Modernising Australia’s electricity grid – CAM’s submission to inquiry

April 28, 2017 at 5:10 pm Leave a comment

Climate Action Moreland has made a submission to the House of Representatives Inquiry into Modernising Australia’s electricity grid. It is reproduced below.


Our submission is guided by the following principles:

  • Rapid Decarbonisation is Essential. Renewables, Storage, and Energy Efficiency and Conservation will Play Major Roles. This inquiry is being conducted at a time when increasing numbers of scientists and the general public have realised that the world has entered a climate emergency, requiring the most rapid decarbonisation of the global economy that is possible. The Paris Agreement reached at COP21 commits nations to keep the global temperature rise to well below 2 degrees Celsius above pre-industrial levels (and aims for a maximum increase of 1.5 degrees). However, national commitments made at that conference fall well short of achieving that outcome. All countries, including Australia, must lift their game and become much more ambitious about the extent of decarbonisation which they will implement and its timing.

    We expect that over the next few decades, Australia will transition to zero net emissions, and thus we need to plan for an electricity grid that will facilitate this transition. We expect this to be based on 100% renewable energy. The costs of renewable energy technologies are falling rapidly, as is the price of energy storage. Cost/benefit analyses and calculations of relative costs, even those performed as recently as three years ago, are vastly out of date and likely to lead to wildly misleading conclusions.

    The integration of variable renewable energy plus large-scale storage will require a stronger, more interconnected grid. Equally important is that Australia slashes energy wastage through energy efficiency and conservation, and promotes load-shifting to ensure that available supply from variable renewable energy plus storage matches demand.

  • Privatisation of Electricity Assets Plus Fragmentation of Responsibility Has Been a Disaster. Privatisation has led to high costs for electricity consumers and has limited governments’ ability to control the sector.  Fragmentation means that there are no clear lines of accountability. When problems emerge, we just get buck-passing. Electricity networks are a natural monopoly and should never have been privatised. Re-nationalising them should be a high priority.
  •  Access to Affordable, Reliable Electricity is a Fundamental Right. The transition to a grid based on renewable energy should not cause hardship to low-income households. A multi-pronged effort to improve affordability is required. First, the cost of the grid modernisation should be funded out of consolidated revenue rather than a supply charge (which is inequitably imposed). Second, governments need to introduce strong energy efficiency regulations (particularly on the thermal performance of dwellings) to reduce household energy consumption. Third, profiteering by private operators (generators, networker owners and retailers) needs to cease, preferably by re-nationalising.
  • An Electricity Grid is a Public Good. Society as a whole benefits from the reliability of supply created by connecting as many producers and consumers of electricity as possible into a single grid that is engineered to cope with the supply and demand characteristics it encounters. It is therefore undesirable to create incentives for producers or consumers to disconnect from it. There is a justification for keeping supply charges below the cost of supply to a given consumer or producer if charging at that cost would incentivise them to leave the grid and therefore lessen its usefulness overall.

We discuss in detail the following points:

  1. Transmission and distribution networks need to be publicly owned with clear lines of accountability.
  2. Modernised transmission and distribution networks will require substantial expenditure. To ensure this is done equitably, this should be funded out of consolidated revenue.
  3. Energy efficiency and conservation programs not only need to be ramped up significantly, but also need to be targeted at reducing peak load and enabling load shifting, in order to reduce network costs.
  4. Voltage levels have a significant impact on emissions. Voltages are often too high. Average voltage should not exceed the nominal voltage, and conservation voltage reduction needs to be implemented during night-time.

1. Public ownership; Clear Accountability

Private ownership of electricity assets has led to decision making on investment and operation been made on the basis of maximising profit rather than meeting needs. Moreover, the process of privatisation has led governments to make decisions that maximise the sale price. For example, in 1998, the proposed Riverlink interconnector between SA and NSW was abandoned in order to maximise the sale price of SA’s electricity assets. The failure to build this interconnector has exacerbated SA’s current problems.

