Our costly obsession with air-con
Green energy schemes may be the easy targets to blame as the scapegoats for rising electricity prices – but they are the wrong ones.
Two new surveys released last week made this much clear: the rush to install air conditioning to cope with the increasing number of hot days is the biggest single contributor to rising electricity costs in Australia, and green energy schemes play an extremely small role.
But while we are spending billions on network upgrades that we use for only a few days a year, we’re not yet smart enough to spend money on measures that could avoid some of that spending and give us a three fold return on our investment.
The Australia Energy Market Commission’s final report into future electricity price rises out to 2012/13 was released on Friday, and it fingered rising distribution and transmission network costs – a combination of soaring peak demand, ageing infrastructure and higher capital costs – for half of the anticipated 30 per cent increase in average retail electricity prices over the next three years.
AEMC says the increasing use of air conditioners is expected to push peak demand up by more than 3 per cent in most states, forcing distribution and transmissions business to spend billions of dollars expanding the capacity of their networks, even though this may be required for only a few peak periods over the course of a year. The rate of peak demand is growing 50 per cent quicker than the increase in overall energy consumption and customer numbers.
In south-east Queensland, which is experiencing the highest growth in air conditioner installations, maximum demand is forecast to increase by 3.8 per cent on average each year. The capital cost to upgrade and expand the distribution network will be $10.4 billion in that state alone, made worse by rising costs of raw materials such as copper and labour – both aggravated by the impacts of the mining boom.
The investment in distribution networks will add nearly 3c/kWh to the cost of residential electricity costs in that state by 2012/13. By contrast, the state’s solar feed-in tariff, which pays a net 44c/kWh rate, will add just 0.03c/kWh to electricity costs.
AEMC says maximum demand growth is also expanding quickly in south and western Sydney because of “higher and more sustained peak temperatures” and the high uptake of air conditioners across the network. So much so, that the highest peak demand in NSW is shifting from winter to summer.
The upgrade to the NSW distribution network will add 4.32c/kWh to residential retail prices in NSW by 2012/13, nearly two thirds of anticipated price rises. The state’s solar bonus scheme, which has been by far the most generous in the country, and has recently been shut down, will add 0.45c/kWh by 2012/13, AMEC estimates.
In South Australia, AEMC says that more than half of the increased capital expenditure on distribution networks is being caused by anticipated increased demand driven by the growing use of air conditioners during summer heatwaves. SA already has the highest penetration of air conditioners in the country, and peak demand is forecast to grow by another 2.4 per cent per year, despite consumers using less energy, on average, as a result of energy efficiency programs.
Given the huge increase in peak demand and the costs of the networks, it might be expected that Australia is taking some decisive action to mitigate this increase through energy efficiency and demand management programs. But it’s not.
The Australian Alliance to Save Energy last week released its 2010 survey of electricity network demand management in Australia, and found that just $52 million had been spent on energy saving and demand management schemes in 2010.
By contrast, the US had spent more than $3.5 billion in 2010, reducing its peak demand by 4.4 per cent. Australia’s meagre efforts had knocked off just 0.2 per cent from its peak demand from its paltry total.
Given that wholesale electricity prices soar to a peak of $12,500/MWh at these periods, the potential cost benefits of such schemes is clear. The 12 demand management projects that gave details of costs and savings found that total expenditure of $22 million over three years generated savings of $57 million.
The expectation is that $1 of spending in demand management saves $2 in network costs. This is consistent with the experience overseas. The Canadian province of Ontario, for instance, invested about $1.7 billion in conservation programs from 2006 to 2010 that will save ratepayers $3.8 billion in avoided costs. It plans a further $3 billion in investment over the next five years, which it expects will deliver a lifetime saving over future costs of $10 billion.
The alliance says Australia could knock $16 billion off its energy network bills by 2020, and deliver more than $1 billion a year in net economic savings if it took demand management seriously.
“There is no question that energy bills are rising due to increasing spending on electricity networks, much of which is to provide for current growth in energy requirements,” said Mark Lister, the alliance’s executive director. “There is a far greater focus on increasing network size and supplying more electricity. We urgently need to level the playing field for the cheaper, equally effective alternative of reducing energy waste and reducing demand at peak times.“
Green numbers
As for green energy schemes, AEMC puts a bit of perspective on the matter, despite some of the headlines you might have read over the weekend. AEMC says that in nominal terms, residential electricity prices are forecast to increase by 30 per cent over the reporting period, which is an increase of 5.84c/kWh. In real terms, it says, this would equate to an increase of around 19 per cent over the 2009/10 to 2012/13 period.
The renewable energy target – now split into large- and small-scale schemes – will add just under 2 per cent over the reporting period to retail electricity prices, or about 0.66 per cent a year. It says costs from the RET equate to between 2 and 4 per cent of total electricity prices, although it notes that large-scale renewable installations can offset some of these costs because they place “some small, generally downward pressure on wholesale electricity prices.”
