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Energy industry needs to focus on consumers, it may need them

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You hear it quite regularly now from energy utilities: ‘This is all about the consumer, we are focused on what our consumer wants, our products are geared towards changing consumer needs.’

Except that – but for a few tentative steps towards new technologies by some leading players – it’s not, and for the past 100 years it hasn’t been. It’s been all about centralised power and centralised control.

Even in the new paradigm, where the incumbent utilities – networks, generators or retailers, or a combination of both – recognise that consumers now have the technology to make their own choices, and new competitors that will make sure they get them, the shift to a new business or consumer model is begrudging at best.

consumer

Nowhere is this highlighted more than in the critical area of the energy industry where the utilities still exercise almost absolute control and influence – with the policy and pricing regulators.

Alan Pears, senior industry fellow at RMIT and one of the leading experts in the field, says policy makers and regulators in the energy sector are failing consumers because they have a history of being ‘gatekeepers’ to the industry and defining their role as protecting the incumbent industry from risks associated with change.

This “sense of entitlement” has effectively led to discrimination against emerging energy solutions, such as rooftop solar PV and now battery storage.

In the past few weeks there have been several clear examples where the regulator – under the weight of hefty submissions from the incumbent utilities – continues to fail the consumer.

In Queensland, the newly formed state Productivity Commission advised the Labor government to back off from its pledge to deliver 50 per cent renewable energy and its commitment to 3,000MW of rooftop solar by 2020, because of its supposed costs. This is despite its own numbers which show the benefits clearly outweigh those costs.

In Victoria, the Energy Services Commission has been asked to investigate its own assessment of a “fair solar tariff” and in its discussion paper declared that it had yet to identify any benefits of distributed generation. The Tasmania Economic Regulator made a similar declaration in its own assessment of that state’s solar feed-in tariffs.

It could be that the people running these regulators fancy themselves as some sort of Horatio Nelson – turning the telescope to their blind eye in the hope of being able to ignore undesirable information (such as the benefits of solar and battery storage) on the presumption of winning some heroic battles (defending the incumbents). If that’s the case, they are deluding themselves and doing consumers, and the economy, a massive disservice.

Not for the first time, these regulators are putting assessments of solar PV and battery storage in the “too hard” basket. Tasmania’s regulator doesn’t even want to consider battery storage for another three years. Victoria’s ESC only wants to make “easily quantifiable” assessments.

Pears is aghast, and suggests that the ESC is being lazy, and has no intention of carrying out the sort of  “comprehensive analysis” that the state government expects.

In his submission to the ESC, Pears points out that guidelines for development of public policy clearly require policy makers to address issues that are difficult or even impossible to quantify. That’s what they are supposed to do with their reports, which often run to hundreds of pages.

The issue is important. Solar tariffs have been cut to the bare bones in most states, roughly equal to the wholesale rate. In no state are any of the benefits credited.

Now, customers in many states are being hit with major rises in fixed and unavoidable tariffs, special taxes that affect solar households are being imposed, and all the while new battery technology and business models such as micro-grids are being rolled out, giving the consumer even more choice.

The response of the industry lobby? Fine the consumer or penalise them in other ways if they dare leave the network. And when the issue is being discussed, the regulators are being accused of excluding the interests of consumers.

“Network operators have been given a false sense of entitlement to a ‘right to make a profit’, regardless of their past poor judgement regarding investment in infrastructure,” Pears writes in his submission to ESC. “There is a risk that the ESC’s approach to this inquiry will reinforce that misguided sense of entitlement.”

Pears asks why consumers installing solar and battery storage should be treated any differently to those choosing to switch from gas cooking or hot water, or installing a big air conditioner without paying the electricity retailer or network operator anything.

Indeed, Pears points out that the gas industry has had a major impact on the profile of demand for electricity through its replacement of electric off-peak hot water services by gas HWS units across most of Victoria.

The gas industry was never expected to compensate the electricity industry for its impact on their costs, nor was the ‘true value’ of gas based on what it saved the electricity industry.

