The operations of Australia’s grid infrastructure are in disarray. A number of network businesses have been hoodwinking governments and regulators into allowing significant overbuild of assets. Meanwhile, network peak demand and annual average demand have peaked in most places, significantly limiting the amount of new network capacity that is required now and well into the future.
While networks have been spending up big on our behalf, we the customers have actually been consuming less electricity – behaviors which are incompatible. The networks wanted more assets to generate more growth and more revenue. And the consumers wanted to use less, to shrink their bills and their dependency on the network. And consumers have been doing this faster than population growth has been able to reclaim ground.
This has created a break-down in the current pricing model with its reliance on allowing networks to recover their incurred costs (whether needed or not) from customers via charges on a diminishing amount of kilowatt-hours consumed from the grid.
The network businesses and groups aligned with their interests have proposed various options for propping up their revenue and defending themselves from competition from demand reducing technologies like solar and energy efficiency.
One such proposal from the Queensland Competition Authority was to shift the network charges onto a fixed daily charge. So instead of paying 50 cents a day like we used to ($1 today), we’d pay $3-$4 a day for accessing the network, no matter how or if we used it. From WA we had a proposal to force customers to pay for the network whether they were connected or not, as a way of attempting to head off what some are seeing as an inevitable crash of an inflexible outdated and outmoded industry.
We shouldn’t accept the logic from these self-interested players that because their costs are fixed, then ours should be too.
What we do need is a new pricing mechanism that controls costs and rations access to network capacity appropriately, while not discouraging competition from technologies that reduce demand on the network.
This actually involves a radical idea – we should have free access to the electricity grid 360 days a year.
For the other five days, which might be in December, February or March, if we choose to use the grid we should be charged a significant amount. And that charge should be based on how much of the grid’s capacity we use.
At present the average customer pays approximately $1000 over a year to use the grid (although it varies considerably depending on location and usage level). So if we were to choose to use an average amount of power during a critical peak of say 5kW then we pay $200 per kW over the coming year for a total of $1000.
If we were an extreme customer that chooses to use three really big beefed-up air-conditioners using 15kW then we would pay $3000 over a year for our electricity supply.
If we choose to switch off the mains and head to the beach during these critical peak days then we’d pay just $200 for the year for a minimum 1kW of peak day service.
It’s all pretty simple and manageable.
By comparison the Grattan Institute has proposed a model that would have us running around like headless chooks trying to control our electricity consumption behavior day in day out for the 260 weekdays across the year, when 255 of those days have nothing to do with the cost of upgrading the network. It is a complete waste of resources, and an unnecessary intrusion into our lives.
Furthermore with proper pass-through capacity charging available to customers, innovative options such as grid tie solar inverters with batteries, or just vanilla battery systems, will be able to fill in the capacity supply gap in the future much more cheaply than networks can. This is because these technologies are based on mass market scaling and production so they will become cheaper with time and volume much like mobile phones, while recent experience has shown that building networks is becoming more and more expensive.
Dealing with future needs through greater use of information and technological know-how, rather than building more physical network assets, which have only 50-60 per cent average utilisation, is a smart approach. It matches the innovations that have been improving productivity over the 21st century across other sectors of the economy. But it requires our pricing structures to be more flexible and responsive to demand on the five days that matter, while leaving the grid free for the rest.
Matthew Wright is executive director of the think tank Zero Emissions Australia and a resident columnist at Climate Spectator.