It’s been pretty clear for at least the last 18 months that solar energy is going to change the game for energy utilities. In recent times, some of the most senior players in the US industry have recognised this, including the heads of the biggest utilities and generators, the immediate past energy secretary, and the head of the utilities regulator.
In Australia, though, there has not been much public recognition that the game is actually changing for the electricity industry, even though Australia has some of the highest electricity grid costs, and the best solar resources in the world. Not to mention some of the cheapest module prices.
Which is why I thought it was worth noting some comments from AGL senior executive Tim Nelson at a forum held by the Total Environment Centre’s Green Capital in Sydney last week.
Nelson, who is AGL’s head of economics, policy and sustainability, made some crucial points that are worth recording:
The first was that solar PV was cost competitive. “The reality is that if you are a household now, it is something that you should think about.” (He suggested talking to AGL Solar about that).
The second point was that the issue of subsidies “was a debate of 18 months to two years ago.” Those subsidies, clearly excessive and badly managed in some jurisdictions, have now been wound back. And while those subsidies continue to dominate some of the rhetoric around solar in conservative circles (this is me talking here, not Nelson), the issue for utilities, and households, is clearly what happens next.
Which led to Nelson’s third point, which is that solar PV is here to stay, and overall demand is now no higher than it was 6 or 7 years ago. “Businesses have to adapt,” Nelson said. “There are now options for people to go and partially produce their own energy, or to go to energy efficiency opportunities.”
We think that these are welcome remarks. Solar PV has, and continues to be, defined only as a problem or a menace, by retailers, network operators, generators, state governments and even independent pricing regulators.
But as Nelson points out, and as his colleagues in the US and Europe and elsewhere recognize, solar is changing the rules of the energy game. It’s the incumbents that are at risk of being disenfranchised, not the consumers.
Nelson was a co-author of a paper that focused on the “death spiral” of the electricity industry – where vast sums of capital are invested to provide a service that is used less because consumers find cheaper alternatives.
Nelson says this remains a live issue for the network operators. “It’s a huge problem for any industry – where you got high fixed costs and low operating costs. I do feel for network business, if you go into individual of areas of the network, peak demand is still a big issue for them.”
As Nelson noted in his “death spiral” paper, and last week, a response by network operators to put up prices to protect their revenues will cause people to use the grid less, compounding the problem.
Clearly, how that problem is to be addressed is not yet clear. Nelson says it is important to get the rules sorted soon because the “market is changing”. It’s going to be fascinating to see how that plays out. There is no great issue for household energy costs than this.