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Will Bill Shorten understand the energy consumer must be king?

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So, the battle lines have been set. Labor has adopted the 50-50 path to 2030 (50 per cent renewables and 50 per cent fossil fuels), arguing that a transition to clean energy is necessary and that consumers will actually benefit from cost reductions. The Coalition (and the Murdoch media) has responded by entrenching itself in price scare mode.

The fact that Labor has announced a 50 per cent target is terrific news. Should they get into power, it will mean a long-term policy setting, a clear signal for the renewable energy industry to invest, and a clear warning to many ageing coal generators that their time is over.

Analysts are crunching the numbers on how such a 50 per cent renewable energy target could be made up. Ric Brazzale, of Green Energy Trading, says it would require another 14,000MW of large-scale renewable energy to be built between 2020 and 2030.

Analysts suggest that more than half of this would likely be large-scale solar, possibly including solar tower and storage, and may be even some wave energy, and possibly some geothermal. And it won’t cost much.

But for the Labor Party to meet its target it will depend significantly on energy consumers – the households and the businesses – to continue to install rooftop solar and battery storage at significant rates.

rsz_screen_shot_2015-07-23_at_13943_pmBrazzale estimates that the amount of rooftop solar needed to meet that target will be more than 16GW, four times the amount already installed on the nation’s households and rooftops.

But private forecasts suggest the level of household PV could be much higher.

Bloomberg New Energy Finance believes that there will be 37GW of rooftop solar in Australia by 2040. In a recent publication, it suggested that rooftop solar – both on households and on large warehouse type buildings – would help push Australia’s renewable share to 37 per cent by 2030, even in current settings. By which time there would already be more than 21GW of rooftop solar.

Gordon Weiss, of consultancy Energetics, last week presented the below forecast on the level of solar PV out towards 2040. It was based on data and forecasts from the Australian Energy Markets Operator, but it is equally optimistic, with more than 20GW of rooftop solar by 2030.

energetics solar forecasts

But these forecasts – or in the case of Labor, targets – are only going to be achieved if the playing field is not tilted against consumers by reactionary moves by incumbent utilities and pricing regulators (and the Murdoch media). The raising of fixed prices, and the attempts to saddle solar households with added costs, is a taste of what may follow.

This presents a fascinating conundrum that will demand a careful response from federal leaders such as Shorten, and his state counterparts.

For the past few decades, energy consumers have been forced to take whatever the industry has chosen to given them – mostly coal-fired power at a cost that exceeds that of just about any other country. Energy that is delivered by a large, single directional and largely dumb grid.

That is changing rapidly. Consumers – both consumers and households – can produce their own power, and they can store it. What’s more, numerous studies show they can already do that at a lower cost than the grid. A few more cost cuts, they might even be able to do it without the grid.

A report from Bloomberg New Energy Finance last week showed that a 4kW solar systems with 5kWh of storage costs less than grid power. A new battery offering from LG Chem brings this down even further.

As we report in today’s story on our sister site One Step Off The Grid, the costs of combining a 5kW rooftop solar system and a 6.4kWh large battery storage array, with a 5kW inverter, are already down to around 18c/kWh. And this is at the quality end of the market.

That poses huge challenges: for consumers trying to get their mind around the technology, for incumbent utilities wondering what the hell it means for their business model, and policy makers and regulators on what to do about it.

But change is definitely needed. The current energy market is based on old systems of centralised technology and centralised thinking. The business models that dominate today were based largely around gilding the lily.

Networks were incentivised to build big networks, lock in double-digit returns for that investment and send the bill to the consumers. Those costs now account for nearly half the bill in most states and provide most of the incentive for consumers to produce and store their own energy.

The generation fleet were just as guilty, encouraging consumers to consume as much as they can, particularly in peak periods, while the generators cashed in on those demand surges when prices soared to $12,000/MWh.

The generators obtained 25 per cent of their annual revenue from just 36 hours of such events a year. The retailers were happy to cash in and send out bills with a handsome “retail margin”.

Bill Shorten appears to recognise the change that is happening. He speaks of the opportunities of rooftop solar and battery storage, but it is important to note these will only be deployed at scale if the walls surrounding the incumbents are removed by regulators. The incumbents need incentives to change, not remain the same.

