Electricity Price Rises

Electricity prices are a constant source of annoyance for many Australians because they seem to be always rising.

No doubt this has led many of us to change our behaviour so that we use as little as possible. I must admit that I'm not the greatest example of this as my thinking often revolves around the fact that I'd prefer to pay a little extra if it means I can sleep in summer and work at home in winter.My thinking is that I'd prefer to pay an extra hundred on my bill and forego a night out for comfort. Not the most environmentally sound thinking process I know. Prices would have to rise much further for me to change my behaviour.

Living in Brisbane does not mean that you don't get cold in winter. Although the days are generally sunny in winter here (hard to imagine right now given that it seems to have rained every day for a month or more - indeed my backyard flooded for the first time ever yesterday), my house is like a sieve and requires a good deal of heating to be comfortable.

Giles Parkinson is a great writer on environmental issues and in this article he includes three great graphs that show how extensive electricity price rises have been. The data is for Sydney and NSW, but the story is similar Australia wide.

According to Parkinson "The first graph shows electricity prices based on average consumption of 3,300kWh a year. It should be noted that Australian average consumption is about double that, although it is falling."

So if you're living in Sydney, you're not imagining the price rises! Now even though many households have been compensated for the carbon price component of price rises (quite small as will be shown below), I imagine that many people just see the increase in prices and forget about any compensation. Price rises, especially in the form of a bill, are generally more noticeable than price decreases in other areas or increases in disposable income.

Note that the first graph is a growth or flow graph, while the second is a price comparison as at January 2013. According to Parkinson, those cities "featuring at the high end, and with at least a little sun, are proving to be among the most vibrant markets for rooftop solar PV"

The final graph shows the breakdown of price increases and as is now fairly well known, by at least the partly informed, most of the increase is taken up by network improvements (or in more pejorative language"gold plating"). According to Parkinson, the graph "shows the component increase in NSW from 2007/08 to 2012/13. It’s pretty self explanatory, network costs accounted for half the bills five years ago, have accounted for around two thirds of the increase in the ensuing years, and now account for more than half of the current bill." The middle sections show the breakdown of the increases in electricity bills. As you can see carbon pricing is not the major factor.

The problem for the Gillard government is the perception that they are responsible for the price increases, despite all the evidence to the contrary. Obviously we can all use less electricity and those who own their own houses can install solar and be cross-subsidised by others, but up to a point electricity usage is inelastic- that is to say it is difficult to lower our consumption without a corresponding change in lifestyle and this is exactly what environmentalists believe is necessary. Still, I imagine that prices would have to increase a good deal further to make consumers fundamentally change their behaviour, rather than just complain about the government.

The 'good' news is that the costs of renewables are coming down, which will mean that new renewable electricity generation capacity, when it is eventually needed, will be competitive with fossil fuel generation.
According to Parkinson, in an earlier article:

Australia needs no new baseload power plants for another 10 years – that’s according to the Australian Energy Market Operator and the utilities themselves. So this shows that the new plants we are getting built now – wind farms, thanks to the renewable energy target – are the cheapest option. By the time 2020 comes around, solar PV will have well and truly joined wind on the southern side of the cost curve (and will no doubt be competing for space in the RET), and solar thermal – with its ability for storage and dispatchable energy, will be competing vigorously with gas."

I hope this is true but there is so much gas capacity coming on board throughout the world that it is my guess that gas prices will drop significantly over coming years and  make gas also attractive. The gas lobby in Australia and elsewhere will be a fairly powerful force to reckon with and given the scepticism of the Coalition towards renewables, Parkinson's optimistic scenario might face some headwinds (pun intended).

The Mismatch Between Solar Demand and Supply

From the NYT.

Might be an example of poor investment decisions. Just saying.

While I support solar, I get the feeling that the market's going to kick back hard in coming years.

Renewable Energy

Renewable energy sources have been growing rapidly but still constitute a minuscule amount of total primary energy production.

Hydro power still dominates renewable energy production, although solar and wind power have been growing rapidly from a very small base. Hydro power is likely to gradually lose its dominance given the rapid growth of wind and solar power, although both have a long way to go.

From The Economist's Daily Chart.