It says feed-in tariff scheme costs have been small, comprising around 0.12-2.4 per cent of the total residential electricity price level. They will add, in real terms, around 0.6 per cent to electricity bills over the three years, or 0.2 per cent a year. It notes that the cost of feed in tariffs are likely to fall in coming years.
AEMC noted wholesale energy costs, which comprise around one fifth of the anticipated rise in bills – are increasing due to higher capital costs, rising gas prices, and financing risks caused by uncertainty over carbon pricing.
Comments on this article
Subsidies
As the productivity commission report mentioned, there is already an effective price on carbon dioxide emissions of $44 per tonne through all of the 230 mad cap schemes currently running in Australia. Perhaps we should have all of these boondoogles removed before we start with any sort of carbon dioxide tax or not have anything at all. How anybody with any sort of understanding of economics could possibly imagine that all of these massive cost increases in all things will somehow stimulate more business activity shows the level of ignorance and childishness that the debate has sunk to.
I would also add that aircon is also used for heating. This will be essential ove the next few decades as we go into a quite sun and another Maunder minimum cooling event.
Air-Con
We need to be a bit inclusive. I have had 3 strokes that have left my brain damage such that it swings from extremely hot to the opposite. Gov workers, office workers, etc get to work in aircon. Because of my disabilities I can't leave my house. And I need access to heating and cooling that I can afford.
What is the media up to?
Indeed, what is "The Australian" up to? Like Blue Planet and others above, I immediately spotted the sleight-of-hand in the lead article of Saturday's edition. As I have expertise in both energy analysis and mathematics, it wasn't too difficult, but I wondered how the "average Oz reader" might interpret the statements. So I asked half a dozen friends whom I assessed as being quite intelligent and generally concerned about the "climate change debate" to read the first few paras of the article and answer two questions: What was the claimed increase in a dollar's worth of electricity between 2011 and 2013 (A: 30 cents- all correct) and 2, how many cents of that increase did they think will be due to solar incentive programs? All 6 said "11 cents" (correct answer about 3 cents).
Although 6 readers don't comprise a statistically valid sample, I feel- based on long observation of The Oz- justified in inferring that the newspaper was deliberately setting out to dupe its readers and paint solar as the real enemy. The age-old tricks of "framing"- by use of sensational headlines and hyperbole and the "percentages of percentages" trick, I am sure that most readers would have been left with the impression that 1. solar is a danger to the planet, 2. Gillard is incompetent and 3. coal will be our saviour.
Nice try , Oz, I can see a Wankley Award comong up for Rupert, the Journo and the editor.
But, with a bit of luck, I might have convinced 6 people to cancel their subscription to "Rupert's Rag".
thermal storage
While house design is certainly a big issue, I think this problem is screaming out for time-of-use (ToU) pricing (with appropriate safeguards if needed to protect the frail etc). And then all sorts of common sense will prevail.
For example, thermal storage. As a back-of-the envelope calculation, I suppose it is straightforward to have a liquid similar to water (latent heat of fusion ~330 kJ/kg) but with the phase change at ~20 deg C. Then, for an air-con doing 2kW of cooling (i.e. around 700 W load), around 5 hrs use could be 'stored' in around 100 kg of well insulated 'water'. It is not hard to imagine such 'drums' neatly installed (even retrofitted) along with the back end of a split system.
This sort of system kills two birds in one go; not only can it take stress off distribution networks by providing significant peak shaving, it also is precisely the sort of development that will aid in achieving high levels of renewable penetration.
Is this being done anywhere? Surely it is not too expensive...
It's actually 2.65%, a bit over 2% - Douglas
While representing only 13.97% of the total increase in electricity costs across Australia in the ACT these costs are getting close to 30% of the total increase. That's starting to get significant yet " Solar PV contributed less than 0.2 per cent of real energy." in 2010. http://www.climatespectator.com.au/commentary/ret-hail-fellow-not-well-m... Yet also in the ACT distribution costs will only form a bit over 21% of the increase while having been very peak demand oriented for a great many years because of the much more severe winters than elsewhere in Australia. It's difficult to pin all the blame on air con as there's most likely been a degradation in infrastructure spanning decades. The AEMC report does highlight this. It's unfortunate to see that large scale renewables are getting lost in all of this, solar thermal, wave and geothermal.
synergies
If you want to get a house cooler in the middle of the day, you could try shading all or part of the roof.
To run your air con in the middle of the day, it would be good to have a power supply that produced maximum output in the middle of the day ie when the sun is shining on your roof ... better still, on the sun-shade on your roof.
Here's a partial solution: restrict sales of air con to buildings with solar PV on the roof.
What is the media Up to?
Reply to Douglass Johnson.
The media has to deliver a simple message and the carbon tax is a simple message as opposed to a more detailed analysis.
I call this "pin the tail on the donkey". As interest rates rise, as the dollar continues to appreciate, all of our societies ills and associated dislocations will be blamed on the carbon tax. You can already observe this happening and it is probably too late to correct given the crazy process the Govt and the Greens are using to sell it. They are simply leaving a vaccum and it is being filled.
latest research
Stephen.
