29 May 2015
by Peter McCloy

The power revolution - winners and losers

On April 29 1998 the Howard government signed the Kyoto Protocol, and created the Australian Greenhouse Office, the world's first government agency dedicated to reducing greenhouse gas emissions.

In April 2001 they introduced the Mandatory Renewable Energy Target scheme (MRET). This mandated that by 2010 electricity retailers and other large electricity buyers source an additional 2% (above 2001 levels of about 8%) of their electricity from renewable or specified waste-product energy sources. This target has grown to 20% renewables by 2020.

The scheme envisages two areas, large and small scale, the former covering large scale generators, the latter including domestic solar panels and solar hot water systems.

Technologies to achieve these targets were limited; hydro-electric schemes, for example, were politically unacceptable because they obviously needed new dams. Wind farms were considered to be an answer to large scale generation, solar panels to both large and small scale projects. Schemes were introduced to encourage both by offering attractive and guaranteed prices for the power produced.

I have a grazier friend who invested more than $1 million in solar panels for his properties in the earliest days of such schemes. When I spoke to him recently he seemed quite satisfied with his investment, which he calculates is returning him 17% per annum.

Another friend installed solar panels on his own home, but not on an investment property he owns. He explains that he has no motivation to spend the money when it is his tenants who play the bill.

Renewable energy targets are obviously popular with those who can take full advantage of their generosity, but many are unable to profit, for various reasons, and it's them that pay the cost. The rich get rich and the poor get poorer.

Obviously the manufacturers of solar panels and wind generators are major beneficiaries, and enthusiastic supporters of the schemes.

Wind farmers like AGL are guaranteed both a market and a generous price for their output. How many of our farmers would like a deal like that?

Which brings me to me. In 1997 my wife and I built what we considered to be an ecologically responsible home, fully solar - in other words not connected to the grid. We could have connected to the grid for about the same price, but that would have involved cutting a wide avenue through the bushland that surrounds our house, and we didn't want to do that. Not that we considered ourselves to be Greens - in our experience the further you live from Balmain the less likely you are to vote Green - we just wanted to be responsible and responsive to our environment.

We're glad we did, most of the time, but it was not a wise decision economically. At the time we qualified for some minor subsidies - we managed to time our building between two more generous subsidy offerings. Now we pay recommended retail price for everything to do with our electricity, if we can get anyone to leave their more lucrative subsidised installations in the city and travel out into the bush where they're really needed. Of course we can't make a dollar to two by feeding back into the grid to which we aren't connected. Stand-alone solar schemes, we have discovered, are not for the cost conscious.

This may change, if we believe the ABC and the CEO of Tesla, Elon Musk. "We have this handy fusion reactor in the sky called the Sun. You don't have to do anything; it just works. Shows up every day and produces ridiculous amounts of power,"he says.

Musk was quoted on the ABC's 7:30 program broadcast on 21/5/15. Reporter Lee Sales enthused "Imagine life without that dreaded quarterly power bill. That could be around the corner for people with solar panels. Until now, solar energy couldn't be stored efficiently and people who had it relied on the electricity grid for backup. Now, new battery technology means that could change."

That technology is the Tesla battery. I have a few reservations, but this sounds like good news to me. Since 1997 solar panels have become quite a bit cheaper, more efficient and longer lasting. Batteries are the most expensive component in our system, and I'll look forward to paying substantially less when my current battery bank expires - probably in about ten years. Come to think of it, I'll probably expire before they do.

Unfortunately, cheap panels and batteries are only a partial solution. Musk is not quite correct when he tells us that the Sun "shows up every day"- it doesn't. Recently we had more than a fortnight where it rarely put in an appearance, and that's not uncommon in many areas of Australia. That's why a well designed solar system will include batteries that hold at least three days power supply - preferably five. Until now, as Lee Sales points out, solar energy can't be stored efficiently.