According to The Economist: "Solar power saw the biggest leap in 2010, with the installed base jumping 70% compared with 2009 to 40 gigawatts. Wind power also grew strongly, adding 24% of generating capacity. Yet the biggest source of renewable electricity, hydropower, and the smallest, geothermal, both only added 3% to capacity".

Not surprisingly North America lags both Europe and Asia.

While these figures sound impressive, it's worth getting a grip on the reality of renewable energy production. To get an idea of the scale of renewables compared to other sources of energy, you can go to the International Energy Agency's website and in particular look at the World Energy Outlook.

The latest report reveals some very interesting graphs both backward and forward looking.

While economists often worry about the level of renewable subsidies they pale into insignificance when compared to fossil fuel subsidies. As the IEA reports:

Energy subsidies – government measures that artificially lower the price of energy paid by consumers, raise the price received by producers or lower the cost of production – are large and pervasive. When they are well-designed, subsidies to renewables and low-carbon energy technologies can bring long-term economic and environmental benefits. However, when they are directed at fossil fuels, the costs generally outweigh the benefits. 

Fossil-fuel consumption subsidies worldwide amounted to $409 billion in 2010, with subsidies to oil products representing almost half of the total. Persistently high oil prices have made the cost of subsidies unsustainable in many countries and prompted some governments to try to reduce them. In a global survey covering 37 countries where subsidies exist, at least 15 have taken steps to phase them out since the start of 2010. Without further reform, the cost of fossil-fuel consumption subsidies is set to reach $660 billion in 2020, or 0.7% of global GDP (at market exchange rates).  

... 

The share of energy subsidies going to renewable energy is poised to continue to grow. Global renewable-energy subsidies increased from $39 billion in 2007 to $66 billion in 2010, in line with rising production of biofuels and electricity from renewable sources. Despite a projected decline in unit production costs due to cost reductions and rising wholesale prices for electricity and transport fuels, subsidies would need to expand even further to meet existing targets for renewable energy production. In all three scenarios most renewable energy sources need to be subsidised in order to compete in the market. 

In 2035, subsidies to renewables reach almost $250 billion in the New Policies Scenario. Onshore wind becomes competitive around 2020 in the European Union and 2030 in China, but not in the United States by the end of the projection period. All other technologies require continuing subsidies.

While the current position is marginal the IEA predicts their use will grow rapidly up to 2035.

Solar, wind, geothermal etc are included under "Other". That's it that red section - can't see it? That's because it's so small. Biofuels and hydro are of course renewables as well. 

The big reduction has been in oil usage (after the twin 1970s oil shocks). "Other" has increased by a factor of 8 but still accounts for less than 1 per cent. Nuclear has grown considerably as well and coal has increased its share.

Some other interesting graphs are below. All latest stats. Remember there is a distinction between electricity and total primary energy supply. 

When it comes to electricity supply, coal still dominates.

Solar Power

I've always thought that the government should have introduced a tax on carbon pollution years ago using at least some of the money to fund research into renewable energy sources.

It may be simplistic but the only real solution to climate change is the development of cheap renewable energy sources. The debate really is over how we get there. The simple logic of a tax or emissions trading scheme is to increase the cost of polluting. Increasing the price of polluting encourages polluters to pollute less. This in turn will increase the incentives for companies and entrepreneurs to seek ways to cut energy costs and develop alternatives. Governments need to fund basic renewable energy research. Imagine if the government had used some of the super profits of the mining sector over the past 10 years to fund research into renewables.

I'm pretty sure that subsidising rich people to use existing solar technologies on their rooves (thus raising the cost of electricity for poor people) is not the way to encourage new solar innovations. Rather it is a sure fire way to build resentment about doing something about climate change. In other words it increased the price of electricity without making any substantive difference to dealing with climate change.

One such solar innovation is reviewed by Giles Parkinson in Climate Spectator and sounds very promising indeed.

Supercharging solar

• 7 Jun 2011
• Updated 7:02 AM, 8 Jun 2011

Giles Parkinson

One of the reasons I find solar technology so fascinating is that there is an inexhaustible source of energy and myriad different ideas on how to capture it.

