Why you are paying $10/hr to run your neighbour’s air-con

We’re not quite into the scorching summer temperatures peaks, but here’s a thought to help boil your blood the next time you lie on the couch, sweltering in the heat. You’re one of  a minority of households that do not have air conditioning, but you might as well, because it’s costing you pretty close to $10 an hour in those summer peaks to subsidise those that do.

That, at least, is the broad conclusion of the Productivity Commission’s report into electricity prices, which shines a light on a well-known fact that has suddenly become political dynamite – nearly all the electricity price rises in recent years is due to the unbelievably inefficient way we use and supply energy.

Here are a few facts that are probably well known but are worth repeating here.

Around one quarter of all our electricity bills are caused by the cost of the infrastructure we have built to meet the “critical” demand peaks that occur for just 40 hours of the year – almost exclusively when people turn on air-conditioners at the same time to seek relief from those summer temperature scorchers.

The percentage of homes with air-conditioners has jumped from around 25 per cent in 1975 to nearly 70 per cent now, with the percentage nearly doubling in the last decade. Those households which do not have air-conditioning are paying an effective a cross subsidy of $330 for the use of those devices during those 40 hours of critical peak periods.

How does that work? The Productivity Commission produces figures that show each 2kW air conditioning systems requires around $7,000 of added infrastructure investment – made up for $4,000 in distribution (in neighbourhoods), $1,400 in transmission (from the central coal fired power station), and $1,600 in generation costs (gas fired peakers). As the PC points out, air-conditioners are rarely used, accounting for just 20 per cent of total demand, but the majority of peak demand?

What to do? Other have suggested innovative structures such as a voucher system – get the retailers to pay for a visit to the local shopping centre or the cinema where air conditioning runs all the time anyway – or slap a network surcharge when you install an air conditioner.

The Productivity Commission suggests a combination of things – time of use metering to send a price signal, the deployment of smart meters, and demand management. The Productivity Commission estimates that households can save up to $250  a year, even after the cost of smart meters, if deployed properly. Just don’t follow the example of Victoria.

The Productivity Commission also supports reducing the reliability factor of the network, reasoning we might put up with a few hours of blackouts rather than higher electricity bills. An enforced demand management program, if you will. It also recommends the privatization of state-owned utilities, because they are not doing what they are supposed to be doing, looking after their customers. “The overarching objective of the regulatory regime is the long-term interests of electricity consumers. This objective has lost its primacy,” it notes. Too many industry types looking after industry types, in other words, and too busy focusing on their returns by building bigger networks.

That’s all well and good, but the Productivity Commission does struggle to get its mind around distributed generation, particularly in solar PV. Interestingly, it does touch on the subject of which way we should be pointing our PV panels – to the north to generate as many electrons as we can, or to the west to better meet peak demand.

This was a subject raised by WA academic Adam McHugh earlier this month, and also by Energy Australia and solar firm The Solar Guys, in their submissions to the Queensland Competition Authority’s inquiry into feed in tariffs. Their suggestions were for time of use tariffs that affected solar households (either by charging more for grid based power, or paying more for solar exports) to encourage better use at peak periods, and/or the deployment of battery storage – which would solve most problems.

Sadly, the PC doesn’t explore this. It still has a closed mind to solar PV tariffs, wanting to judge them on its estimated cost of abatement. Amazingly, and appallingly, its latest document still hangs on to its discredited claim that the abatement cost of solar PV subsidies ranges between $432 and $1,042 per tonne of CO2 emissions. Discredited by whom? By itself. As we noted at the start of this year, the PC used the Christmas period to quietly concede that it got the estimates completely wrong and the range was more likely to be between $177/t/CO2 and $497/t/CO2. Even though these revised estimates are made redundant by the plunging cost of panels and the reduction in tariffs. Seems like they’ve forgotten already.

Until organizations such as the Productivity Commission get their mind around solar PV – regarded by just about every major utility in the world as the biggest game changer in the industry for the past few decades – then we cannot rely on them to make sensible recommendations. It still suggests solar PV be treated in the same way as a centralized power station, and paid the same rate as a coal-fired generator – even though utilities admit they get an unfair advantage from selling the same electrons to the neighbour at three to four times the price. (Indeed, if you have solar PV and no air-con, and your neighbour has no PV and lots of air-con, you have every right to feel aggrieved. Send them a bill!).

This is part of the problem that Australia faces. The PC urges that reform happens quickly, and that it may be too late to avoid the $40 billion or so of network upgrades that are currently locked into the system.

That’s not good enough. Few of the statistics produced by this report are new. The problem has been known for years. This urgency could have occurred a decade ago. The problem now is that the regulators, and the political decision making across federal and state boundaries, will not be able to keep up with the rapid technological change that is currently taking place. That should be as much of a concern to energy utilities as it is to consumers.