The Hidden Cost Of Infinite Energy (Part 2)
By Ellen FanningFebruary 7, 2012
The chief of Australia’s largest electricity network decries that he has no incentive to rein in our demand for power. Well, academics led by economist Chris Dunstan are touting a detailed plan to slow Australia’s energy spending, drive down prices and reduce greenhouse gas emissions. The energy bosses are listening. But is Canberra ready to act?
"Governments cannot artificially hold energy costs below costs of supply," is a sombre note struck on the first page of the Australian federal government's draft Energy White Paper, a reality check for those who might have been hoping for a political solution to rising energy prices.
Released in 2011, it advocates measures like "time of use pricing," enabled by new smart meters on every home and business. They would measure energy use every 30 minutes, allowing for customers to be charged a higher tariff on power used from the early afternoon to early evening on weekdays and a much lower tariff at other times.
Using such pricing signals to reduce peaks and lower demand is not a popular concept. In Victoria, the rollout of smart meters was a political disaster, with 90,000 householders telling installers to clear off when they arrived with the new meters. So Federal Energy Minister Martin Ferguson prefers to refer to it as "empowering customers to manage their use of energy." Taken to its logical conclusion, it's a concept any politician would want to creep up on slowly. And you can understand why.
Take, for instance, the real cost of supplying four hours of air conditioning on one of those freakishly hot days that occur a few times each summer. It is the sort of calculation Chris Dunstan has spent the past three years doing, as he and his research colleagues have prepared a so-called road map for managing Australia's future energy needs. Interviewed on the phone while attending a conference in California, he starts doing the calculations on some hotel stationary.
"So at the moment, if you run your two-kilowatt split cycle air conditioner for four hours on a hot afternoon that uses, say, eight kilowatt hours of power at say 20 cents - that's about [AUD]$1.60 cost to you. Say $2. Now if instead you paid the real cost of generating that power at peak times, it would increase to as much as $10, $12 per kilowatt hour. So that would take the cost of running that air conditioning over four hours to $100. Now if we add in the cost of the network it would easily double."
Should customers actually pay $200 to cool down on a hot afternoon?
"No, certainly not. No-one could possibly argue that a low-income family in western Sydney who do not get the benefit of a sea breeze should be charged $200 to run their air con on a stinking hot day," Dunstan says. "There are much smarter ways of going about it."
International experience indicates that much more modest time-of-use pricing works best if combined with real-time communication with customers, so they can adjust their energy use on a hot afternoon rather than being left to puzzle over the bill when it arrives three months after the heatwave.
That would be possible if the networks redirected more of their capital investment to smart meters and smart grids, which would have that communications capacity. Chris Dunstan says such smart technology would also allow electricity retailers to remotely turn appliances on and off in a customers home.
"What about the retailer saying, 'Okay, we'll turn your air con off for 15 minutes each hour. The fan will keep running so you won't notice the difference and we'll give you $100 a year if you do it. That's much more realistic than charging them $200 to run the air conditioner on a hot afternoon," he says.
But what if they want to run the air conditioner without a break during a heatwave?
"Well, time-of-use pricing would mean that they may want to turn off things that are not as important to them at that time such as the pool pump or the hi fi, TV, computer or modem sitting there on stand by,"
he counters. "That's before you have even thought of factories and shopping centres, many of whom would jump at an opportunity to be paid to reduce peak demand."
For years, Australians have been stuck with what Minister Ferguson calls an "unproductive stalemate:" they want to reduce greenhouse gas emissions, but don't want to pay more for power. Simply reducing energy use, at peak times and right across the day, is a big part of the solution to this. The other is investing in clean, green ways to generate power locally, a prospect that becomes more appealing as the cost of the old, "dirty" power continues to increase.
Sydney's Other Allan Jones
Allan Jones is ready to take on what he calls the "energy dinosaurs."
"Yep, they need a meteorite on them, don't they?" he jokes.
His name carries some weight in Sydney political circles, but not for the reasons you might imagine. In person, there's no mistaking him for the powerful right wing radio host. "Allan Jones QBE. Not Alan Jones 2GB," he points out in a fast-paced English accent that somehow puts you in mind of Michael Caine.
He was hired by the City of Sydney in 2009 to find a way for the CBD and surrounds to produce its own "green" power locally within 20 years (as part of the city's plan to cut carbon emissions by 70 per cent by 2030). Not surprisingly, Jones has found himself doing battle with what he refers to as "big energy."