In the EU, there is a fascinating debate about how the energy system should be redesigned. The EU is currently considering several proposals, but the bottom line is this: “Market rules need to be updated to the reality of a much more decentralised system where renewables and the consumer are king.”

That requires reform at the retail level and in the wholesale markets. The retail reform is the critical one for the likes of Shorten to ensure that distributed generation – solar and storage – deliver the cost savings that they promise, without shoring up the sunk investments of network operators and utilities.

But increasingly, the lines between the retail markets and the wholesale markets will blur. New smart software is allowing consumers not just to trade amongst themselves and share their output – if the rules allow – but also to engage with the wholesale market.

On the wholesale market, a lot of work needs to be done. Right now, the absence of a carbon price, and efficiency standards means that there is little to drive polluting coal-fired power stations out of the market.

Australia has a huge amount of coal capacity, much of it paid for or subsidised by governments, that has been fully depreciated and produces at a low marginal cost. Somehow, those coal-fired generators need to be forced out.

It was interesting to see the energy incumbent’s lobby group, the ESAA, warning of higher prices from an elevated renewable energy target, an argument gleefully picked up by the Coalition.

The ESAA argues that while a 30 per cent target by 2030 would – according to the Coalition’s own RET review – lead to a lowering of wholesale prices, this would only be temporary. A 50 per cent target would force so much extra capacity, there would be no price signal for wholesale generation.

It even lamented the closure of the two coal generators in South Australia, forced out by wind and solar, which now accounts for 40 per cent of that state’s electricity demand.

But this is what is supposed to happen. Short of artificially extending the life of the existing generators, which no one would contemplate unless they completely ignored climate change, Australia’s coal fleet will gradually be closed down over the next 10-20 years.

Even without a renewable energy target, that would force wholesale prices to rise. That means that by 2030, or even before, the grid will need new capacity. And when that happens, new-build wind and solar energy will be competing against new-build coal, gas, or even nuclear. It is pretty clear which technology is going to win that battle.  

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  • barrie harrop

    By the time the Federal election comes around solar storage will be just becoming viable,with over 2m solar owners by then,that is some electoral advantage over the Conservatives,expect a wipe out at the polls if Shorten can get in place a sound policy position on renewable energy on the home storage front.

    • Steve159

      barrie

      Agree, except that Abbott will employ the conservatives’ fail-safe: “fear”

      I think it was an advisor to one of the conservative US presidents — if you want to get elected, scare the dumb people.

      Cue election run up: terrorism suspect arrested (replete with beard and name “akmed”) — “he was going to blow up the entire continent of Australia. People be afraid, very afraid. You need to vote for us, ’cause we’re strong on security”, or some such.

      What’s a bet. Around 6 week out from the election.

      Renewables? “We’re talking national security — be afaid, very afraid.”

      • mick

        not just abbot mate howard used sasr to illegally board a norwegian boat load of refugees told the Australian people a load of bs about it and got himself re-elected based on fear factor countrys been going down the gurgler ever since

  • Stan Hlegeris

    I reckon the obstructive vandalism of the incumbent generators and retailers (supported by coal-state governments) will, in the end, hasten the process.

    Everyone now has a choice: install a modest-size PV system with grid backup and endure the escalating insults–mainly fast-rising fixed charges, so far, but who knows what’s next–or choose a bigger PV system with battery backup and tell the electricity company to get stuffed once and for all.

    The average new residential PV system in Queensland, where there are no longer any subsidies or any encouraging Feed-In Tariff, is 4.5kW. That size alone shows that most of those owners aim to go off-grid altogether. The sooner the better!

  • dhw

    I’m unsure these days whether this forum is in favour of renewable energy or against utilities/networks. There have been a few studies (BZE, AEMO) concluding that 100% renewables can be achieved, and without rooftop solar. If rooftop solar can play a role that’s great but please remember this:
    – domestic demand is only around 25% of total
    – wholesale renewable energy costs only ~7-9c/kWh (wind with large PV catching up)
    – Even if you desert the grid, someone still has to pay to maintain the wires that run past your house to supply the businesses, industry, renters and anyone with an unsuitable house for PV.
    Leaving the grid and having someone else pay for it, (and increasing overall energy system costs) might be great fun but please, lets stay focussed on how to get ourselves to 100% renewables at least overall cost. I just can’t see how that happens without a sophisticated and functioning network. The network might be mis-managed and poorly regulated, but it’s critical to a zero carbon future at least cost.

