Corporate cannibals: Electricity sector may have to kill gas to save itself

Print Friendly, PDF & Email

The best opportunity for electricity sector growth and security is to cannibalise the gas networks.

share
Print Friendly, PDF & Email

For decades, the Gas & Fuel Corporation of Victoria, through their retail shops, offered low quality, low performance gas heaters at a discount to customers to entice them to take up gas and use lots of it at their properties.

After privatisation, the Gas & Fuel’s network of High St shops was taken over by Origin Energy, which continued to offer subsidised gas appliances to Victorians.

At the same time, customers within the existing gas supply footprint and beyond (such as in new estates or new towns supplied by gas) have been offered discounts on appliances or free appliances to connect up and use their gas.

The electricity industry, meanwhile, charges a customer a considerable amount of money for a grid connection. In the case of a home a fair distance from the distribution network, the fee to connect can be in the tens of thousands of dollars.

What the Gas & Fuel Corporation, and later Origin, were actually doing was encouraging people to get off electricity for gas, reducing demand for electricity and therefore its profitability.

Many people do not realise that the gas supply industry is in competition with the electricity supply industry – at the moment, even more so than with home solar (though watch this space, as it is rapidly changing). And because the companies controlling much of these three industries are intertwined, there doesn’t seem to be much concern about the situation or interest in considering the competitive aspects and opportunities.

The best opportunity for growth and security in the electricity retail, generation and distribution business would be to take a leaf out of the gas industry’s book and start opening electricity industry retail stores to promote the switch from gas to electricity. Given that it is 2014, perhaps these stores could be setup predominately online with a limited retail presence – a bit like computer company Apple’s approach to retail.

Such stores would promote the purchase and installation of electrical appliances, such as induction cooktops, heat pump hot water units, and reverse cycle air-conditioning for heating; all of which can replace gas appliances. They’d also offer very good interest-free or low interest loan arrangements to customers who chose to contract for long periods of time, securing their business.

With this kind of opportunity to lock-in customers (in a friendly, no-interest loan way) and avoid customer churn, businesses would be able to spend time on growth rather than maintaining the merry-go-round farce of mobile customers who switch from retailer to retailer adding a significant cost to the bottom line borne by all customers as unnecessarily higher rates.

This opportunity is not as compelling for all distributors and retailers. For example, in Victoria (where gas has the highest level of penetration) SP Ausnet, United Energy and Jemena all distribute gas and electricity. That leaves Citipower/Powercor as the one network business that could significantly benefit, without being internally conflicted by actively promoting a switch from gas to all electric homes.

On the retail side, Origin, AGL and Energy Australia are all heavily invested in the supply and sale of gas to retail customers. Their main competitors – like Powershop, Momentum and Diamond Energy – mostly only sell electricity, putting them in a prime position to start a business securing customers through supplying them with efficient electrical appliances, similar to a mobile phone purchase plan.

This practice has been going on for a long time in Japan, where all the major utilities promote “All-Electric Houses” and compete head to head with the gas industry for that additional business. Safety, economics, modernity and simplicity are the selling points in the market.

The move from dual fuel gas and electric houses to all-electric houses across Japan saw the average customers revenue rise by almost double, with dual fuel sales at 3,500kWh ( $1050) compared to all-electric homes at 6500kWh ($1950).

Now there is a huge opportunity for a companies like Powershop, Momentum and Diamond Energy to add an online all-electric homes store to their website in addition to their retail power business, backed with finance from a third party or their deep-pocketed owners.

The same can be said for the soon-to-be market entrant, Pacific Hydro retail. An electric home appliance plan offering from them, marketed through their superannuation and other member networks, could build a solid base for their business, reducing the substantial risk of customer churn which is currently borne by all the other smaller electricity retailers.

The days for gas are numbered (read death-spiral), but there is a carcass to be picked over and those in the electricity industry who get in first and offer smart financing arrangements will have the most successful and profitable businesses avoiding the (electricity) death spiral via a more loyal customer base and diversified revenue streams through appliance retailing, servicing and longer term profitable power agreements.

Print Friendly, PDF & Email

15 Comments
  1. Nhan 5 years ago

    Let’s .. Forget about those harmful energy sources for human health, and the sky,

    I did research, found a new method, perfect, efficient, sustainable, optimal

    Will no longer worry about energy, even if earth collapse, it still works …

  2. Beat Odermatt 5 years ago

    I disagree. Gas still has a good future and with the potential of cheaper Ceramic Fuel Cells, gas may provide not only the best means of cooking a good meal, but also a reliable backup for electricity. Instead of more large scale fossil fuel power stations, energy companies may be better off in helping householders to get more solar PV and Ceramic Fuel Cells. It is by far the best way to generate power where it is needed, in the suburbs. Germany and the UK are taking the lead by supporting both by enabling support and a decent feed-in tariff.

    • suthnsun 5 years ago

      Beat, Germany has a large storage system in gas and a high contribution from biomass gas and potentially higher sustainable gas again via conversion technologies from renewables. I believe that is very unlikely to be replicated here, hence I think we should dismantle the gas infrastructure in a long term managed way and concentate immediately on emissions intensity from the electricity sector. ( Induction cooking can replace almost all gas cooking and is far safer and cleaner in every way) Fuel cells may have a place with bottled biogas for efficient remote installations providing power and heat in Australia.