Electricity networks are a natural monopoly. Many of the electricity distribution and transmission networks in Australia has been privatised, and the sections which remain in the public sector have been corporatised and mandated to operate to maximise profits. That this was done to a natural monopoly simply beggars belief. Adam Smith himself, the original prophet of the free market, argued for natural monopolies to remain in public hands. Natural monopolies that maximise profit lead to price gouging and extraction of economic rents. In the electricity market, such rents are often extracted from low-income households that can least afford them.

Decarbonisation will require major expenditure on grid infrastructure. To ensure that the transition is planned in a way that will ensure affordable, reliable electricity for consumers, transmission and distribution infrastructure should be publicly owned.  Moreover, government ownership is necessary to ensure the transition is planned rather than being driven by commercial imperatives.

State governments are ultimately held accountable for price rises, outages and blackouts. This has been clearly shown in South Australia, where the state government is now ramping up its intervention (albeit in a privatised system). Thus state governments should own and operate the grids within their borders, while interconnectors could be owned and operated by a national body.

Indeed, governments can borrow at a lower interest rate than the private sector, meaning that overall costs will be lower. The benefits of renationalisation, and a program to implement this has been described in a recent paper by John Quiggin. Broadly we agree with this approach, though we acknowledge the benefits of state and territories owning networks within their borders.

 Recommendation: That, as an electricity grid is a natural monopoly and provides a public good, the privatised sections of the main electricity distribution network in Australia should be returned to the public sector and the entire grid be operated as a public utility.

2. Strongly Interconnected Grid, Funding from Consolidated Revenue

A modernised grid that allows Australia to rapidly transition to 100% renewable energy will require substantial expenditure, particularly on new interconnectors and stronger transmission networks. It is important that the expenditure for this does not drive up electricity bills, thereby causing hardship or encouraging consumers to disconnect from the grid.

The optimal technology mix in a 100% renewable energy system will be determined not only by which technologies are cheapest or offer a good match to demand profiles, but also those that minimise the use of resources (including embodied energy). A useful metric for considering embodied energy is Energy Returned on Energy Invested (EROEI) for generators or Energy Stored on Investment (ESOI) for storage. Both wind power and pumped hydro energy storage (PHES) perform well on this metric. While batteries will undoubtedly be used at the household level and for frequency support, it is likely that PHES will provides the best option for large-scale storage.  This would depend on the evolution of the cost and ESOI ratios for the two technologies.

South Australia and Tasmania (states at the end of the NEM network) have an excellent wind power potential, while Tasmania may have suitable capacity for PHES. Both states require stronger interconnectors to neighbouring states. Moreover, greater exploitation of wind power and PHES will require stronger transmission networks within states.

Financing the electricity grid is going to be an increasing challenge. In the past, consumers have had little choice but to be part of the grid, because that was the only way they could obtain electricity.  Consumers could be charged according to their electricity consumption, or charged a flag fall on top of a charge for the volume of electricity produced, or be subject to a hybrid charge via a stepped tariff for electricity consumption, effectively giving consumers a discount for volume of electricity consumed.  Though these different financing methods produced different incentives for consumers, they rarely amounted to an incentive to leave the grid, as consumers had little choice but to stay.

With the spread of rooftop photovoltaic systems, this is changing. People who supply substantial amounts of solar power to the grid are rarely large net electricity consumers and sometimes net producers. Many are highly dissatisfied with the difference between the retail price they pay for the power they import from the grid and the wholesale price they receive for the power they export to it. The rapidly falling cost of battery storage is making it increasingly attractive for consumers with rooftop photovoltaics to mitigate the variability of their own generation with battery storage rather than grid connection. In the absence of a fall in distribution charges, it can be expected that increasing numbers of dissatisfied owners of rooftop photovoltaics will decide to go off the grid.

