We’ve read and reported on some remarkably misinformed analysis in recent weeks, including from the country’s principal energy rule maker and the government’s favourite energy consultant. But this one just about takes the biscuit.
It is an analysis by investment bank CLSA – partly informed by Frontier Economics, the consultancy behind the other notable analyses we reported on last week, here and here – and argues why rooftop solar and battery storage will never take off in Australia and why no one in their right mind would ever leave the grid. Or even install solar modules.
We wouldn’t normally bother with it, but it got some serious air-time in the AFR, and in other Fairfax media, and may just be cited by others.
So it’s worth looking at and pointing out that it is based on some extraordinary assumptions – not just about the cost of solar and storage, but also about the way people would use the technology.
Let’s take its assumptions on going off-grid for instance. It cites as an example an energy hungry, four-bedroom house, the sort of consumer that would likely be the last to choose to go off grid.
No matter. It assumes that such households would want to use all of their appliances at the same time (the oven, the microwave, the dishwasher, the washing machine, the iron, the kettle, the air-con, the drier, the TV, and every light in the house as well as laptops) and would therefore need 19kW of continuous power to supply all that.
This, concludes analyst Baden Moore, would require 3 Tesla Powerwall 2 batteries or three Redflow ZCells, just to manage two hours of that demand – not to mention the 3-7 days of backup. Just the cost of meeting this peak, he says, would be prohibitive and cost more than $50,000 for the battery storage alone.
There are myriad problems with this calculation. The first is that many houses simply can’t download that amount of power anyway even from the coal-powered grid. In Victoria, for instance, new households have a “capacity” limit of around 10kW.
And then there is something called the “diversity factor,” which, as SolarQuip’s Glen Morris – a leading authority on solar and storage – explains, means it is almost impossible to reach such peak demand at the same time.
One appliance might go for a few seconds at maximum demand then ease off. “I’ve got 10kW (of maximum demand) just in my kitchen but I’ve never been able to turn them on all at the same time and trip the 5kW inverter,” says Morris, who lives off grid.
If a household was going to consider going off grid, would they choose to pay more than $50,000 for batteries that would not be needed most of the time, or would they pay $1,000 or less for smart controls to ensure that most of these appliances are used in off-peak?
But Moore doesn’t seem to see a problem here. He argues that the grid has been built and paid for, and that the energy networks should use any means possible to recover their costs.
“The Australian Energy Markets Commission (AEMC), the key regulator of Australian energy markets, highlights the networks will be allowed to vary the price of grid connection to ensure the cost of capital on the network is recovered,” Moore writes.
“On this basis, the cost of the network will be recovered from all consumers regardless of their usage of battery and solar energy.”
Even the networks know how crazy this attitude is. In the report they prepared with the CSIRO, and in their advice to the Finkel report, they say that millions of households will be driven, economically, to take up solar and storage.
And unless the industry gets its act together and offers them a decent and competitive service, then many will choose to leave the grid, leaving the economics of the industry in a complete mess.
Part of the problem is what Moore and Frontier Economics are comparing the price of solar and storage to. Instead of the full grid price, Moore and Frontier compare solar and storage to the retail and wholesale component of people’s bills. But then they come up with some extraordinary estimates of those prices.
The report suggests, for instance, that the “real” consumer price of electricity in Victoria is just 3.39 cents per kWh, which they compare to the “consumer price” of 5kW solar PV (which they put at 35.96c/kWh – about three time most people’s average) and a 5kW PV plus Tesla Powerwall 2 (36.23 cents per kWh).
Bruce Mountain, of consultancy firm CME, is horrified. “Let’s start with that 3.39 cents. Delving into the report we find that they rename this the “wholesale plus retail” price. They say that this is the price to compare to PV, with or without battery,” he told us in an emailed assessment.
“Why? Because, they say, the AEMC says consumers will be charged by the networks even if they don’t use them. How long do you think the AEMC’s chairman would last in the job if he took to the next COAG meeting a decision to slug households that install solar and maybe also a battery, a $650 a year departure tax to pay for the gold-plated network they now have little need for?
“But I’m not done with the 3.39c/kWh. We know the average household electricity price in Victoria is around 30c/kWh. Subtracting the average network charge of around 8 cents per kWh and then subtracting metering and environmental charges, leaves a charge for retail plus wholesale in Victoria of around 15c/kWh.
“The AEMC’s 2015/16 Residential price trends report says wholesale plus retail in Victoria is 12c/kWh. Lets not quibble between 15 and 12. They both make a mockery of CLSA’s 3.39. ”
Mountain, it should be remembered, has estimated that the combination of solar and storage is now one quarter cheaper than the best grid-only retail offer in South Australia. CLSA and Frontier suggest that solar and storage is double the price. He has some new thoughts about retail margins and the impact of coal closures here.
Frontier even produced this estimate for CLSA, suggesting that the overwhelming majority of Australian households would gain no financial advantage from rooftop solar panels. And none at all with storage.
The report goes further, claiming that there is a “limit” to how much renewables can be incorporated into a grid. It says 35-40 per cent, echoing a claim made by Frontier Economics and others.
The CLSA report even highlight an analysis on South Australia’s recent blackout by Russell Skelton, a former head of the two biggest coal generators in NSW. Needless to say, Skelton says the high level of wind energy was at fault for the blackout and will cause similar problems elsewhere.
This is in direct contrast to the AEMO report, which said that the nature of wind energy had nothing to do with the outage, and of the Finkel review, which pointed out there are plenty of technology alternatives to coal and gas to ensure grid security and reliability as renewables grow.
It also contradicts the CSIRO and the network owners, who see no problem incorporating more than 90 per cent wind and solar over time, and more than 80 per cent in South Australia in the same time frame that other states are aiming for 50 per cent.
CLSA’s principal point out of all this is to argue that the incumbent utilities are in the box seat when it comes to (slowly) migrating the energy system from black to green.
It is true that these utilities, and the networks, wield enormous influence at political and regulatory level on policies. But simply wishing away the cost competitiveness of new technologies is no strategy to protect the incumbents, or the consumer.