And, as Pears also notes, solar households in Victoria are required to operate under a time-of-use tariff. Yet this rule does not apply to homes with air conditioners, which are responsible for the huge surge in network costs now saddling consumers.

“Consumers face an increasing range of options to use less energy, or to use different forms of energy and energy technologies to deliver these services. Until energy policy is based on energy services, policy will continue to fail to meet community expectations.” he writes.

Pears also talks of the numerous cases where network operators seem to have used their market power to limit competition from emerging alternatives such as cogeneration and rooftop solar, as well as applying high fixed charges that dilute price signals to consumers.

The problem with the ESC’s approach to a fair solar tariff, he says, is that it is seeking outcomes only in terms of benefits to the network, and not to the consumer or society in general.

“This reflects a serious case of ‘regulator capture’,” Pears notes.”Second, it suggests the ESC has not tried very hard to identify broader societal benefits.”

So, to help the ESC find some benefits, here are a couple:

Energy Markets

Downward pressure on wholesale electricity prices – demonstrated to be significant by a number of studies in the recent commonwealth government review process. Incorporating storage and smart management into an integrated DG (distributed generation) package would further enhance this effect.

Reduction of insurance costs for network providers in fire-prone regions, by either replacing power lines, or allowing power lines in high risk areas to be shut down at times of high fire danger (as highlighted in this recent article that showed solar PV and storage could reduce network safety augmentation costs by 90%). And it would reduce exposure to risk for fire fighters and residents in fire-prone regions

Improved system reliability and lower maintenance costs. DG can reduce peak pressures on networks. Where storage is included, it assists with management of maintenance activity by increasing the flexibility for scheduling of repairs by allowing consumers to continue to receive energy services while faults exist. (Ergon Energy says battery storage is reducing network maintenance costs by one-third). And where equipment is appropriately designed and managed, ancillary benefits can be provided, such as voltage stabilisation.

Economic benefits

Studies by both ClimateWorks and the Australian Alliance for Saving Energy have shown that measures that improve ‘energy productivity’, including DG, can contribute to a higher rate of economic growth. And distributed generation offers higher employment intensity, a more diverse range of skills, and wider geographical distribution than in the conventional energy sector.

It creates a different profile of capital requirements, as DG begins to deliver a revenue stream after a short installation process, costs are spread over time and risks are spread by large numbers of small projects, lower risk due to diversity. Much DG capital is provided by ‘retail’ capital providers, which drives increased activity in that sector.

Lower overall energy costs free up funds for investment in other sectors of the economy. A 2014 report by the International Energy Agency suggested that, for businesses, the ‘multiple benefits’ of energy efficiency measures could be as high as 2.5 times the value of the direct energy savings. DG and storage may provide similar or even greater benefits.

Health and other externalities

Pears says it is surprising that ESC seems to have been unable to find any health benefits. The literature is abundant.

One starting point could be the Australian Academy of Technological Sciences and Engineering 2009 paper, The Hidden Costs of Electricity: externalities of power generation in Australia. ATSE suggest an externality cost (excluding carbon) of around $13/MWh for coal powered generation and $1.50-5 for renewables. However, given the age of some of our power stations, this may be higher.

Additional insights may also be provided by review of the costs related to recent mine fires and mine wall collapses in the Latrobe Valley. And Doctors for the Environment Australia have strong interest in energy and climate-related health impacts, and may also be able to assist ESC in identifying relevant research and analysis.

An emerging aspect of the external costs of electricity generation is the concerns about the long-term economic, social and environmental impacts of coal seam gas extraction. Where this is the marginal source of gas for power generation now or in the future, or where DG may replace on-site use of gas sourced from CSG, related long-term costs and impacts are relevant.

Climate benefits

Solar PV is often accused of having a “high cost” of abatement. This ignores the fact that the incentives for the renewable energy target were primarily designed to drive the development of the renewable energy industry.

And most calculations for solar PV are based on the element of deemed abatement over 10 to 15 years of around $40/MWh. Given that solar systems have a much longer life, and that their output is usually much higher than estimated by the Clean Energy Regulator, the real STC price per MWh generated may be more like half of this.

