Just 19 words recently attributed to Grant King CEO Origin Energy portend the implosion of electricity network operators. Lost in a large glowing article on the benefits of solar energy those 19 words were simply washed away in the deluge of daily information flow. Learn below why those words were simply one step in ten steps towards the commercial demise of the power grid operators.
It's not the electricity network failing but the commercial failure of the power grid business
Firstly, let's set the scene. I did not say that the grid is headed for failure. It could fail, as the ultimate outcome, but that's not my point here. Firstly the private companies responsible for the electricity transmission and distribution grid structure will face commercial collapse. Then, to prevent subsequent failure of the grid government intervention will be required. We're focused here on the steps leading to the commercial failure of the network operators.
The rise of independent power production by individuals and companies as epitomised by the rapid uptake of domestic solar energy installations has set in train an unstoppable national disaster for the power transmission and distribution network operators, and the nation. As more people go off-gird the networks companies as private entities are doomed. Already Australians pay 130% more for electricity than Canadians, according to new research - a power premium to rise to 250% once the carbon tax and locked-in price increases take effect.
Australia only produces about 1.2% of it's annual power demand from solar, the trend to solar is accelerating due to compelling triumvirate of government incentives, falling equipment prices, and rapidly rising power bills, as noted recently by the Clean Energy Council:
More than two million Australians are now getting cheaper power and saving some half a billion dollars a year on their electricity bills, because of their switch to solar energy. The number of Australian homes with solar power systems has passed the one million mark, according to figures from the Clean Energy Regulator that confirm the milestone was reached in March. Clean Energy Council Chief Executive David Green said this meant that approximately 2.5 million Australians now lived in one million homes with a set of solar panels on the roof.
Ironically, the greed of the power companies, through their rorting of the pricing regulatory system, has probably been the most powerful and emotional incentive for people to want to install solar panels. There is $55 billion worth of network upgrade spending already locked in, and it was recently estimated that on a national level, network costs would contribute about 40% to increases in electricity prices from 2011/12 to 2013/14. Even the Australian Consumer and Competition Commission has caught on to the sport of the power companies:
Sims [Rod Sims Chairman of the Australian Competition and Consumer Commission] is only the latest in a succession of independent authorities to identify the huge cost of a flawed regulatory model for electricity pricing that allows power companies to use investment to game the system to gouge consumers. Ross Garnaut was the first prominent figure to call for a fundamental overhaul of electricity regulation when he updated his climate change reports in 2011 and identified market, government ownership of power companies and regulatory flaws as a key reason behind rising power bills.
Electricity companies unethical behaviour accelerated the market failure
The companies outwitted the various governments in their privatisation negotiations, fair enough that's what happens 90% of the time. And, they had what they thought was a monopoly, like the privatised airports, tollways and water service providers, so they could gouge to their hearts content right?
Yes, right, they did. When pricing submissions came around they employed special purpose consultants who were expert in every nuance, trick, and rort in the regulations. Big bonuses were paid all around when the rorts came off and the price rises gave a lot more bang for the buck of projected capital investments. They gamed the system with intent.
Yes, the outcomes here would have happened anyway. But they would have been slower, and with far less emotion and rancour had the electricity companies acted ethically, which they did not.
Solar energy spells crisis for power grid, doom for the network operators
What is this impending commercial crisis, and why? It's consequence of these 9 steps, leading to #10 which is the actual market failure of the network operators:
- The grid needs to be maintained at (a nominated) peak capacity;
- People buying less energy means that the grid cannot be maintained without huge price increases
- The people who can least afford it e.g. not on solar, will be hit extremely hard
- People who can afford it will go completely off-grid HOWEVER they will want to retain a connection as emergency backup
- The effect of #4 will accelerate the affect of #3 on those that cannot go solar or off-grid
- Network operators will lobby government to dramatically raise the cost of just "being connected" in order to try to cover maintenance costs, and governments will have no choice but to agree
- Solar panel owners will then install more and more on-premise energy storage capacity, which is also falling in price very rapidly
- Micro-communities e.g. large blocks of apartments, will realise that they can share capacity and then wire themselves up with enough backup to go off the network entirely
- The scope of these self-networked self-wired communities grows which results in greater backup capacity and more and more people completely off-grid, in part driven by the "outrageous" connection cost imposed by the network operators
- Inevitably, the network operators fail financially - one by one- and the Government has to ultimately re-claim the networks and run them as a public service, at substantial cost.
Why Governments will have to Reclaim the Electricity Grid as a Public Service
You are probably thinking that this is all fanciful, or even fairyland right? If it were so then many energy "leaders" would be talking about it right? Well if you do some searching you will find some conversations, but you're right in that you'd have to search and with some diligence.
So maybe I'm to be treated in the same way as a climate change skeptic - what do you think? Perhaps I can simply cast into the dark corner of "anti-solar" and all will be fine?
But, wait ! What DID Grant KIng actually say? On page 8 of The Age on the 5th of April 19 words were attributed to him. He issued words of caution in a large positive article on solar energy:
The spread of solar, though, has its critics, such as Grant King, chief executive of the largest retailer, Origin Energy. He said PV owners retain grid access but as they buy less power from it, costs will rise for everybody else.
Now it's extreme to be against solar per se, although Grant King is speaking from a position of self-interest. But never-the-less the BIG point he makes is what we are saying here. And those 19 words, and that warning, went no further. So this is a topic not yet on the public energy or political agenda.
But this issue is not going away, it cannot go away, it cannot be ignored any longer. It will mean massive restructuring of the electricity network operators, and it will mean that governments will either have to own the networks again, or pay huge social subsidies to the operators.
The looming solar tax as a social payment
Where will those subsidies come from?
They will have to come, in the main, from those that operate solar for their own benefit - either identified by definition or demographic or income. The only other option is to raise general taxes which in one way or another will further penalise those than can least afford their electricity.
What will probably come about is a Power Benefits Scheme analogous to medical, where it becomes part of a social safety net.
Does any of this mean that we should stop deploying local solar systems? Not at all, and there is really no way to stop it anyway except by punitive legislation, which would be extremely controversial.
Questions on solar and the power network operators
- What do you think - do you see alternatives to this scenario?
- Which of my steps is fatally flawed, leading the demise of my prediction?
- How does Germany solve this issue when at times 40% of their grid's power is supplied from solar?
- How do you think governments should react, or even better how should they plan for this?
This in the Australian Financial Review p10 April 10, 2013 - which is why it is uncontroversial to say that the electicity companies are behaving unethically. They are entitled by the laws of the land to exploit the rules to the full. That does not make it ethical behaviour, which it is not. Here are the key phrases from the article:
- "manipulating the national electricity market"
- "commercial gain"
- "bidding designed to game the system".