anu energy change institute energy.anu.edu.au social equity and the electricity death spiral ken...

ANU Energy Change Institute energy.anu.edu.au

SOCIAL EQUITYAND THE

ELECTRICITY DEATH SPIRAL

Ken Baldwin, Director

ANU Energy Change Institute


The ProblemSource: Pitt and Sherry (Nov 2014)

9% reduction


• Reduction in economic growth since the 2008 GFC

• Structural change in industry towards services rather than manufacturing e.g. aluminium smelters

• Industry/households becoming more energy efficient

• Electricity price rises and negative demand elasticity

• Affluent households reduce their grid dependence by installing:

– solar photovoltaic (PV) cells: >1.3 million solar rooftops– solar hot water systems: >0.9 million systems installed– insulation/double glazing/energy efficiency measures– smart meters and building management systems

Contributors to falling demand


Electricity Prices

Source: Pitt and Sherry (2014)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Sep-2000 Sep-2002 Sep-2004 Sep-2006 Sep-2008 Sep-2010 Sep-2012

cent

s/kW

h at

201

2-1

3 pr

ices

Real residential electricity prices (representative Australia-wide price), 2000-2014

Demand

peaked

80%

rise


Electricity Prices by State

Source: Pitt and Sherry (2014)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0


cent

s/kW

h at

201

2-13

pric

es

Real residential electricity prices, 2000-2014

NSW Victoria Queensland ACT

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0


cent

s/kW

h at

201

2-13

pric

es

Real residential electricity prices, 2000-2014

SA Tasmania WA


• Electricity demand is falling

• Electricity prices rise to cover sunk costs

• Affluent households reduce their grid dependence by installing more:

• “behind-the-meter” solar PV and solar hot water

• Insulation and double glazing

• Smart meters and building management systems

• Energy efficient devices

• Low income households can’t do this – and are left paying the increasing costs of the grid, which they can’t afford

• The result is – the so-called “electricity death spiral”

The “Electricity Death Spiral”


Social inequity is already happening:

• Air-conditioners, swimming pools, plasma screens, lavish appliances etc. contribute to peak demand

• Peak demand users are being subsidised by off peak users due to the high peak electricity spot price (x 104)

• Network costs (43% bills) are “gold-plated” to cope with peak demand, yet electricity bills are not demand-based

• High prices cause affluent users to opt out and purchase:

• “behind-the-meter” solar PV and solar hot water

• Smart meters and building management systems

• Insulation and double glazing

• Energy efficient devices

Social inequity is here now


Household hardship

Source: Simshauser and Nelson (2014)


A wide spectrum of Energy research:

– Technologies►Artificial Photosynthesis►Biofuels►Energy Storage and Recovery►Enhanced Oil and Gas/ CCS►Fusion Power►Nuclear Science►Smart Grid►Solar PV/ Thermal/ Nano

– Economics and Policy– Efficiency and Demand Management– Energy-Water Nexus– Regulation and Governance– Sociology and Risk


Technology and Policy neutral

~$100 M Energy Research Facilities

~200 Staff and Students


A wide spectrum of Energy research:

– Technologies►Artificial Photosynthesis►Biofuels►Energy Storage and Recovery►Enhanced Oil and Gas/ CCS►Fusion Power►Nuclear Science►Smart Grid►Solar PV/ Thermal/ Nano

– Economics and Policy– Efficiency and Demand Management– Energy-Water Nexus– Regulation and Governance– Sociology and Risk


Technology and Policy neutral

~$100 M Energy Research Facilities

~200 Staff and Students

ANIPP


THE SOLAR ENERGY CONTRIBUTION SCHEME

Ken Baldwin and Bruce Chapman


(SECS)


• The Solar Energy Contribution Scheme (SECS) will not solve the “electricity death spiral”

• Instead – it aims to address social equity AND expand the uptake of renewable energy by:

– Enabling low income groups to access clean energy devices (solar, smart meters, insulation etc.)

– Forcing the industry to address social needs

Indeed, SECS may accelerate the “death spiral” and bring forward the need to change the electricity business model to one of satisfying customer energy needs – rather than selling electrons !

Solar Energy Contribution Scheme


Debt only starts being repaid once income reaches a set threshold. Advantages:

• No one pays unless they can - protects the debtor

• No defaults arising from temporary income loss

• The tax office is an efficient collection agency

• Low transactions costs

• Has all the necessary income records

• Implicit government subsidy can be built in:

• The debt can be CPI adjusted (less than govt. bond rate)

• An up front surcharge can be added to reduce the subsidy

The ICL can therefore be designed to be low cost or revenue neutral for government

Income Contingent Loans (ICLs)


• Government provides an Income Contingent Loan up to $10,000 for energy saving devices

• We use a trial subset of borrowers (aged 25 – 55) :

• Individual income $13K - $110K p.a. (not self employed)

• Couples with total income below $150,000 p.a.

• Who are not renters and not living with their parents

• Income defined as wages, salaries and pensions, but not social security receipts

• Repayment starts @ 2% income for $20 - 30K p.a. then +0.5% for each $5K p.a. thereafter

• Debt linked to CPI (not govt. bond rate - subsidised)

SECS Pilot Study


• Repayment threshold $20K p.a., starts at 2% of income, rising to 4% @ $50K p.a., then as for HECS

• HECS threshold ~$52K p.a., starts at 4% of income

• Repayments are smaller - $400 p.a. @ $20K p.a. c.f. $2K @ $50K p.a. (average electricity bill ~$1700p.a.)

• SECS has a 25% surcharge - c.f. 0% for HECS

• Loan amount $10K - c.f. up to $100K+ for HECS

• Income cap on SECS at $110K p.a.

• HECS is a loan on human capital

• SECS is a loan on a physical asset

Comparing SECS with HECS


We use the HILDA data set for income profiles:

Modelling

We determine the implicit government subsidy assuming a 3% discount rate and equal take-up probabilities


Overall subsidy rate of -4% (c.f. +15% for HECS)

Results


• Extend the study to :

o Include the self-employed and renters

o Allow dynamic changes in income levels

o Link the loan to the sale of the property

o Include those with other ICLs e.g. HECS

o Address selection through varying take-up probabilites

o Offer an early repayment option (from lower energy bills)

o Include rapid technology learning rate (delayed purchase)

Next Steps


To further address equity, NEM reform is needed:

• Smart meters need to be installed

AND

• Electricity charges must reflect time-of-use and place a premium on peak demand usage

AND

• Should reflect no. of days at maximum load to relieve pressure to expand network capacity

• A fixed network connection charge should be considered to reflect the cost of backup for behind-the-meter generation

National Electricity Market Reform


Factors that increase demand:

• Reduced electricity costs driven by these reforms

• Economic growth

• Electrification of the transport system (climate change)

Structural changes to NEM charges:

• Introduction of a network connection charge

A change in the energy business model:

• To satisfy customer energy needs broadly speaking: energy efficiency and energy generation, as well as energy use

Averting the “death spiral”

ANUEnergy Change Institute

21

Thank you !

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