    • We don’t disagree with that. Yes, the grid needs to change. But if the grid continues to be supplied at a cost that does not compete with new technologies, then something is going to break. Grid costs should reflect current and future needs, not dumb decision made in the past.

      • Steve159

        Well said Giles

        The irony in all this, is that as much as Abbott and co (free marketeers) attempt to control and command the market by talking down renewables, and introducing anti-renewables policies, the market (in the form of householders, and renewable energy businesses and investors) will trump their efforts. It’s a delicious irony – quite entertaining in some respects.

      • Phil Patterson

        This is incredibly encouraging Giles, and a massive thank you to what you’re doing on this magazine/page. This reinforces that, regardless of political decisions, the increased efficiency, storage, mass uptake, global adoption and plummeting prices should mean that within 20 years, thermal coal is gone, followed by oil ten years after that and gas not far afterwards. This seems to be the view and market trend from energy experts like Tim Buckley and Paul Gilding and the people in Bloomberg finance as well. I’ve got two questions: one, the recent spike in India’s thermal coal imports has divided opinion on whether the goal of ceasing thermal coal imports before 2020 is achievable there, and two, do you agree with the proposition and prediction of people like Tim, Paul and others who have essentially said that a 100% non fossil fuel system is likely to happen within the next 40 years or so, regardless of political debate?

        • Mike Dill

          Phil, JB Straubel (VP of batteries at Tesla) thinks that an electric car with a 300Km range will cost less than an ICE car by 2025.
          By then the cost of battery electric storage should be about $0.06 per kWh, and the average cost of powering an all electric home in a temperate climate should be about $0.09 per kWh all in. This is only a 50% decline in costs compared to what you can find today for the solar and storage.
          I think that Tim and Paul are being conservative in their estimates on how long it will take to make the transition.

      • dhw

        Thanks Giles. What’s your thoughts on a tariff structure that reflects current and future needs? There’s already a massive distortion towards energy based billing (~500% markup on wholesale) , should this be a) increased or left alone to satisfy PV owners or b) be more cost reflective with lower energy rates and higher standing/peak charges? Scenario ‘a’ is great for PV owners and efficiency but hurts and network and everyone left on it by way of increasing cross subsidies to cover overheads. Scenario ‘b’ infuriates PV owners who then go off grid, again raising costs for those left on the grid as overheads need to be recovered from fewer customers. This isn’t loaded – I genuinely don’t have the answer!

        • Mike Dill

          Your question is the tough one that we need to figure out. My thought is that we need a REAL time-of-use rate based on the wholesale rate, a reasonable charge for staying connected, and a lower off-peak rate (with net metering) when the sun is shining and the wind is blowing. While this will lower the returns for those that have solar, and in some cases reduce the income of the network operators and utilities, it is probably the best thing for the grid.

    • Neil Frost

      The way I see it is that if households are to not go off grid in large numbers then the grid needs to keep its connection fees at a minimum.
      People will love to stay connected if it won’t cost to much for two reasons.
      1: no need for a back up power supply.
      2: no one interested in making there own power wants to burn it off to save over charging there home battery’s.
      I would be happy to supply over produced power to the grid at half the price I pay for it.
      It’s a win win.
      But be warned if it is to expensive to stay connected then it won’t happen for me at least.

  • Malcolm Scott

    Need to also include the energy source for electric vehicles in any future business case scenario – usually charged at home. That will add about 8 kWh per day per vehicle. By 2030 there could be 300,000 to 2.6m EVs in Australia depending on whether we average 25% or 50% EV sales growth – both are plausible given our slow start compared with overseas achievements

    • mick

      woundnt be surprised if companies headhunting staff supply car space chargers as a “bonus”

      • Mike Dill

        Already being done in California.

  • Ken Dyer

    Four or five years ago, the Abbott Government and Murdoch press could reliably convince many people that renewable energy and the carbon tax were big bad bogies.

    But not anymore. In 2008, there were 8000 rooftop solar systems, today, more than a million. Just that fact alone should convince just about everyone that the old Abbott and Murdoch scare tactics are merely dog whistling and coal powered propaganda now.

    And when more than a million rooftops are coupled with batteries and electric vehicles, and prices are dropping, and output is growing, it is not a good time to be left behind.