Pears says the ESC must be careful about suggesting that some or all of the STC price reflects payment for the decarbonisation effect of DG. And if it does, it needs to take into account the price that governments are prepared to pay for abatement, through specific schemes like the Emission Reduction Fund (around $13/tonne of CO2e avoided) and the Victorian Energy Efficiency Target (at present about $19/tonne of CO2e avoided), and other studies that put the social and economic cost of carbon at a much higher rate.

As Pears, concludes: Policy makers in the energy sector are being challenged because they have a “history of being ‘gatekeepers’ and defining their role as protecting consumers and the incumbent industry from risk associated with change. This has effectively led to discrimination against emerging energy solutions.”

So, it’s time they consider current and future trends, and think about benefits to consumers, as well as the industry. After all, the industry might need them.

  

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  • DevMac

    Can we get a regulator for the regulator?

  • Geoff Bragg – SEIA

    The longer this attitude from regulators & networks continues, the less I am inclined to try and help the laggards along. Every day I spend a little less of my work life considering network integration, and a little more time moving towards leaving the grid behind.

  • John P

    While the regulators continue to adopt this approach, they will merely hasten the uptake of storage and at least a modest number of homes may well go ‘off grid’ altogether. Thus these official bodies will come to look progressively less relevant.

    • eddierothmanisatool

      spot on. this is always the case. regulation lags technology. we have hundreds of precedents. one ridiculous example in california at the moment is tesla fighting the regulator to remove wing mirrors and replace with HUD cameras as this reduces vehicle drag by 5%. the list goes on and on. we will not need AEMO or AER very shortly as pv+storage uptake curves turn parabolic.

      • Alastair Leith

        well here is what the growth curves look like by state today. parabolic in the wrong direction!! Read my analysis here

        • Alastair Leith

          here’s the difference between the current linear growth and exponential growth at the historical global rate of a doubling of deployed capacity every two years feeding a 20% learnings curve per doubling.

          • eddierothmanisatool

            good piece. i looked you up on linkedin! FIT reduction certainly reduced incentive. but even with 6c fit and 25c tariff you still get 8-10 year payback. 5 of course was nicer. at utility scale its more like 40c/watt nowadays and 1/watt installed? LREC prices and abbotalypse created problems in large scale market. and i do think wind will begin to struggle over medium term. small wind is much better now. assuming governments dont collapse FIAT currencies over next few years solar and storage will lift off between now and 2018, only constrained by supply. in the commercial space solar has very quick paybacks due to load profile. solarcity model has always been to survive and thrive regardless of subsidy. i think many biz will flourish. we are on the cusp is my feeling/observations of a revolution that very hard to grasp at the moment.

          • Alastair Leith

            I hope so, but government would be taking a lead role in ushering the revolution not actively blocking it as many sate and current federal governments are. There will be huge grid reform issues to broker and if Governments don’t do it there’s going to be some serious mess, and lots of winners and losers who’ll start resenting each other.

    • Ian

      Renewables need storage, off-gridism is not a bad way to build the future grid. Once defected is not necessarily always defected. One can imagine an evolution of a grid from numerous standalone systems to a localised sharing minigrid to a network of connected minigrids etc. there is no reason why change can’t go up the electricity food chain or down it, or both directions similtaneously.

      • Cooma Doug

        Electric cars will be the grid to the residence. This must surely be evolving by 2025

        • Ian

          I’ve just read that GM and Tesla are battling it out with sub $35000, 200 +mile EV’s. The batteries from LG were about $150/KWH. Home solar storage on wheels may be here closer than we think. Two industries need a message big oil and big electricity. ” Be afraid, be very afraid”

          • Cooma Doug

            Ian
            I often wonder how powerful is the illusion “renewables are unreliable”. We hear it and see it quoted with such certainty at all levels.
            Renewables are improving system reliability and security with every installation.
            In 20 years from now nothing will be spent on preparation for system black. No transmission lines built. Large base load coal generation will be looked at as some kind of archiac monstrosity.