Unlike coal and gas, where the technologies are pretty much standardised – although there is a lot of effort now in improving the efficiency, and thereby lowering the emissions – solar is a new discipline at the commercial scale, and the race is still wide open to find the system that best captures the energy at the least cost.

Most solar thermal technologies have focused on different ways of heating water or other liquids and creating steam to drive turbines – be they in flat mirrored arrays called linear Fresnel, curved mirrors such as parabolic troughs, dish-based technologies that look like space telescopes, or solar towers, where the energy of an array of heliostats (mirrors) is focused on one spot.

A new solar array at the CSIRO’s energy research centre in Newcastle is the world’s largest demonstration of a new technology that uses concentrated solar energy to heat air rather than liquids. In many ways it works the same as a gas turbine: compressed air is heated, and then the air expands through a turbine to create power. “We’ve just eliminated the combustor,” said Robby McNaughton, the engineering manager at the National Solar Energy Center, during a visit to the centre last week.

The technology is known as a solar air turbine, but it’s official name is a Solar Brayton Cycle. And because it needs no water, it is uniquely suited to Australian conditions, where the best solar radiation often coincides with the least amount of available water. And because it lacks the complexity of rival technologies, and can operate as a modular, stand-alone system, it is also suitable for remote locations such as mine sites.
The CSIRO is not yet talking costs per megawatt hour, but it sees its big opportunity in undercutting the price of diesel, which is soaring because of rising fuel and transportation costs. In fact, the rising cost of diesel is proving to be a fillip to a range of renewable technologies in Australia and overseas – wherever there is no coal- or gas-fired energy grid.

“Until you build it it’s very difficult to estimate cost and performance. What you are hoping is that cost of operating this is less than cost of running diesel,” McNaughton says. “This technology is more suited to the smaller scale – I suspect you will see these in the ranges of 1MW-10MW, whereas steam plants will run into the 100s of megawatts.”
The installation at the Newcastle suburb of Mayfield West, built in conjunction with the Australian National University, boasts a 30m tower and more than 440 heliostats, which focus the sun’s energy on a single receiver and can generate temperatures of more than 900°C. Under the current deployment, the field can generate 200kW of electricity or 1MW of thermal energy. Efficiencies are expected to improve dramatically.

The solar field has been commissioned in this past month, and a gas turbine will be installed later this year. “Once we prove that the whole cycle works, then we will start to work out how we can get it hotter,” McNaughton says. The CSIRO has got to 900°C and is aiming for 1500°C. “Beyond this stage it is the industrial partners that take hold.” The CSIRO is hopeful that a commercial partner will take the technology and build a demonstration plant, possibly in the 10MW range.

The new solar array has been erected alongside another array that has also delivered ground-breaking achievements in using solar energy for industrial uses. Known as SolarGas, the technology has been under development for more than a decade, and essentially captures the sun's energy in an endothermic process (chemical reaction caused by absorbing heat), which transforms the natural gas and water feedstock into a higher energy product. The CSIRO says it is a bit like 'solar supercharging' the fuel, and one of the remarkable features of this chemical reaction is that the reformed gas has an energy content around 20-25 per cent higher than what was put in.

McNaughton says there are numerous potential uses, most notably in the industrial sector. (He says areas with the best solar radiation can operate at 95 per cent capacity and be quite predictable, and unlike solar PV, which tends to operate best for just a few hours a day, solar thermal can deliver a much flatter curve over longer hours.)

The most interesting application, however, might be using the system to create “solar fuels” such as diesel and methanol, because the product can be stored, transported and exported in liquid form. It’s a fascinating thought – transport fuels created by the sun – and it happens that a lot of Australia’s best solar radiation can also be found with accompanying gas reserves.

The technology may also be able to be used to create solar hydrogen, suitable for powering fuel cell-powered vehicles, and using a combined cycle gas turbine for electricity generation, the CSIRO says SolarGas can achieve efficiencies of around 60 per cent, much higher than the 40 per cent achieved by conventional Steam Rankine Cycle power generation.

The CSIRO is also pursuing avenues in thermal storage, using different types of salts and fluids and heat transfer systems, and a high temperature steam project, looking to generate higher temperatures from the more “traditional” solar thermal technologies that look to create steam to drive turbines. The hotter the steam, the more efficient, and cost effective, the system becomes.