The 'Declining Demand Death Spiral' is a story that has captivated many involved in the electricity sector. Imagine a downward spiral where electricity businesses chase their tails increasing prices to recover large fixed investments, which prompts customers to install solar and reduce demand, which is followed by further price rises followed by further demand drops and ad infinitum until the rich start going off the grid with batteries leaving the poor like pensioners behind.
It makes for a great drama and both those in the solar sector and those opposed to solar have embraced it, although for different reasons. Those in the solar sector love the idea that they’ll become so significant in a short period of time that they’ll completely transform the electricity industry. Those opposed to solar like the story because it helps them to persuade government and organisations representing the disadvantaged to make it less attractive for people to install solar systems.
There’s just one problem – it’s an overdramatisation. And people are starting to get carried away with the excitement.
At a conference in Canberra, a 20-something public servant earnestly posed a question along these lines to Greg Bourne, chair of the Australian Renewable Energy Agency:
“What do we do to counter the problem that will arise when the rich start using solar plus batteries to go off-grid leaving the very poor with the burden of paying for sunk investment in the electricity network?”
I’ve now heard this concern expressed by enough people now to think it’s worth critically assessing just how big and probable an issue it really is.
It is massively overblown for two reasons:
1) The foreseeable change in network charges due to solar demand reductions is not big enough to spur other people to spend several thousand dollars on solar and batteries;
2) The available evidence suggests a small difference in uptake of solar according to income levels.
Today I’ll cover off on the first item and tomorrow we’ll look at the second item.
How big an issue is solar for smearing of network costs – an $8.46 per quarterly bill
At the end of 2012 we had about 2.3 GW of solar installed in residential context that is grid-connected. This would have generated about 3.2m megawatt-hours (MWh) or 5.3 per cent of residential electricity consumption. Of this, a rough rule of thumb is that 30 per cent would be exported, so the network business gets to clip the ticket adding network charges to this generation when it is consumed by another household. This leaves 2.2m MWh of PV generation that escapes network charges.
Meanwhile, according to the AEMC, people paid a network component per MWh on average nationally of about $128. If this could be smeared over all residential electricity including solar PV generation that is self-consumed then the cost per MWh would decrease by $4.83. For the average household this would mean their quarterly electricity bill would be $8.46 lower (assuming 7MWh of annual consumption).
Well, $8.46 is hardly about to drive a spiral of people rushing to install their own 2 kilowatt solar system at a cost of $4000.
But of course the amount of solar PV will grow in the future. This year installations of solar capacity to the residential sector are running about 30 per cent lower than 2012 and industry feedback suggests sales have become more difficult. This is in spite of the tailwinds from the mop-up from households eligible for the Queensland feed-in tariff. Also most forecasters expect the Australian dollar is likely to decline next year which will also make things harder.
Still, let’s imagine solar PV sales to the residential sector continue at this year’s rate of about 700MW per annum. By 2020 this will mean total generation of about 9.9m MWh with 6.9m self consumed and avoiding network charges. If network costs could be smeared over this consumption it would save the average household about $26.50 on their quarterly electricity bill in 2020 (assumes national residential grid sourced electricity consumption of 60m MWh).
This is starting to become important but is it really going to drive people towards solar with batteries?
Damian Moyse of the Alternative Technology Association outlined in Climate Spectator (Scaling back peak demand, October 2012) that a battery bank capable of allowing someone to avoid peak demand periods (not even disconnect from the grid) would cost in the realm of $11,000 today. Even if the price halved by 2020, I struggle to see how a bill increase of $26.50 is going to push someone into spending northwards of $5000 on batteries.
For batteries to be a practical and viable option for going off the grid you really need to have low electricity demand, and the reality is that rich people have quite high electricity demand.
They also tend to be less likely to install solar, an issue which we’ll look at tomorrow.