What riles him most is their inefficiency, caused by generating electricity hundreds of kilometres from where it is used. "It's pretty silly. You lose two-thirds of your primary energy as heat, which you reject up into the atmosphere [at the time of generation]." That's because power plants produce far more heat than electricity. "Then you lose another 10 or 11 per cent across the grid to get it into the city. So [by the time you reach the customer] you end up with less than 30 per cent of the primary energy you burn at the power station."
On top of that, he points to the cost of maintaining the long-distance network of poles, wires, cables and substations needed to get the electricity to the cities.
By way of example, he provides The Global Mail with the breakdowns of a recent bill for Sydney's Town Hall. While 41.5 per cent covers the cost of the electricity, 49.5 per cent is for network charges. "That's not electricity at all. It's just [the cost of] shifting the electricity," he adds.
Jones point out that a similar cost breakdown is not made available to domestic customers, even though the proportion of their bill represented by network charges is probably greater because they take electricity at 230 volts rather than 400 volts, meaning the electricity has to be sent further through the network before it is hooked up to the front of a suburban house.
"If you can get this complexity and understanding of the real financial effects of an inefficient, centralised energy system across to Joe Public you may be the first journalist to do so," he writes in an email.
So Sydney has decided to move away from that inefficient, centralised power all together. Instead, by 2030 Sydney's local government area - and that includes city buildings - will use power generated much closer to home.
Some 30 per cent will be from renewable sources. The rest will come from a quirky system devised by Thomas Edison for Manhattan in the 1880s. The system evolved and is today called trigeneration - producing electricity, heating and cooling from a single fuel source. It is still used in New York City and was the inspiration for the system installed at the Rooty Hill RSL.
At a cost of $500 million (in today's dollars), Sydney plans to put a series of trigeneration plants in CBD basements, capable of producing 360 megawatts of low-carbon electricity.
Run on gas, it will not only be greener - reducing greenhouse gas emissions by 40 to 60 per cent compared to coal-fired power - but cheaper. That's because heat produced while the electricity is generated is not lost; it is in centralised electricity production. Instead, it is captured and used to heat local buildings or put through an absorption chiller to be used for air conditioning.
"A huge part of your electricity bill - for heating and cooling - is just no longer there," he says. On top of that, network charges for many CBD building owners, which he says already account for up to 80 per cent of their electricity charges, would be reduced by between 30 and 50 per cent.
While Jones says it is too early to specify what price will be charged for the trigenerated power, he thinks many building owners and residents of the inner city may well be "delighted" with the outcomes.
Jones has done all this before. Back in the UK, at a place called Woking in Surrey, he made his name by engineering a way for that small city to produce 98 per cent of its own electricity. And he knows that the most difficult part of achieving that kind of innovation is battling through the regulator's red tape.
Electricity networks were designed back in the time of Thomas Edison as a one-way system to supply power to the customer. It was never envisaged that the customers would want to send the power back the other way. In Sydney, Jones has had to partner with an established player - Cogent Energy, whose parent company, Origin, is Australia's largest energy supplier - to get around the rules restricting who is allowed to trade electricity over the publicly owned poles and wires.
"The problem - and most people are totally unaware of it - is that to participate in the grid, costs you millions of dollars to set up and millions of dollars to run. So you've got to be really big to play in that market," he says.
That barrier is an enormous hurdle to other local governments or industries, rural communities, universities, hospitals, sporting arenas or convention centres which might otherwise invest in similar trigeneration systems or produce power from renewable sources. As things stand, they wouldn't be allowed to trade their surplus electricity over the network. And while homeowners, for instance, are allowed to feed their solar energy back into the system, they receive a pittance for it - two-and-a-half cents per kilowatt hour, according to Jones' figuring. The retail price is around 20 cents.
While working for the City of London in 2008, Jones was an advocate to tear down that barrier, but he says it took some political muscle from 10 Downing Street to achieve it.
"Tony Blair just got his head around the problem and said, 'Sort it out, remove the barriers,''' Jones says.
Here he says, it would simply require the Australian Energy Market Commission - the rulemaker for national energy markets - to copy and paste the UK regulations and sign off on them, without the need for legislation or lengthy consultations with state governments, creating a whole new secondary market for efficient, green power.
Jones concedes it may require political muscle to make it happen in Australia.
"There'll be people complaining about it, opposing it. I would suggest to you that no energy minister would make that kind of change. So you're not talking about [federal energy minister] Martin Ferguson here you are talking [Prime Minister] Julia Gillard. I think the PM is a fan of Tony Blair, so there's an opportunity for Julia to have her name in lights."