    The difference to five years ago is the technology is proven, is cheaper, technology is delivering better quality solutions, and all this almost on a daily basis. The future is here, and it is distributed autonomous power, available when needed, and not at the whim of centralised, command and control fossil fuel generators.

    The catchcry, that Shorten has to heed now is POWER TO THE PEOPLE, LEAVE THE COAL IN THE HOLE.

    • Steve159

      Ken

      “LEAVE THE COAL IN THE HOLE.” — Not a bad aliteration, at that.

      Possibly though not the best of messages (do we want more holes in our environment)?

      What about “leave the coal to the clods” (pun intended).

    • juxx0r

      For future reference i think we are up to over 1.4M rooftops.

  • phred01

    The Coalition (and the Murdoch media) has responded by entrenching itself in price scare mode. Simple Join the off grid exodus. Simple Calculations if supply exceeds demand price should drop in a free market! but the electricity sector wants to behave as a monopoly

  • john

    With out a doubt we as in all of us have a problem it is tax payers money that build the grid and ditto for most of the generators so we have a vested interest in insuring that this is not a bad investment.
    The state governments who are now out on a limb with the grid are not exactly happy to realise that the expend was not needed in the short term yes it will be in perhaps 10 years or so.
    Meanwhile 25% of the consumers can mitigate their usage of imported power and put further cost pressures on the grid infrastructure.
    In some States there are already restrictions on commercial clients being able to mitigate their imported power.
    The advent of back up storage is now going to present a further roll back in demand and lots of head scratching for the regulator.
    I would say lets face up to the situation and utilise the best solutions possible as to a 50% target being adopted now I doubt it however after 2025 it will be a reality.

  • JIm

    With good reads like RE around one can happily join the Murdoch exodus as well, knowing one won’t miss much!

  • Rob

    Are you saying in your estimate that with a 5 kW solar system and 6.4 kWhs of storage plus a 5 kW inverter you can get your electricity at 18 cents/kWh over the life of the whole system? If this is correct then it has already blown the incumbent utilities out of the water! My household is with AGL and based on their “time of use” and “off-peak, shoulder and peak” rates we currently pay an average of 22 cents/kWh. If you include the supply charge and GST charges which we also have to pay on every bill then our actual cost of getting our electricity through AGL, from the grid, is 38 to 44 cents/kWh. This is about double the cost of your solar alternative!
    So staying on the grid with your system we would save almost 20%, but if we went off-grid we could virtually cut our electricity costs in half!
    We hardly ever use more than 6 kWhs a day, no doubt because we have gas cooking and gas hot water. So I’m assuming the only thing stopping us from going off-grid, if we had the above system, would be wether the storage would always be topped up regardless of the weather. What would this system produce on a completely overcast stormy day in the middle of winter ie: what’s it’s minimum generation per day, under the worst case scenario?
    This proves that if Tony Abbott and the COALition were serious about saving families money on their electricity bills they would be promoting and assisting the solar industry because that is the best way to deliver lower cost electricity to Australian families, as illustrated above. It would also reduce air pollution and negative affects on the environment from the mining, transportation and loading of coal and a reduction in coal burning helps us fight the threat of climate change.
    And please don’t talk to me about lost jobs in the coal industry! The COALition has not batted an eyelid over the lost jobs in other industries eg: the car industry, fruit canning, tourism, jobs lost to automation, ( grocery checkouts etc ) and so on. Travelling down the coal road leads to a dead end. They would know this if they bothered to register whats happening in China and India and the rest of the world.
    The COALition has not only turned its back on a win-win situation for Australians but deliberately tried to kill it. That really pisses me off!

    • john

      2 things you mention, your cost of power and loss of jobs.
      Taking the second won first loss of jobs.
      There has been a pretty large loss of jobs within the coal industry and a downturn in the payment for services for the same.
      looking at the first one..
      Cost of energy, as you say your are locked into a 22c a KwH for power which looks ok however with the movement in lower price of PV and backup storage I think you will find that you can look forward to being able to have a price of about 11 to 15c KwH using the present technology
      Mind this is an assumption that battery back up is going to be at the low price that may come about due to theTesla announcement on battery backup.
      Mind that is if you able to utilise a reasonable amount of solar energy and not in southern climes which may inhibit your ability to take advantage of the energy that is free to utilise.