            If I am still around in 2050 I will tell some youngsters about the dark past.
            Eg…In 2012 my neighbour, with just 2 people had a power cost for the year of 3500 dollars. To put it another way their energy use was provided by mostly burning coal in Victoria. In the year they required the burning of 100 tons of brown coal. Yes
            100 thousand kilograms of vile toxic fossil

          • Cooma Doug

            The people I talk about in that case had three fridges and two freezers running, 1960 light bulbs and electric radiator heaters.
            I was able to cut their bill by shutting down fridges, updating the lights and doing some thermal/sunlight management. Their first bill there after was 380 dollars for the three months.
            Funny thing for me was they read the bill in dis belief and blamed the carbon tax.

    • Ricky Hannah

      I am now doubling my 11.28 KW PV while the tax credits are at 30% and the five year contracts on SRECs are priced at $200.00 ea. In Illinois. I will buy batteries later when those thousands of used or wrecked EVs have cheap used batteries available.

  • N. Richardson

    If ever there was an example of the belligerence of a power generating authority, one only has to refer back to the Lake Pedder and Franklin River power “developments” in Tasmania. It took a change of federal government to stop the Franklin, unfortunately the flooding of Lake Pedder and the Serpentine River was an irreversible casualty

    • Alastair Leith

      one day Lake Pedder will be freed!

  • david_fta

    Maybe Andrew Robb quit because he finally saw that his preferred Flat Earth model of industry assistance means the End of Coal?

    • solarguy

      Have you still got that warm fuzzy feeling about AGL?

      • david_fta

        I don’t get “feelings” about any corporation; they’re corporations, FFS, whose raison d’être is profitability.

        That said, public pronouncements give the impression that Vesey may not have his head wedged where he can’t see the future.

        • solarguy

          Oh, he can see the future alright, he can see how to control residential storage for their own corporate gain and they know the grid must be there to do it to the ultimate. If they look like good corporate citizens with their powerful marketing to selling storage and solar, it will become a gotcha moment sooner or later.
          I’m not anti grid, it’s needed, all I’m saying is watch the bastards. Their in it for max profits and to get it they need max control, even getting pollies to intro legislation to keep people defecting from the grid with fines and such. The regulators aren’t stupid their being payed off.
          Remember history is the best predictor.

          • david_fta

            There’ll always be a role for networks, because a long enough period of adverse weather (cloudy days, cold days, windless days, whatever) will deplete local storage.

            I’m well aware about the need to watch the bastards, particularly, for example, their attendance at meetings at political fundraisers at “seminars” by the North Sydney Foundation and its ilk.

            Centralised power is a sunset industry, for which establishing a Federal ICAC seems appropriate.

          • eddierothmanisatool

            agree with the concluding statement!

        • eddierothmanisatool

          because a corporation is a clinical psychopath and we live in a banking oligopoly/plutocracy. and you said it, they will stop at nothing to profit. destroying environments, lives and countries–syria the latest example of oil and gas companies attempting to route the south pars/north dome gas through syria and into europe.

          • david_fta

            Syria is not AGL’s business, I’m more than a little uncertain as to its relevance to this discussion.

            I repeat, there’ll always be a role for networks, because a long enough period of adverse weather (cloudy days, cold days, windless days, whatever) will deplete local storage. It may be a bit of a stretch for you, nut transmission networks will less be about distribution from centralised sources, more about shifting power back and forth as required.

          • david_fta

            I may have to eat my words – in Late Breaking News we read: “AGL pleads guilty to 11 counts of not declaring political donations
            “Company failed to declare donations in its development application for a coal seam gas project in Gloucester in the New South Wales Hunter region” http://www.theguardian.com/environment/2016/feb/12/agl-pleads-guilty-to-11-counts-of-not-declaring-political-donations

            So now, we have a very clear picture of why Vesey upped stumps on NSW CSG.

  • BobTee178

    Can someone tell me what DG stands for before we go any further using it?

    • Distributed generation. – solar, storage etc. I’ll put it back in for first reference.

      • BobTee178

        Thanks for that. I get a bit confused by initials. Any idea what FFS is?

