Of all the issue bedevilling the electricity supply system, none is more difficult than curbing peak power demand.
In recent years it has been a big driver of rising electricity prices because it is growing faster than total consumption, the more so in an environment where a range of factors is slightly depressing average residential power use at present.
Two pieces of data illustrate the dimensions of the problem.
In its submission to the Australian Energy Market Commission “power of choice” inquiry, NSW distribution business Ausgrid sums the situation up like this:
“The supply system is highly asset intensive. The key driver of cost is the size of the system required to supply electricity. Both the network and generation sectors are sized to meet expected peak demand and, therefore, in the long term peak demand is the determinant of cost.
“Ausgrid has estimated that each additional megawatt required needs $3.3 million of assets to be installed, maintained and eventually replaced.”
Put this with the Ernst & Young consultancy report to the AEMC which predicts that, if current trends are maintained to 2029-30, east coast peak demand will reach 61,000 MW compared with 39,225 MW in 2010-11.
Now the Energy Supply Association says in a submission sent to the AEMC inquiry this month: “We are spending billions of dollars to ensure that we have enough electricity for a few hours a day on a handful of hot and cold days each year.”
In the peakiest regions on the east coast – Victoria and South Australia – the top 20 per cent of load occurs for less than two per cent of the year, or around three days. In New South Wales and Queensland, the top 10 per cent of demand is used over less than three days annually.
Clearly any steps that can be taken to cut growth-related investment in generation and networks have a real role to play in reducing the rise and rise of power bills.
In a study commissioned by ESAA and just made public, management consultants Deloitte comment: “The impact of peak demand is similar to a busy highway at peak hour. Adding an extra lane can alleviate congestion at peak times. However, outside of peak hour the extra lane is superfluous.”
Deloitte’s work demonstrates that seven initiatives could deliver between $1.55 billion and $4.58 billion in savings over this decade.
The two big steps are introducing critical peak pricing and incentives (able to save up to $1.27 billion) and direct load control of air conditioners (saving as much as $1.33 billion).
The other initiatives suggested are time of using pricing (saving up to $193 million), direct load control of pool pumps ($231 million), energy efficiency measures ($486 million), enhanced uptake of solar PV systems ($528 million) and introduction of electric vehicles ($537 million).
The estimated reduction in total demand from pursuing these initiatives is between 2,382 MW and 7,410 MW.
It is important to point out that these are gross benefits and do not take in to account the costs to achieve the reductions.
They do not translate in to huge costs savings per customer either.
Deloitte estimates these as being between as little as $1.46 per megawatt hour and $14.88/MWh. The average for Australian household consumption is about 7.5 MWh a year with a total bill pushing towards $2,000 a year at present.
But when you consider, on the Ernst & Young forecast, that the total capex cost of a “business as usual” rise in peak demand over 20 years will be of the order of $72 billion, a start down this road, even of smallish steps, is not to be sneezed at.
ESAA makes the important point in its AEMC submission that it is going to take changes to both energy policy and the east coast market regulatory system to pursue such benefits.
The association says the starting point is an end to government regulation of retail prices where effective competition exists.
Second, and perhaps more controversially, it wants an end to the “postage stamp” method of network pricing where the price per unit is the same regardless of how much energy a consumer uses or where he or she is located. Retailers, it says, must be able to pass on changes in network costs to incentivise customers to be more efficient.
Thirdly, ESAA says, there has to be a better information feed to customers so that they can understand how to be more efficient and how they will benefit.
This, of course, is no overnight fix – which is the drug politicians crave as they confront the energy cost issue and quail when they are told that, on present indications, in NSW and Queensland, for example, residential bills in 2017 will be double what they were last year.
This, also, is yet another issue where policymakers have watched the storm brewing for literally years and moved far too slowly to implement change. Now their drenched and windblown constituents are as mad as wet hens and a great deal more dangerous because of their ability to kill political careers with a pencil at the ballot box.
One of the problems in this environment, I think, is the lack of joining-the-dots that has gone on and of explanations for politicians in language they can understand.
The Coalition in government around the country is hanging on for Tony Abbott to win office federally and to kill the carbon tax, but this will not stop the inexorable rise in residential and small business power costs.
The tip of this political volcano, to change metaphors, at present is to be found in Western Australia where for a year the cost-of-living row in the State has focussed on one number: 57. This is the percentage increase in power bills imposed by the Barnett government since it took over three years ago from a Labor regime that had suppressed residential bills for a decade.
The railing of the present Labor opposition against Barnett is especially egregious because, confronted with a debt from its power game of $1 billion, it had decided before being tossed out of office to introduce a “glide path” rise of 10 per cent a year until 2020 – by which stage the accrued debt would exceed $6 billion.
In other words, if it had not lost the last State election, by now it would have imposed a 30 per cent price rise on household electricity bills rather than Barnett’s 57 per cent.
What most WA voters don’t realise is that, on coming to office, Barnett was told it would take a price increase of 117 per cent to make household bills cost-reflective.
Nor do they seem to get their heads around the fact that they are helping to pay for the accrued debt anyway – through their tax bills and through higher prices imposed by businesses who have had to share this pain.
Barnett has been trying to ameliorate his political trouble by pushing the idea that remerging the State generator, Verve Energy, and the retailer, Synergy, both broken out of the old State Electricity Commission, would somehow cut householder costs.
It won’t, of course, and ESAA’s chief executive, Matthew Warren, among those telling him so, who include the State’s independent regulator, has pointed out that, if a remerger scares off investors in new generation capacity, the taxpayers are going to have to support $2 billion in new plant investment this decade.
The bottom line here nationally is that residential bills should be cost-reflective, that households should not be shielded from necessary price rises, that an important part of curbing these spikes is to curb peak power demand and this all needs politicians around the country to be both effective policymakers and honest communicators with the electorate.
We are now in about year four or five of them falling down on both counts.
This is where the media come in to play. A concerted effort by editors and their commentary writers to understand the issues and to strive to facilitate real change rather than play witch-hunters would be more than useful just now.
I’m not holding my breath, mind you.