now maybe they gambled that gas would remain profitable for a longer period, but if so it was their bad luck that their gambled failed to pay off and they shouldn’t make it the bad luck of other people who will die if greenhouse gas emissions are not rapidly reduced. The Renewable Energy Target should not be removed unless it is replaced with something that sane people can agree on is clearly better.

    • Motorshack

      “something that sane people can agree on”

      The central problem, of course, is precisely that the lunatics are presently in charge of the asylum.

      • Ronald Brakels

        I was specifically thinking of Direct Action when I included the sanity clause in my comment above.

  • JohnRD

    The gas industry has a short term escape route while the LNG market holds up. The Swanbank decision seems to be more about the export market pushing up domestic gas prices at a time of falling coal prices. There was no talk of Stanwell expanding into renewables. In addition, it is very easy for household gas consumers to go off grid and depend on electricity.
    On the other hand the fossil electricity industry has not got the export escape route. It is being partly protected by the high cost and waste of cheap renewable power if a consumer wants to go completely off grid.

  • SM

    Residential customers don’t buy gas, they buy heating, hot water, cooking etc,. goods that are increasingly available from the sun for free or from electrical appliances. Ergo gas networks no longer have a complete monopoly i.e. their monopoly is only in the supply of gas not in the goods we want. They can’t therefore continue to price as a monopoly as if they don’t get the pricing signals right those customers than can switch will do so and never return. The AER will have fun managing this transition?

  • Chris Fraser

    I’m constantly amazed by the twisting, scheming conniving methods they are resorting to. Sigh! Readers will agree with me that I now have to change my home improvement plans to eliminate all gas! That may indeed appear to some as irrational, but only from a certain viewpoint.

    • RobS

      Until someone can show me a way to generate enough gas on my own property to supply all my energy needs for less than $10,000 for 25 years of supply then there is nothing irrational about your position, the irrational thing is to not install solar.

  • Mitra Ardron

    Absolutely – as they say lets “stop subsidising technologies that don’t need it”, that means removing the subsidy of providing the coal and gas industry a free place to dump their CO2 and other pollutants into the atmosphere. If the cost of cleaning up from the catastrophe to the climate caused by coal and gas is in the trillions, isn’t that a subsidy that should be removed ?

  • Tosh, Energy for the People

    absolutely, agree, let’s stop subsidising technologies that “don’t need it” like gas networks to regional communities and network upgrades that are necessary. Mr Orwell would be having a field day…

  • Tosh, Energy for the People

    that should read… network upgrades that are [UN]ecessary…

  • Tosh, Energy for the People

    Don’t electricity networks get free money for innovation through the demand management incentive scheme? I would have thought that given the forecast of more network spending, this free money is no longer needed? I look forward to hearing about the ENA’s position on this