      • Beat Odermatt 5 years ago

        Germany sees also solar, wind and better uses of gas as alternatives to nuclear power. Unlike Australia, most of Germany need a lot of energy to keep its people warm. The peak demand for heating occurs during times when solar output is at its lowest. In this regard, Australia is lucky, as our peak demand is in summer during heat waves.

    • Matthew Wright 5 years ago

      Gas fugitives are extraordinary. The industry is moving to less and less conventional extraction methods that have higher and higher fugitive emissions. Meaning that gas has worse overall CO2e impact than coal. Even if you take into account unaccounted for emissions from coal mining. Coal mining is contained in relatively smaller geographical locations than gas mining for shale/coal seam which involves hundreds of thousands of wells moving quickly across vast swaths of the country.

      • Beat Odermatt 5 years ago

        It is a pity that you never worked in a coal mine to see the massive large scale destruction of land, acid water discharge, spontaneous combustion and dust. The most efficient and environmentally benign way to produce power is to produce it with renewable energy close to the end user, to avoid transmission loss and ugly high voltage transmission lines. The use of highly efficient ceramic fuel cells in homes remains a far better solution to produce electricity then using old large power stations.

  3. Bob_Wallace 5 years ago

    Forget the peanuts. Don’t try to take cooktops away from gas.

    Start pushing EVs and take over the petrol market. (That’s what you call gasoline down there, isn’t it?)

    Not only would EVs be large new demand, done right it’s a dispatchable load which means that they wouldn’t have to strengthen distribution systems, just charge EVs during the lulls.

    • Sean 5 years ago

      you would think that this would have federal governement support as it would wean us off imported fuels, but no.

      Perhaps if I created a Coal powered car.

    • Malcolm Scott 5 years ago

      I’m with you Bob. Whereas Mathew observes no sense of competition between electricity and gas (because mostly they are the same companies), there is absolutely not even a hint of competition between electricity and petrol/diesel for home transportation.

      Australian Bureaux of Statistics (ABS) Energy Accounts data 2011-12 reveals that petrol and diesel account for 55% of household energy use. Seems like a pot of gold sized market going begging to me.

      • Matthew Wright 5 years ago

        Malcolm,
        It’s definitely another path to greater sales. 1500-3000kWh per EV that is brought on-line.

        The difficulty with the EV route is the electricity companies aren’t going to see the sales uplift for some time. At best 6 or 7 years but possibly even as long as 10-15 years.

        Whereas they could start financing the switch (those ones that are not currently tied to gas unless of course they could divest their gas interests) to all-electric houses right away in 2014.

        1.Sanden CO2e heat pump w/optional evac tubes, (Nothing else)
        2. Daikin Ururu Sarara or equivalent high performance heatpumps / air conditioners. (or equivalent).
        3. High performance induction cooktops.

        • Bob_Wallace 5 years ago

          Have you worked through the numbers?

          An EV driving 14,000 km… (AU average? Got to switch to miles now.)
          An EV driving 8,700 miles per year would burn about 2,610 kWh per year.
          An electric cooktop using 1.5 kWh/hour, two hours per day would use 1,095 kWh per year.

          Most households have more cars than cooktops.

          • Matthew Wright 5 years ago

            I gave those numbers. I said a household would use 1500-3000kWh per EV which fits exactly with the estimate you are giving of 2,610kWh for average annual fleet kilometres. We are in agreement on this point.

            However what I’m saying is given the costs and capital requirements to finance EV’s the opportunity is probably a decade away and at best 7 years away.

            You’re getting hung up on cooking, when the big consumer is space heating and water heating. To switch a house to high efficiency reverse cycle air conditioners and heat pump hot water could yield an additional 3,000-6,000kWh per year of electricity sales.

            The capital cost is modest (could be easily financed on or off the books by electricity retailers/ distributors and the products are available right now).

    • JonathanMaddox 5 years ago

      Disconnecting a household altogether from the gas supply is a symbolic move which a lot of Australian renewable energy enthusiasts have already taken. It isn’t a large fraction of gross consumption, but it would also be perilous for the gas supply industry to ignore it. Even practically speaking, in older connected areas, wholesale disconnection of numerous small customers might meaningfully reduce fugitive emissions from the leaky gas distribution network.

      Not long ago, domestic gas was hands down the cheapest and most efficient way to heat a home and its hot water supply. This is no longer the case, especially when combined with low-emission electricity supply. Heat pumps have improved that much in recent years. Disconnecting altogether from gas is not only symbolically significant, it’s actually cost-effective.

  4. dhw 5 years ago

    Space and water heating are semi / totally controllable loads so all-electric houses will increase potential for better use of the network and cheaper power. Combined with some tariff reform to get energy unit prices back to sensible levels of 15-20c / kWh, electricity will start beating gas at todays gas prices when using heat pump and reverse cycle systems. Factor in gas price increase and standing charges and gas is gone. This is a great thing for all as electricity, unlike gas, can be de-carbonised. Demand growth will also pave the political way for increased commercial scale renewables.

  5. Max Boronovskis 5 years ago

    Great thought provoking article Matthew!

Comments are closed.

Get up to 3 quotes from pre-vetted solar (and battery) installers.