There is also a burgeoning movement for community solar energy provision and the construction of micro-grids. These phenomena have the potential to provide the grid with extra flexibility and also reduce transmission losses as energy is generated closer to where it is consumed than at present.  These benefits, however, can only be realised for the wider community if the community solar projects and the accompanying micro-grids remain attached to the wider grid supplying the whole community. In the absence of a fall in distribution charges, it can be expected that community solar projects and the accompanying micro-grids will have incentives to leave the main grid.

 Recommendations: That projects to modernise the electricity transmission and distribution network do not result in higher fixed supply charges. Rather, these be financed largely or entirely out of consolidated revenue in order to remove incentives to leave the grid and deprive both the users involved and the wider society of the benefits of a widespread distributed network of both energy producers and consumers. That measures be taken to significantly reduce the current fixed supply charge to reduce the likelihood that consumers go off-grid.

3.  Energy Efficiency and Conservation to Target Peak Demand

Energy efficiency and conservation measures are important ways to address the energy trilemma. Such measures:

  • Improve affordability by reducing electricity consumption and reducing the need for (and hence cost of) new power generation and networks, particularly if peak demand is reduced.
  • Reduce carbon emissions through overall reduced demand.
  • Improve systems reliability if peak demand is also reduced.
  • Enable better matching system demand with supply (from the known daily patterns of solar and wind variability)

Australia’s energy efficiency is very poor. For example, Australian households use on average more than twice the amount of electricity than do German households. Thus measures to improve Australia’s energy efficiency are crucial.

However, measures that specifically reduce Australia’s peak electricity demand can be of extra benefit. Peak demand is typically due to thermal uses: air conditioning in summer, particularly during heatwaves; and heating in winter. Climate change will lead to more intense heat waves. While the summer peak is higher than the winter peak in most states, winter peaks may increase in the cooler states as household switch from gas to electrical heating (i.e. heat pumps).

Reducing peak demand from thermal uses requires that the energy performance of Australia’s dwellings be massively improved, and (for summer peaks) that the urban heat island effect be reduced, such as through increased vegetation, reducing paved areas and changing paving materials. The urban heat island effect can increase daytime air temperatures by over 5 degrees.

There is a clear role for strong government regulation in addressing barriers to improving thermal performance of buildings and cooling our urban areas. While state and local government can play an important role in this, the federal government can play a leadership role.

It is not sufficient to use pricing to attempt to drive down peak demand, nor are information campaigns sufficient. There are many barriers to householders adopting energy efficiency measures besides lack of information and low energy literacy. Renters in particular suffer from the split incentive, whereby landlords are unlikely to spend money on energy efficiency measures when the benefit accrues to the tenant. Low income households may not be able to afford energy efficiency upgrades or new appliances, even if these have a short payback period. Some barriers can only be overcome with strong government regulations, such as minimum energy performance standards for rental properties. The UK and New Zealand, for example, has introduced these. Dwellings at the point of sale offer another opportunity for improving energy performance. Minimum energy performance standards could be required for dwellings built within the last few decades, while for older dwellings, mandatory energy disclosure at the point of sale should be the minimum requirement. (This is required, for example, in the ACT.)

Energy performance standards on new dwellings also needs to be substantially improved to reduce peak demand. Under the current star rating system, dwellings which cannot be adequately cooled may receive a high rating due to a better thermal performance in winter. (This is aside from concerns about compliance with the star rating system, which also needs to be addressed.)

Many new apartment buildings are particularly concerning. West-facing windows without awnings are common. Many new apartments do not even allow for cross ventilation. The ability to cross ventilate has a significant effect on the need for air conditioning. While apartments with windows on only one side may remain warmer in winter, they can become hot boxes in summer, causing distress for residents, and exacerbating peak demand if air conditioning is used.

In addition, black or dark coloured roofs lead to greater heat absorption and thus a greater need for summer cooling. For existing dwellings, roofs can be painted white. In most of Australia, the energy savings from cooling will more than compensate for any reduced heating effect in winter. For new dwellings, green roofs (i.e. a vegetative layer) can lead to significant, cost-effective energy savings.

