Energy pricing creates ‘death spiral’ as AC grows
The energy pricing structure in Australia is creating a world of energy “haves” and “have-nots” where homes with large air conditioning systems and/or solar panels are subsidized by those with neither, leaders of two industry groups told us recently.
“Many higher income families are putting more than their fair share of pressure on the grid by using large AC systems and creating extreme peaks,” Mark Paterson told us. He is grids and renewable energy integration leader at CSIRO’s (Australia’s National Science Agency) Energy Flagship.
“Meantime, many of these people also have installed a lot more PVs. So their electricity bills have been significantly reduced as they sell power back to the utilities. The rates do not actually reflect a home’s peak demand impact on the grid.”
3rd in a series on the challenges of renewables
Both tariff reform and, in time, something like the transactive energy approach under development in the US (SGT,2013-Nov-7) and the Netherlands (SGT, Dec-18) are needed to resolve this issue, the pair said.
For customers with large air conditioners, the cost of their network service exceeds what they pay by AU$683/year (US$585/year), Energy Networks Assn (ENA) CEO John Bradley told us. His organization represents Australia’s gas and power distribution firms.
For solar customers, the reduction in network charges exceeds the reduction in network costs by AU$29-117/year (US$24-95/year) depending on which direction the panels face, Bradley said, citing a report ENA published last month on a national approach to power network tariff reform.
Paterson was in the US last month to speak at the GridWise Architecture Council conference on transactive energy in Portland, Ore, and he called the growing problem “a social justice issue” in his country where, according to Oxfam, the richest 1% own the same amount of wealth as the bottom 60%.
In the last 15 years, Australia experienced a sharp rise in residential AC adoption. In 1999, about 35% of homes in the country had AC, according to figures ENA released in April. By 2010, that doubled to 70%.
When many residential customers install AC, this can drive the need for expanded distribution grid capacity that is under-used for most of the year, Paterson said. This drives up rates for all customers, he added.
About AU$11 billion (US$9 billion) in peak generating and other infrastructure has been built to meet this peak demand for AC and is used only 1% of the time – the equivalent of only four or five days a year. Meeting this demand at peak times costs AU$2,500/appliance (US$2,000/appliance), the ENA estimated.
“It’s a major factor in over 50% of every electric bill,” Paterson said. Network charges range from 25-58% of the bill, ENA said.
Paying for this infrastructure has sent power bills soaring – 8-20%/year – and created what Paterson called “a death spiral” as more PVs are added in response to higher power bills. Consumers now pay over AU33¢/KWH (US27¢/KWH), he added.
“There’s a lot of bill shock every year,” Patterson said. The Energy Users Assn of Australia in 2012 said energy prices in Australia were among the highest in the world. Those rising energy prices – combined with high buyback rates of over AU40¢/KWH (US33¢/KWH) for early adopters of PV-generated power – spurred fast growth in PV installation for those who could, Paterson said.
As all those AC units came online, peak demand grew dramatically, creating a low network capacity use – the ratio between peak demand and average demand. From 2001 to 2012, peak demand grew 20-37%, twice the rate of average energy demand during the same period, ENA said. In newer subdivisions, average energy use is just 21% of peak demand.
Meanwhile, solar panels in that time grew to over 1.3 million for about 9 million homes from almost none in 2007, according to 2014 figures from ENA and the Australian Institute of Family Studies. That growth was compared with 500,000 panels in the US for 120 million homes.
Initial Australian government incentives offering payments of over AU40¢/KWH (US33¢/KWH) for PV generation – an amount higher than customers were billed for energy use – helped drive that PV growth, Paterson said.
“Participation in the PV programs typically exceeded what the original policymakers may have anticipated. In some states, that became a runaway train. Not everyone could catch the train,” he added.
“There are a lot of families living in apartments where it’s not simple or perhaps even possible to take advantage of PVs,” Paterson said. “Meantime, if you happen to be able to install solar, you can either be paying nothing for your electricity bill or you may actually be paid.
Wrong pricing hurts
QUOTABLE: This is increasingly presenting a social inequity challenge. Australian households with large AC and PVs are placing an inordinate burden on that common shared infrastructure that they’re not paying for due to Australia’s volumetric rate structures. This is understandable, however, because our rates do not signal how customer choices impact the grid or the community as a whole. – Mark Paterson, grids and renewable energy integration leader at CSIRO’s (Australia’s National Science Agency) Energy Flagship
For example, a typical PV customer in New South Wales provides a benefit to the grid of about AU$10/month (US$8/month) but receives benefits estimated at AU$69/month ($56/month), Bradley said.
Those payment rates for new PV connections are much lower now, around AU8¢/KWH (US7¢/KWH) in most states, Paterson said, but solar customers who installed solar early on have been grandfathered in under old rates until they expire as late as 2028 in some states, according to ENA.