A New Deal
One way to sweep away much of the opposition to such a move would be to allow electricity networks to make money not only from selling power but from NOT selling power. Yes, you read that correctly.
In the United States they have, of course, come up with a catchy phrase to explain what seems like money for nothing. They call it "negawatt power,"a theoretical unit of power used to measure the amount of energy saved. Electricity retailers advise their customers on energy efficiency and those who accrue the negawatts can sell the saved energy. Seriously.
Ausgrid's George Maltabarow say that's just the sort of incentive he needs to drive down energy use. What he is asking for is nothing less than a whole new business model.
Maltabarow is an innovator. Five years ago, he overcame some industry scepticism to introduce time-of-use pricing to about 350,000 of his New South Wales customers. But he finds it is only minimally effective. It drives down energy use by about three to five per cent. However, he thinks it would be possible to reduce peak demand by a breathtaking 30 per cent, if there were an incentive for Ausgrid to invest in smart meters and further improve the communications capacity of its already world-standard smart grid. That would provide the technology necessary to send messages to customers on those hot summer afternoons encouraging them to wind back their energy use.
And why stop at reducing the afternoon peak? If there was a business case for reducing demand, Mr Maltabarow says it would make sense to invest in further technology, systems and programs to drive down energy use across the day from all users. That could even see Ausgrid investing in local, green power systems like the City of Sydney's trigeneration plants.
And the end result, Mr Maltabarow agrees, would be enormous saving in the hundreds of millions, if not billions of dollars: "Absolutely, without reservation, it would be of that order."
To prove the point, he has his engineers work up some numbers for The Global Mail: Nationally, they calculate that demand-management projects could deliver more than $4 billion dollars in savings over five to ten years. Take out the significant costs involved - upgrading those meters and networks for a start - and they estimate the net national savings at between $1 billion and $2 billion, which would flow to consumers in lower bills.
Here's all it would take: In Australia, the amount of revenue electricity networks are allowed to earn is fixed by a regulator. What if the networks could keep the revenue, even if they supplied less power? And here is the best part: Mr Maltabarow is offering to split the savings with his customers. '"Two-thirds would go to the customer [who uses less power] and we'd keep a third of it.
The City of Sydney's Allan Jones is delighted with that idea. "That," he says, "is a pretty good deal."
Dr Muriel Watt says it is "absolutely" a good idea.
For Chris Dunstan, it holds out the promise that the future imagined in his energy road map might actually become a reality. Australians could have lower power bills and less greenhouse gas emissions, without being forced to choose between the two. "We're a chance here," he says. "We're a serious chance."
While he thinks even greater savings might be available, Ausgrid's proposal is a clear sign that the industry at least is ready for change.
"Let's not quibble about whether it's three billion, one billion or a few hundred million [each year in network cost savings]. There's loads of potential [savings] we are missing year after year. We all know its there. It's time to get on with the job."
"Not Bad for a Bunch of Clubbies, Eh?"
Rooty Hill RSL has started referring to itself as a resort. Chief executive Richard Errington has big plans for the place. He is planning a new aquatic centre and gymnasium to add to the hotel and the AMF bowling centre the club recently has built on its grounds.
He can afford to think big. The man who wants to reduce the club's dependence on poker machine revenues took a big gamble on his $4.5 million trigeneration system, which started producing all the club's daytime power in November 2010. He doesn't quibble with my back of the envelope calculation that without it, the club's annual electricity bill would be approaching $2.5 million, rather than the $746,000 they paid last year for the off-peak electricity drawn from the grid, only at night.
"And we had five days in a row last year over 40 degrees [Celcius]," he adds.
It fell to one of Errington's lieutenants, Andrew Eastham, to figure out exactly how this outer suburban club would overcome all of the nightmarish technical hurdles to install such a state-of-the-art system. Eastham, the club's group general manager, is all business as he takes me on a tour. As he strides through vast commercial kitchens towards the roaring generator in the basement, the talk is all of absorption chillers, waste heat and megawatt hours.
He brightens when I ask if he's an engineer. "No," he delights in telling me, "my background is gaming." Right. Does that prepare you in any way to manage a project like this? Wrangling highly specialised consultants and navigating complex grid protection requirements? He stops and smiles at a colleague. "Not even a little bit." As if anticipating my next question he says, "Once you saw what was possible … well you just don't want to give up."
"Not bad for a bunch of clubbies, eh?" says his mate.