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The easy way to cut power bills

The energy market is unique among traded commodities. Until someone can find a way to be able to store great quantities of it at a cost-effective price, it remains a commodity that must be consumed as soon as it is produced. And because politicians won’t survive repeated blackouts, it must also be produced as soon as the consumers demand it. Energy highways don’t do pedestrian crossings, roundabouts or traffic lights – what the consumer wants, it gets. So, when they all want it at the same time, the energy market needs a Sydney Harbour bridge the equivalent of 50 lanes wide (actually, pick your own number, but it’s a lot) that will then remain unused for the rest of the year. All of this costs a lot of money, and it’s the consumer who pays for it. The Australian energy regulator late last year estimated that 10 per cent of the country’s transmission infrastructure – assets worth some $3.5 billion – gets used for less than 1 per cent of the year. The rest of the time it sits idle. Not that this greatly upsets the infrastructure providers in the Australian energy market – the more poles they build and wires they hang, the more money they get. This should not be news to the Australian government. Last October, a task force on energy efficiency commissioned by the prime minister delivered a landmark report on the state of energy efficiency in the Australian market. A one word summary would describe it’s estimate of Australia’s energy efficiency performance as lousy, or maybe just lazy. The report included a host of recommendations that would ultimately save consumers money (as much as $300 a customer), deliver economic benefits of more than $6 billion, and avoid the need to build some $12 billion of energy infrastructure. Some of this will require upending the business models that allow for infrastructure providers to earn more money simply by building more stuff and selling more electrons. The report suggested they work harder and smarter for their money. Not much has been heard from the Australian government since, but that could be because it has embarked on a series of “on road consultations” to find out what the “stakeholders” have got to say about it. There are some fears that Canberra’s sudden aversion to “complementary measures”, now to be found in the same storage bin as budget deficits – break glass and use only in an emergency – may undermine the push. But at least the government does not have to worry about accusations that it is acting “ahead of the world.” The task force report found that energy efficiency in Australia was so bad that even a concerted effort would not enable it to catch up with its competitors. And now China and India are also putting us to shame. The Chinese government is expected to make energy efficiency a centerpiece of its next 5-year plan. It has already implemented pilot demand-side management schemes in selected provinces, part of a grander goal that seeks to cut 170 million tonnes of CO2 emissions from business-as-usual by 2015 – which would avoid the need of building some 50 additional coal-fired plants over the next 5 years. In India, the government has just unveiled a plan to create an energy-saving credit scheme next year that could become a tradeable market worth as much as $3 billion a year. The scheme is similar, in some ways, to that proposed by the Australian task force, and is designed to help India’s most energy-intensive industries to reduce the amount of power they consume. Energy intensive companies that exceed their efficiency targets will earn credits that they can sell to those that don’t. Europe, already years ahead of Australia in terms of energy efficiency, is having a debate about how it should ramp up its policies to help it meet its target of reducing primary energy consumption by 394 million tonnes of oil equivalent by 2020. According to a recent report by HSBC, this would result in cost savings of up to €150 billion, but the EU is nowhere near meeting the target on its current trajectory. Energy policy is expected to be high on the agenda of the EU heads of state summit in Brussels later this week, which will consider the 2011-2020 Energy Action Plan. HSBC says that, despite calls from a coalition of industry and environmental groups to implement binding commitments on energy efficiency, there is a great divide about whether they should be mandatory. However, concerns about shortfalls in the energy reduction target, not to mention rising oil prices, will likely spur action, and HSBC expects to see new efficiency standards on boilers & water heaters, air conditioning appliances, commercial refrigerators and computers; a common efficiency rating scheme for all non-residential buildings; while in the UK some £8 billion will be allocated to assist businesses with a “pay-as-you-save” plan to help investment in building renovations. Indeed, HSBC estimates that global revenues for energy efficiency products will surge three-fold to more than $US1.2 trillion by 2020, overtaking those of renewable energy, because the payback times (1-2 years versus 7-10 years) are so much quicker. The biggest challenge is how to manage the growth in peak demand, which is growing at a phenomenally faster rate than baseload power. It will come as something of a shock to most consumers that their soaring power bills are not the fault of green energy subsidies, but mostly because of the neighbour’s newly installed air conditioning unit. Or their own. The conventional view of how to solve this problem has been to implement some sort of congestion tax, to try and reduce the need for a 50 lane bridge across the harbour to a 40 lane, or at least make it really expensive. The inevitable rollout of smart meters in coming years will allow for time-of-use billing. But is it fair? Two economists working for AGL Energy suggest not, arguing that it disadvantages businesses and the less wealthy – why should these people, they ask, be subject to higher energy prices and cross-subsidise others who decide to switch on their air conditioners all at once? The AGL economists suggest a more complex billing system that would calculate tariffs not just on the time of use, but the change in use. This protects people who have more-or-less constant usage from the worst price spikes, while imposing greater costs on those who ramp up demand at peak periods because they are switching on air conditioners or other appliances. It sounds immensely complicated, but not beyond the bounds of smart meters, because they are, well, smart. Most of all, smart meters will allow consumers, and producers, to change the way they think about pricing. The days of low-cost energy are over, and they are not coming back. In the meantime, if you’re struggling through the heat wave and your neighbours switch on the air conditioning, you might as well go round and ask to join them in the cool. After all, you’re paying for it. Giles Parkinson, Climate Spectator

Friday 4th February 2011