  • Chris Fraser

    On occasion we think of regulators as benevolent dictators … they dictate the costs and terms of service, then they get a warm benevolent feeling from that.In an open forum we’d just appreciate their coming on here and defending their views, but they never seem to.

    • I’m told they do – but under pseudonyms.

      • Chris Fraser

        Ah … still, whoever they are, they can’t seem to provide rational explanations of regulators. They probably just come across as a bit nutty and get forgotten.

      • Alastair Leith

        ah that’s who “Micheal” was!

        • Cooma Doug

          Would you like me to name a few.

          • Alastair Leith

            sure send me an email: useful design [dot] au [@] gmail [dot] com

  • Ken Fabian

    Does a transition to low emissions energy – ie as a response to climate change – even figure into the thinking of those making the recommendations for future regulations or those bound by them?

    • Mike Dill

      Short answer: NO

      • Ken Fabian

        I suspect climate change and the need for such a transition are a minimal part – or none – of the “terms of reference” for these inquiries into the value of non-traditional “intrusive” energy supply.

  • Leigh Ryan

    You can’t change the opinions of those who are clearly paid and directed to do the opposite of what is needed so that the profits of the incumbents are protected, however they fail to understand that the current changes in technology are just the beginning of an avalanche that will bury them for all eternity

    • Alastair Leith

      even if they do, they’ll ‘protect’ their vested interests one more year longer if they can. such noble warriors of the sort John Winston Howard would be proud.

  • Leigh Ryan

    I am wondering how they will react if Australia’s domestic users get upset enough to actually blow up the grid, nobody has an entitlement just a right to be paid for a service or goods delivered and that’s not happening.

  • john

    The old system has a problem.
    Before the advent of cheaper RE and now battery backup they were complacent.
    The result is now it is possible to replace most of the power needed to a household or a commercial enterprise.
    While this is true the tariff structure to large users has been structured to ensure they do not utilise any RE.
    For the small household user the outcome is marginal, to beneficial, however still in their best interest to go ahead and implement PV and Backup.
    Where are the losses to the incumbents?
    The networks have been built and given a guarantee returned on Capital Expenditure.
    This has resulted in a huge impost on energy users and frankly has to be looked at seriously.
    Building a 45 Billion system that is not being used has resulted in high increases in end user costs.
    To say this is not on sustainable business best practise is understating the situation.
    What should happen is larger users should be able to put in RE to reduce their real energy usage and the same for householders.
    The capital cost of the networks has to be written down end of story.
    No other business could get away with this practise.
    So the losers are going to be the Network builders and retailers, if they do not directly communicate with their end user base and put in RE with battery and manage it.

  • Andrew Woodroffe

    And some other benefits, particularly from rooftop solar in WA;
    – deferral, possibly forever, of expansion of distribution and transmission
    – lower line losses (over 40% in places like Denmark – the town)
    – lower maximum operating temperatures for lines, transformers, switchgear thus increasing their longevity
    – free installation of smartmeters – required for all rooftop PV systems
    – free installation of RCDs (residual current device) for old houses and other safety benefits of electricians inspecting old electrical systems

  • Ian

    There are lots of aspects to the distributed generation grid that need to be put in place that will not fire-up the fossil fuel sector and their pet regulators. These are amongst others, 1. edge of grid and rural power transmission – very expensive to the grid operators and eminently suitable for stand alone solar plus storage. . 2. special purpose standalone solar and storage: farm water pumping, domestic pool pumping and heating. 3 interconnected mini grids on a suburb or community scale. Where the community owns and controls the local grid and negotiates its import and export to the wider grid through a gateway connection. 4. Encouragement of EV uptake both for transportation and as home electricity storage.

    Introducing Elements of rules and legislation to run a totally DG grid , such as access to the grid, trading of electricity across the grid, prosumers generating power remote from the point of consumption and having the right to access to the grid.

    Building grid scale hydro, storage and interstate connections to increase the robustness of the grid. Storage and large area sharing of renewables reduces the negative effects of intermittancy. Putting these in place will not affect the immediate bottom- line of the incumbants but sets up the grid to eventually be converted to a truely democratic and distributed electricity market place.

