The other demand death spiral

It is the gas networks that will suffer the death spiral, long before the electricity networks. And their time is nearing.

Representatives of all the vertically integrated electricity suppliers, including the big three, have been harping on about this idea of the 'death spiral' where consumers quit the electricity networks in droves. This is quitting of the grid is driven by network charges, spiralling upwards to recover fixed costs which leads consumers to use less electricity though energy efficiency or, the big hit, installing rooftop solar (which reduces demand from the grid by 30-50 per cent).

But I think everyone is jumping the gun. It is the gas networks that will suffer the death spiral, long before the electricity networks. And their time is nearing.

The gas network is an inferior energy network and it only caters for stovetop cooking, hot water and space heating. It was universally ditched for lighting by the 1940s and gas powered wall clothes irons, cooling fans and other weird appliances never caught on due to their, well… ludicrousness.

Since electricity was made available en masse it has been a threat to the gas businesses (read: oil companies) and hence that is why the industry mid-last century attempted to sell dangerous gas powered plug-in wall irons and – utterly bizarre – gas powered plug-in cooling fans.

But electricity's Achilles heal has always been its responsiveness (or lack thereof) and cost. Electrical appliances have been known to be sluggish. Most people who have experienced an electric cooktop know that the element takes ages to heat up and once it does get hot enough, it ends up burning what you have been cooking on top. A pain in the a***. 

Other common thinking is that a gas heater gets a house up to a temperature much faster than those portable electric blower or oil-filled heaters, and that gas on hot water services doesn't run out like those overnight off-peak electric ones.

Fast forward to 2013 ...

Responsiveness – electricity is now the winner

Daikin has released a small super 600 per cent efficient reverse cycle air conditioners that is the most efficient and cheapest to run heater that has ever been sold on the Australian market.

Many people already have a high performance 'inverter' style air conditioner installed in their home and if they don't they may be considering buying one for summer cooling. In this case it costs nothing to reduce or eliminate gas use by using the same unit which has already been paid for to heat in the winter. These units are fast and responsive, and work best when two to six of them are installed. This makes them really easy to zone for further savings (depending on the age of your home/insulation/air leakage performance of your house).

Sanden has a heat pump that uses a CO2 refrigerant gas instead of the high global warming potential refrigerant gases commonly used in Australia. It is a space age technology that is becoming the norm in Japan, which can deliver 80-90 per cent of hot water needs from the ambient heat in the outside air. That's "renewable heat" from the sun which happens to be the same thing that the Daikin reverse cycle air conditioner is producing. Unfortunately, it is not awarded as such even though it is probably the cheapest and most efficient producer of renewable energy available to domestic consumers. What’s more, contrary to common mistaken beliefs in Australia, it can still deliver high levels of efficiency extracting ambient heat, even at temperatures approaching zero degrees.

Induction cooktops which are faster, more precise and safer than gas cooktops (no burns or explosion risk) are now available not just from the likes of Bosch, Miele and Smeg, but also from affordable cheap Chinese no-name brands, and vendors such as Ikea.

In comparing gas and electric cooktops, it's not just about responsiveness. Induction cooktops are also up to three-times more efficient than gas cooktops.

Cost – electricity wins hand down

But the cost equation is shaping up to be even more in favour of electricity.

Due to the current political tensions around electricity pricing and the proliferation of solar, it is likely that we'll see two scenarios play out over the next five years. Either way, the cost of using electricity to drive gas' main competitors – heat pump hot water and heat pump reverse cycle air conditioning technology – will drop sharply.

Scenario 1: Status quo or roughly status quo on the network pricing, high per kWh charges remain and solar costs tumble so that systems can be installed for cheaper than they are today – and that's without a subsidy. 

We should see this situation in the next five years (by 2017). Under this scenario, solar will make very cheap energy. For most people (based on the way they value money in their home) they will think of it as 10 cents per kWh or energy at around a third of what they pay the big retailers. They'll be looking for induced demand in the daytime (to absorb or use as much home grown solar on their side of the meter as they can) and will switch to electricity for space heating and hot water (using heat pumps of course). This will make their heating cost around 1.6 cents per kWh which compares to gas at 10 cents or more per kWh.

Scenario 2: This assumes the current lobbying efforts of the big energy companies are successful (I hope not) and 100 per cent of network charges are shifted to daily connection charges, meaning the average household is slugged somewhere between $3 and $5 a day to use the electricity grid. The corresponding downward price change per unit usage would be significant under this scenario. You'd expect that electricity would be around 12-14 cents per kWh. 

If this was the case then everybody has at their fingertips 24-hour energy and as much as they want, at almost the same cost as gas – even when using a resistive hot water or resistive electric heating system. If customers choose (as they will) efficient reverse-cycle air conditioner technology for their space heating, it will cost around 2 cents per kWh under this scenario or around a quarter of the cost with gas.

And of course, as more and more people quit the gas network either the standing daily charge or the per MJ (the unit used to bill you on your gas bill) will have to increase. Add into that the increases due to LNG plants driving international price parity, and it will soon be clear that the gas distribution companies are going to be – as former energy minister and APPEA sweetheart Martin Ferguson used to like to say – ‘stuffed’.

And then there are energy efficiency efforts that will undermine gas companies: six-star rated houses that may be properly policed (for compliance) in the future or ratcheted up to seven-star. Insulating older homes and all the other things that reduce gas demand and make switching to electricity easier.

Why two networks to deliver the same thing?

Think about this for a second: why do we have two expensive pieces of network infrastructure to deliver pretty much the same thing in energy. It seems crazy to pay for a redundant energy network in gas that can't do a quarter of the things for us that electricity can.

The cost associated with gas is enormous, over the past two weeks the gas network outside my house (which isn't even connected) has had its pipes, which were leaking fugitive gas (that's another story) like a sieve, replaced. This involved digging 20 per cent of the footpaths in my street and the rest of our suburb. Not only that, they replaced the lead-in to every property. 

Contrast this rollout with the NBN (which came through earlier this year) where less than 2 per cent of our footpaths were disturbed, and about 20 per cent of the man hours were exerted. For an infrastructure project running past every property this gas pipeline renewal must be one hell of an expensive project, and someone is risking some considerable capital on it.

I'm not sure when they're planning on recovering this infrastructure spend, but they won't be getting a cent out of me or my next-door neighbour who has, also, just quit gas.

And I'd be willing to bet they will not be getting anything out of my other neighbours in five-10 years time.

Furthermore, gas only gets put on in new estates because the connection is subsidised and totally free, while developers have to pay a huge fee for electricity network connection. You can tell by the cost model that the utilities are acutely aware of which utility is mandatory from a consumer perspective and which is far less important.

If you've got a shareholding in gas networks, or are concerned about the electricity death-spiral, take a look at the gas death spiral first. When it takes hold (i.e. greater than 10 per cent of consumers have quit the gas grid and it really starts to get momentum) it's going to be far bigger news than consumers doing modest energy efficiency and installing solar panels.

And that brand new HDPE pipe out the front...?

It will make a good third pipe for bringing recycled water back to our houses to water the garden.

*ARIEL LEIBMAN: Can smart grids save us from the demand death spiral, October 23

Matthew Wright is the executive director of Zero Emissions Australia, a not-for-profit volunteer based energy and climate research organisation.