Networks pricing everyone out of grid: It’s time for competition

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As things stand today in Queensland, it would be more economical for a household to install battery storage than pay Ergon to use its network.

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Ergon Energy, the massive Queensland electricity distributor and retailer released a document in June explaining how they intended to change the way they charge for the use of their network.

This is a rather startling document in many ways not least a level of double-speak that would have made Orwell turn in his grave. But lets leave that for later. For now lets have a look at some of the remarkable numbers in it.

network queensland

Ergon reckon that it costs $189 per year to provide a household with 1 kilowatt of network capacity per year. This annual cost can be covered into a capital cost, in the usual way, by discounting it at the cost of capital, in perpetuity.

This gives a capital cost of around $3,400 per kilowatt. If you had the misfortune to live on the western side of the Great Dividing Range, the same calculation based on the western regional annual costs, translates into a capital cost of $7,900 per kilowatt.

AGL Energy will install a battery in a Queensland house for $2,200 per kilowatt. Tesla is currently expected to offer batteries at about $1000 per kilowatt, but who knows what it will be when it actually gets here: these things have a way of surprising on the downside.

So, as things stand today in Queensland, it would be more economical for a household to install a battery than pay Ergon to use its network. Sure you would need to install a few batteries and have a fair bit of rooftop solar, but that’s just an issue of scale, not economics: its still cheaper in the east of Queensland and much cheaper in the West to do it yourself.

If I was an upstream generator or incumbent retailer I would be rather horrified: the distributor is eating my lunch! Networks are pricing themselves and all those upstream of them, out of the market. Not good for those that depend on the network to get their produce to market and not good for those consumers who can’t up sticks and leave. Networks are wonderfully useful, they have taken decades to build. They should be treasured and nurtured.

Queensland now has reinvigorated institutions with an energetic and knowledgeable new Director General of Energy, an ambitious Minister with a million solar roof mission, and a new Productivity Commission whose first task is to get a grip on electricity.

If I was in any of their shoes, I would be having a good hard look at these numbers and I would be asking myself: why is it so expensive? And, how about if we asked someone else to give us a quote on what it would cost to provide network services using our assets, as they do in Germany with electricity or in Victoria with public transport.

Bruce Mountain is principal with economics consultancy CME.

 

 

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5 Comments
  1. MaxG 4 years ago

    Based on the Ergon numbers, there is no point in running a grid, as off-grid systems come in cheaper!
    People need to understand that they have no representation of their interests! It is all about how Joe SImple can be milked of every dollar they make… and for those who did not get it yet: it is called subscription — yet the best model for a continuous revenue stream.

  2. George Michaelson 4 years ago

    The cost-is-not-price question comes to the fore. How much of this is the cost of capital, how much of this is the cost of a finance model which has a rate of profit extraction built into it? How much of the re-capitalizing of the apparent annualized cost would change, if this was a public asset and subject to public asset finance and debt models?

  3. Ray Miller 4 years ago

    The whole economics of the cost of the grid to all its geographic tentacles should be transparently and importantly (independently by a consultant outside of the industry and certainly not the competition authority) declared on each customers bill the “true” cost of all the components of the energy costs. While I support the same price service obligation I do not support the gross inefficiency of providing the service. The difference between the price the customer pays and the true cost should be ring fenced and given to a local “energy management group” to improve the system in partnership with the local customers with a percentage of savings being made available for local projects. In Queensland we have a small number of customers who cost a fortune to prop up without any effort (token at best) to improve the energy efficiency of the load nor the most cost efficient and lowest environmental delivery. The issue has gone on for far too long, is a major scandal and shows the economic and technical incompetence of government policy and energy industry players.
    One then wonders what some of the answers maybe and how much the costs to all may be reduced? Again centralized systems are very much last century and those closer to the problem with incentives could very well achieve breakthroughs which have escaped the incumbents so far.

  4. Ian 4 years ago

    Ergon’s cost to provide 1KW capacity per year is quoted as $189. now they can provide 1KW continuously that is 365 x 24 KWH in the year = 8760KWH. This would give a cost of 2c/KWH. A battery pack from AGL $2200/KW is quoted in the article, presumably what is ment is per KWH of storage. We need some assumptions here. Life of 3000 cycles at DOD 50 % would be very generous. The battery would be charged in the day using solar and discharged in the night, that is one cycle a day.life of battery 8.2 years. Cost of finance for 5 % interest is roughly the same as for no interest 2200/8=$275 a year. cost per KWH useful storage is thus: 275x 2/365 = $1.50 per KWH.

    This analysis is based on the figures provided in the article and the figures may well be BS just like the comparison made of KW continuous with KWH storage.

    I wonder if anyone else has spotted Bruce’s mistake in this article, quite fundamental, I would say.

    His figures do highlight at least two things :1. Ergon is making a huge profit at my expense charging $1.5 a day connection fee and 22c/KWH. When they can produce this power at 2cKWH. 2. Battery storage will have to become cheaper by an of order of magnitude before it becomes worthwhile installing. Frustrating as this seems, this appears to be the truth.

    • WR 4 years ago

      All of the assumptions you made in your first paragraph about the prices are incorrect.
      Your 24 kWh per day energy calculation is nonsense. No one uses their maximum residential power capacity for 24 hours a day every day of the year for years on end.
      The author does mean $2200/kW when he has quoted that value in the article. He is talking about the power output from the battery/inverter combination, not the energy capacity.

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