Actually, we wrote about the solar cooling last Thursday. Turned out to be one of top 5 most read stories on the website since it was launched nearly a year ago.
http://www.climatespectator.com.au/commentary/chilling-future-solar-power
What is the media up to?
I agree that the media are really not reporting the full facts in relation to electricity increases. I was in Sydney yesterday and heard a news report on the radio - they stated "electricity prices in NSW are set to increase by 40% thanks to the carbon tax"
Unfortunately there is a vast majority of voters out there who get most if not all of their information from these media sources. It's not acceptable and it should be addressed.
It's not more than 2%, in reply to "Blue Planet"
Blue Planet - the wording very clearly states "x% of the total increase"
ie - 13% of the total increase (19%) is equal to just 2.47%
The answer is here.
The answer is clear; we need more localised micro generation based on ceramic fuel cells and solar power. Every cent spent on supporting the solar and ceramic fuel cell industries already shows a positive return.
Time to Market
In my business I deal with venture capitalists and the time to market for any new product is considerable. Suggesting that a CSIRO "breakthrough" will save us is very optimistic at best. It typically takes 5-10 years to get these things through the full development process, if you involve Govt it takes longer, then there is the task of replacing another 5-10 years worth of existing stock at an enourmous cost. Hoping for a "silver bullet" is just that, hoping.
It's a bit more than 2%, in reply to Ewan
From AMEC Review P10
On a national level, the LRET is expected to contribute 2.6% of the total increase in residential electricity prices, while the SRES is forecast to contribute 8% of the total increase.
P12 on a national level feed in tariffs are only expected to
contribute 3% of the total increase in residential electricity prices
That's 13 and a bit altogether.
Presumably most of these increases would be coming from solar PV in the form of RECs.
Latest Research
I am surprised the writer didn't mention the CSIRO's lastest development of a solar heating and cooling addition to solar hot water systems. As this would negate any problem with power surges required for air conditioning. If the Government gets behind this the cost of electricity can be kept down and we won't have such a high demand for electricity in the hotter months.
Reply to govt CO2 pushers...
Terry,
Certain QLD government retailers in the early 2000's gave interest free loans for airconditioners. Thus affecting both the retailer with expensive peak loadings and also harming the network business with peak load accelerating faster than underlying energy growth. The marketers liked the increased revenue, but this was outweighed by the significant cost.
Cost of electricity
One way of managing electricity demand would be to build houses that don't require air-conditioners to cool them. Deep shade verandahs and window awnings keep the sun off windows and keep houses more bearable in hot summers. Courtyards with solar-powered fountains and "water walls" using recyled water can help cool any breezes and reduce inside temps. Not to mention heat vents in ceilings, cross-ventilation, proper insulation, growing shade trees and even installing small plunge pools. There are Australian architects who know how to design for hot conditions if only governments would stipulate new building design codes. At present, most houses built are just boxes of heat.
Penalise the cost of energy-inefficient buildings
Rents for properties are based on the maximum the market will bear, that is, before people prefer to stay in higher-density accommodation rather than pay the asking in a supplier's market. However that does not mean that all of it should be a raw profit for the landlord. It could pay the electricity bill as well as the water and his mortgage.
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If the landlords were required to be responsible for paying the electricity bills, they might have a sharper eye toward energy efficiency when they buy a rental property. Okay, they can collect it from the tenant if they can, but the punishment for excessive air conditioning should fall on the owner of an energy-inefficient building.
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Currently, builders can make the cheapest construction in monolithic concrete high-rise, with no breezeway. We don't want them finding buyers when tomorrow's occupants cannot afford tomorrow's costs for air conditioning.
Government CO2 pushers
Who were the people out there pushing their product 10 yrs back through air-conditioner sales. State government owned electrical distributors mainly
Electricity and renewable schemes
I sent the following to the Australian: Horrified at the article (11/06/11) “Renewable schemes to force up electricity bills by 30%” , I looked up the AEMC’s cited report. I discovered that the AEMC, allowing for inflation, predicts a 19% increase in electricity prices over three years. Renewable energy schemes are predicted to provide the fourth highest contribution at 11% of the increase. That is, 11% of 19%. That is, 2%. Moreover, the Federal government has acted to reduce these schemes.
So, renewable schemes would have contributed 2%, over three years, had the government not acted.
Shouldn’t the headline have read: “Renewable schemes to add less than 2% to electricity bills”? Or better still, focused on the first three listed major causes of predicted increases?
Would you believe it, they didn't publish it!
Note to administrator
The headline is spelt incorrectly
Hot Cakes
Our office is directly above a Bing Lee outlet and the number of trucks coming and the electrical goods going out is astounding, absolutely astounding. If we are going to do demand management we had better start soon the number of appliances out there is multiplying as the poorer in our society upscale their lives.
The appliances being sold today are absolete technology when it comes to demand management.