Wednesday, June 22, 2011

What's really causing electricity price rises?

From the Yes2Renewables blog
Cheap shots at renewable energy often blame it for rising power bills.

The June 10 Australian published an article that reinforces this attitude:

“While business lobbies have pressed for a carbon price no higher than $10 a tonne, the Productivity Commission estimates that taxpayers have been subsidising the reduction of emissions at prices of up to $1000 a tonne through rooftop solar panels.”

Rooftop solar panels are accurately described as one of the most expensive renewable energy sources. Large scale renewable energy is far more efficient. But do solar panels actually rate as a cause of our much-touted rising energy costs?

A June 14 article published in the Climate Spectator gives some interesting background to electricity price rises. Many would assume it is simply a matter of renewing an ageing infrastructure, run down over years of cost-cutting. But that’s not the whole story.

A major factor requiring upgrades to the grid is the increase in peak demand, caused especially by growing use of airconditioners.

Referencing a June 10 report from the Australian Energy Market Commission (AMEC), the article says that

“the increasing use of air conditioners is expected to push peak demand up by more than 3 per cent in most states, forcing distribution and transmissions business to spend billions of dollars expanding the capacity of their networks, even though this may be required for only a few peak periods over the course of a year. The rate of peak demand is growing 50 per cent quicker than the increase in overall energy consumption and customer numbers.”

In Queensland,

“The investment in distribution networks will add nearly 3c/kWh to the cost of residential electricity costs in that state by 2012/13. By contrast, the state’s solar feed-in tariff, which pays a net 44c/kWh rate, will add just 0.03c/kWh to electricity costs.”

Going south, the highest peak demand time in NSW is moving from winter to summer, blamed on “higher and more sustained peak temperatures” and more airconditioners.

“The upgrade to the NSW distribution network will add 4.32c/kWh to residential retail prices in NSW by 2012/13, nearly two thirds of anticipated price rises. The state’s solar bonus scheme, which has been by far the most generous in the country, and has recently been shut down, will add 0.45c/kWh by 2012/13, AMEC estimates.”

In South Australia,

“more than half of the increased capital expenditure on distribution networks is being caused by anticipated increased demand driven by the growing use of air conditioners during summer heatwaves. SA already has the highest penetration of air conditioners in the country, and peak demand is forecast to grow by another 2.4 per cent per year, despite consumers using less energy, on average, as a result of energy efficiency programs.”

Over the 2009/10 to 2012/13 period, the AMEC report forecast a 19% increase in household electricity costs. By contrast, feed-in tarriffs that support rooftop solar panels are expected to add only 0.6% over the period.

The Climate Spectator also mentioned a report from the Australian Alliance to Save Energy, which suggested that for every dollar spent on demand management, $2 is saved in network costs.

Given that solar panels are most productive during summer airconditioner peaks, it would seem entirely sensible to provide some support to them. And that’s without even touching on large scale renewable energy like solar-thermal and wind power.

As an aside from me (BCC), all this is not so say that airconditioning should be abandoned, but that it should not be the primary method of dealing with heat. The upfront cost may be smaller for an airconditioner, but with proper investment in energy efficiency the need for airconditioning can be greatly reduced (and medium term costs reduced too).


  1. I'm a bit confused about your argument.
    (1) air cond demand is causing demand for grid upgrades and cost rises.
    (2) rooftop solar panels are an expensive renewable energy resource
    (3) design should be used before air cond
    (4) we need to "support" (by what means?) rooftop solar panels.

    Rooftop solar panels may be an expensive option in terms of capital cost (which I assume you mean) but not over time in terms of return for outlay . They pay for themselves and undermine the personal consequences of price rises such taht it may not matter at all.

    Unless we want to counterpose large scale solar to rooftop solar --reasonably enough -- the complication is that McMansion style housing is air cond dependent . The conundrum being that despite advances in materials the trend is for bigger houses on smaller blocks.

    You also miss the already existing demand that is imposed on peak demand by heating in Winter and the weight that domestic hot water heating has on energy consumption. A related complication is that designing for cooling can often run contrary to designing for rooftop solar -- because of shading.

    I am fortunate to be able to run a very efficient solar system here at home and I have trouble with your argument because I cannot see the contradiction of wedding 'rooftop' solar with large scale renewable projects. The problem is the the rooftop harvesting option is limited to only so many premises ( because of questions of location, shading, house ownership issues, etc) The real question is whether investment in large scale renewables will greatly increase electricity prices...and I don't think you answer that question.

  2. On an overall grid level, photovoltaic solar panels on your roof are expensive in terms of the amount of electricity generated per dollar. However, they are certainly worthwhile, especially if they abate costly peak loading on the grid. Flattening the demand variability curve is useful for grid management.

    Peak demand is when electricity generators make a killing selling to the retailers. From Dec 2003 to November 2004, peak prices above $1000 per megawatt hour only occurred on a few occasions yet reached almost $10000 on one occasion and accounted for 31/5% of the annual wholesale cost. A different market structure, e.g. regulated state owned energy generators, could conceivably reduce this also, although I don't have data right here to show what impact that would have on household power bills.

    So will large scale renewables (wind and solar thermal, mainly) send prices up more than a small deployment of rooftop solar panels? That is a political question which depends on the funding mechanism for deploying large scale renewables. It's beyond the scope of this article. The rapid dispatchability of solar thermal makes it ideal for dealing with peak demand spikes, but doesn't in itself guarantee the pricing mechanism.

    Reducing demand by better building design (and retrofitting improvements) is really key, though. It can reduce both demand and costs substantially. Check this article from Trent Hawkings:

  3. Hi Ben
    Good information on the coming power price rises but it might have been handy to make it clear just how little the coming price hikes are by affected by the carbon price. Giles Parkinson from Climate Spectator quotes figures produced by AGL Energy revealing that "the pass-through cost of a carbon price on retail consumers is really likely to be quite minimal.

    A $10 carbon price – which can’t be ruled out as the starting point of Labor’s fixed-priced hybrid scheme – would likely lead to a pass-through cost of $9.50 per megawatt hour to consumers. This is only 90c/MWh more than the anticipated price without a carbon tax. The difference in consumer price impact between a carbon price and no carbon price is just 90c/MWh, and this out of $140/MWh that consumers can expect in coming years from increased network costs and higher commodity prices."

    Looking at energy price rises more broadly Tristan Edis predicts that over a decade the annual spend for an average Australian household on Petrol ($140), electricity ($240) and gas ($60) would increase by $440 as a response to a $40/tonne carbon price. Irritating but hardly ruinous.


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