If I install solar panels and a car battery to run my air conditioner, should I pay higher electricity network fees? The electricity industry and Queensland’s Energy Minister would say yes. But is that equitable?
Scenarios like this expose inconsistencies between the way we pay for electricity poles and wires, and what they cost to run.
Most retail customers pay a small, fixed daily charge, and a larger variable charge based on the volume of electricity they use. So the (mainly fixed) cost of network services is “smeared” over the total volume of electricity delivered.
However, there is no clear link between the volume of electricity a customer uses and the cost of providing them with network services. Network costs are driven by how many appliances a customer has turned on when demand is at a peak on a local network. Critical peak demand is often in summer. An air conditioner can add an estimated $2,400 in grid costs that must be subsidised by all electricity users.
So there is a fundamental inequity between customers. Those with high demand at peak times drive up network costs. Others don’t but still pay the bill.
This wasn’t a big problem while electricity use was rising. But lately it has fallen by 4 per cent. That means the variable charge for network services is likely to rise to cover the difference. More than $42 billion of spending on network infrastructure has been the biggest factor in price rises since 2007.
A recent electricity industry report, Who Pays for Solar Energy? painted rooftop solar as a power-bill villain. It claimed poorer people were subsidising those who could afford solar panels. The report made three points. First, that rooftop solar reduces the total amount of electricity over which network costs are “smeared”, driving up variable charges. Second, that solar consumers use less electricity and so pay a smaller share of total network costs. Third, that the total cost of poles and wires would rise by millions of dollars due to rooftop solar energy.
However, there is little evidence of how much rooftop solar has reduced total electricity demand. Demand has been falling and rooftop solar is part of the reason but manufacturing and aluminium plant closures and energy efficiency might be more significant.
Maybe solar consumers use less grid-supplied electricity than other consumers but so do households that are energy-efficient. That doesn’t mean they are “ducking” their fair share of network costs.
Nor is there evidence that millions of dollars have been spent on upgrading networks to accommodate solar panels.
Perhaps the most interesting assumption is that it is more politically and technically feasible to charge solar consumers higher fixed network fees, than to charge wealthy, high-energy using households for turning on air-conditioning at peak times. This sits at odds with earlier industry research that shows critical peak pricing – which would hit those who consume a lot when local power demand is highest – is the most effective pricing method for reducing peak demand.
The electricity system faces a big challenge as it becomes more distributed. How do we get the right price signals to smooth peak demand, minimise future network costs, and keep rooftop solar connected to the grid? Consumers need to be encouraged to actively manage their energy use. This could include rewards for solar consumers who reduce their own use and export more electricity when networks are at peak capacity.
One thing is certain. Nothing will improve if governments sanction penalties for installing solar panels but ignore the real cost of my air conditioner.
Laura Eadie is a University of Technology, Sydney Business School Associate, and has qualifications in environmental management, finance and investment, and industrial chemistry.
She is also the Centre for Policy Development’s Research Director for the Sustainable economy program. Her opinion here is adapted from a piece first published on 3 June, 2013, on The Conversation, an independent source of analysis, commentary and news from the university and research sector.
This story written and produced by the University of Technology, Sydney, for Brink, a publication distributed monthly in The Sydney Morning Herald
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