The ABC report went on to talk with residents who have a 5 kilowatt system. We get by on 2 kilowatts, and the thought of having to install batteries that are more than twice the capacity of ours is scary. People connected to the grid seem to be more prolific users of power than we are.

We have backup, of course - a petrol generator to last us through the dark times. It makes for expensive power, but at least we have it.

If you're connected to the grid, it's a different story. The grid takes the place of our generator. It does away with the need to store enough energy to last you through stormy weather. To top it off, in good weather you sell your excess power back to the supplier. You'd be silly not to take advantage of an offer like that! The power companies will continue to provide the energy security that you demand.

At a cost! Not your cost, as things now stand, although that might have to change.

The power companies have to provide the infrastructure needed to deliver and receive power from your premises. Already we are seeing evidence of certain areas running out of the capacity to provide this service, and some consumers who install panels are unable to sell their excess back to the power company.

In the USA, power companies are experiencing a phenomenon known as the cost-shift cycle: Some consumers install panels, fewer customers are left to pay for the infrastructure, utilities lose revenue, and have to buy electricity at an inflated price, they pass the increased costs on to fewer consumers, who as a result install panels…and so it goes. It seems fair to expect the users of panels, who are now suppliers of electricity as well as consumers, to pay their share, possibly even an increased share, of the cost of infrastructure. Utilities may be forced to impose a connection fee - and so they should.

The utilities also need to provide the backup generating capacity to ensure supply at all times. The spread of solar panels and wind farms does not reduce the need to keep an equivalent amount of backup generation, capable of virtually instant availability. Such generation will require the use of more expensive forms of generators. Who should pay for these increased costs? I have to pay RRP for my generator and the fuel it consumes.

This fact also means that the greenhouse effect claimed to justify these schemes is over estimated, even illusory.

It's a win-win-win-lose situation.

Those consumers smart enough and lucky enough to get in early certainly win.

The energy companies, Shell, BP, AGL and the other 'big-end-of town'suppliers and power generators certainly appreciate the government mandated over-priced and guaranteed market for their products - they're laughing all the way to the bank.

AGL, we are informed "operates the country's largest solar farm at Nyngan. Now, it's begun offering customers solar panels without upfront fees and in a few weeks begins to market its own battery."It's good business.

There are moves afoot to increase the RET to 50% by 2050. I can't imagine the energy companies being too upset about that.

To repeat myself - the rich get rich and the poor get poorer.

The Greens are happy, or they ought to be. Being a party of the CBD they don't have to pay the costs of their dream society, and in fact can feel quite self-righteous about their impact on the rest of us. They'll get their reward in heaven.

The biggest losers are those not in a position to take advantage of this 'power revolution'. Those who rent, those who can't afford the still significant capital outlay required, those not connected to the grid. They'll have to subsidise the winners.

Next in line, I suppose, are those who have installed systems hoping to sell their excess back to the utilities, but unable to do so because the infrastructure just can't cope. They'll just have to satisfied with a lesser return on their investment.

As for me - I guess nothing will really change all that much. My panels should last until about 2040, my batteries until about 2023. Statistically I should expire somewhere between 2022 and 2027, so I don't know if I'll be a winner or a loser. Maybe I'll buy shares in AGL.

Elon Musk says "You can actually go, if you want, completely off grid. You can take your solar panels, charge the battery packs and that's all you use."Sounds good to me, with two reservations. The Tesla batteries were designed for the Tesla car, which is capable of "accelerating from zero to a hundred in just 3.3 seconds". The batteries required for backup of a domestic power system have very different characteristics to those required to power a car, and I'd like to know that this problem has been considered. I'd like to know how much battery storage is recommended to provide adequate backup for a typical household's 3 kilowatt system if you're not connected to the grid, as this is likely to significantly affect the economics.

Who knows what will happen in the next ten years or so? Perhaps other technologies will make batteries, wind farms and solar panels obsolete. It's a brave, probably foolish act to forecast the future and claim any certainty.

Right now I'd consider myself a winner if the bloody generator, which is on the blink, would just start.