    A frontal attack on the incumbants is not working. Domestic solar as competitor to the grid is a Lilliputian effort. We know what sort of grid we want from a renewables point of view ( DG if one must spell it out) so start setting up all the elements of this except the ones that stir the FF beast. Some disaster like Tasmania’s drought and loss of bass strait link will hammer in the last nails on the old sow and piglet grid and a few adjustments can be made for DG to emerge from its FF grid crysalis.

  • MaxG

    I wonder where Giles gets the energy to write this stuff and hammer it home to the uninitiated… I have basically given up, arrogantly calling the majority stupid.

    • Motorshack

      My mother once did a Master’s thesis on changing people’s eating habits (which is usually extremely difficult), and the big lesson was that people find it easiest to try a new idea if they see someone they trust personally using it successfully.

      It’s not enough to present a rational argument for change, even with lots of solid intellectual evidence in support. Most people only change when it appears to make sense in terms of their personal social environment, and even then they tend to be very cautious.

      In addition, wealthy vested interests opposed to some change are easily able to hire very smart PR people who play on such fears quite cleverly.

      So, at a casual glance, a failure to change may appear stupid, but it is more likely an attempt to maintain local social cohesion in the face of apparently serious threats coming from several directions at once.

      Or so it would appear to me.

      • Pedro

        Good points. In addition humanity is a herd animal and we tend to follow the leaders which explains some of the bear and bull stock market behaviour and the steady rates of domestic solar uptake in Australia.

  • Cooma Doug

    By 2025 it will become obvious that electric cars are actually becoming the new grid to the home and high density areas. The retailers need to start thinking about this now.

    • Pedro

      I read a letter this weekend in our local paper from a wannabe local government politician bemoaning the fact the council is going to subsidize the installation of an EV charging station. His argument went along the lines that there are only a dozen of so EV cars in the municipality, and that it is a total waste of money as those most likely to use the charging station are outsiders. Got to love the positive attitude of these wowsers.

      • Cooma Doug

        Some towns are blessed by their location. The council visitors’ buildings would be a good place for chargers.
        Also, with the big price reductions now in place for the electric cars, the councils can go electric transport and save big dollars. Do the numbers on their fuel costs. They can finance it via fuel savings.

  • trackdaze

    Whilst we have gentailers & government owned generators the challenge will exist.

    Whilst we have a network that must provide its state government with billion dollar financial support for its bloated bureaucracy we will still have a challenge.

    When you can charge your 40kwhr+ electric car for nothing and power your home overnight or visaversa they will have a problem.

    You can see it in some of the incumbents posturing they know this is on the horizon.

  • Colin Nicholson

    DG is all very fine for solar, but what about wind, tidal, biomass etc. These are CG problems which need to be solved, and so to say that the centralised grid is a sunset industry is cutting off your nose …..

  • phred01

    With the danger of mass grid defections particularly in regional areas Are govn’ts prepare to take over unprofitable networks from private industry in the name of essential service?

    • Miles Harding

      Defections of outlying consumers are likely in everybody’s interest. The supplier no longer as to maintain a lot of pole and wire for each consumer and cross-subsidise them to maintain fair access to electricity, while the consumer enjoys much better reliability through having a local supply under their own control.

      The key here is to get all of these customers to defect at the same time, something that the industry is making good progress towards. ;))

  • Colin Nicholson

    If this is solar politics then I want nothing to do with it. I just get rid of George (again), and now solar is deciding we don’t need a grid. We don’t need FTTP neither, in fact using the same reasoning we don’t need networked communications at all. You will find that grids are necessary. See I don’t have a “battery bank” and a big inverter. I have (so far) three batteries and three inverters distributed around the house (I need eight). Each battery can provide the surge current to get the inverter what it needs, but the batteries are joined (by yes you’ve guessed it a “grid”). If you want to rework the politics and economics of the grid – I’m with you, but suggesting that you don’t need to network electricity is madness.