Schemes that aim to improve energy efficiency in the residential sector do not necessarily target peak demand. For example, the Victorian Energy Efficiency Target does not include ceiling insulation (though this may be included later), window awnings or ceiling fans.

Retail tariff incentives to discourage night-time consumption may help with matching consumption to the average daily pattern of variable renewables solar and onshore wind farms. Currently, this would reduce the market share of baseload coal, with a corresponding cut in CO2 emissions. In a future 100% renewables scenario this could substantially reduce the need for storage capacity (such as molten salt in solar thermal plants or water stored in PHES). Tariffs that discourage night-time electricity usage may thus save substantial carbon pollution during the transition, and reduce the cost and time taken to achieve the ultimate goal of an electricity system based on 100% renewable energy.

Recommendations: That strong energy efficiency regulations be introduced specifically aimed at reducing peak demand from air conditioning use in order to improve reliability and affordability, while reducing emissions. Examples include mandatory minimum energy performance standards for rental properties and recently built dwellings at the point of sale, and energy performance standards that specifically require good thermal performance in both winter and summer. That energy efficiency programs specifically target measures that reduce peak demand. That electricity pricing better reflect the availability of variable solar and wind power.

4. Conservation voltage reduction (CVR)

Voltage levels have a significant effect on power consumption (since power is proportional to voltage squared). Since 2000, Australia’s voltage level has been nominally 230 V, with a tolerance band of +10% to –6% allowable. The power consumption at the upper level (253 V) compared with the lower value (216 V) is a whopping 37% higher.

The average measured voltage day or night in Victoria is probably around 245 V, which is towards the upper end of the allowable range and corresponds to a 13% power increase compared with the nominal voltage. (Note that Craig Savage suggests it is more like 250V.)

Some loads (such as heating and cooking) require a certain amount of energy, and hence reduced voltage means that electricity is used for longer. However, for other loads such as “universal” (commutated) motors and lighting, the reduced power leads to reduced emissions. Induction motors tend to draw more current as voltage is lowered, for little if any total energy saving.

Conservation Voltage Reduction (CVR) refers to reducing supply voltage to the lower part of the allowable range, with the aim of reducing energy consumption. Through most of the 20th Century it was used by distribution utilities to deal with short term supply constraints, safely lowering supply voltage to customers in order to lower the power demand “seen” by a suburban zone substation. By applying this strategy to a sufficient number of zone substations in the overall grid, system demand could often be curtailed sufficiently to match demand to the (temporarily constrained) available supply, thus successfully avoiding a total blackout to any customers.

In the late 20th Century as the prominent role of coal-fired baseload electricity in exacerbating global warming became apparent, a different application of the proven efficacy of CVR has been proposed: to significantly cut the CO2 emissions from baseload coal-fired generation. One credible scenario to maximise its potential is for every distributor to routinely by default reduce the voltage every night down towards the -6% lower limit, say 220 volts. There have been trials of CVR in Australia and overseas. For example, a trial of CVR in Bathurst found that it can produce significant energy and emissions savings as well as reducing costs. They authors noted that there were no incentives for distribution network businesses to reduce voltage; thus implementation would require government intervention.

More broadly, the commercial drivers of retailers, generators, network owners, even appliance manufacturers and importers would appear to be in conflict with the public good of lower power bills, reduced CO2 emissions and longer appliance lifetimes.

Recommendations: That the tolerance band on voltages be tightened to +6% to –6% in keeping with the tolerance band prior to 2000, and that governments regulate to ensure that steady state voltages are kept as close as technically practicable to the nominal voltage. That voltage remains in the lower part of the band (around 220 V) during night-time.



Entry filed under: Energy efficiency, Policy, Politician education, renewable energy. Tags: , , , , , , .

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