October 24, 2013
Solar PV – along with battery storage and energy efficiency – is emerging as the defining issue for the electricity industry. Solar PV has led to falling demand from the grid, reduced wholesale electricity prices, and the mothballing of nearly a similar amount of coal-fired generation as a consequence.
Stephen King spells out the concept of a death spiral with respect to the national electricity market that has emerged with the development of rooftop solar power (photovoltaic or PV systems) and more energy efficient buildings and appliances. King says the idea of a death spiral is simple:
The cost of the electricity network – the wires and poles that bring power to our homes and workplaces – is pretty much fixed. It depends on peak demand, not on the everyday electricity load. The network is built to meet a specified level of reliability so that our power doesn’t go out (too often) on exceptionally hot days in the middle of summer when we all turn on our air conditioning. So most of the time the network costs are just a fixed cost of delivering electricity that doesn’t depend on the amount of electricity that consumers buy.
However, to pay for the network, consumers pay a charge based on electricity consumption. As individuals, if we use more electricity, then we pay more of the network cost. If we use less electricity, we pay less.
When consumers install PV systems on their roofs, their demand for traditional electricity (from coal fired power stations connected to a centralized grid) falls:
These consumers reduce the amount they ‘use’ the network. But the fixed network costs do not change. So these fixed costs are spread over a smaller volume of electricity. And this means that the price of that electricity has to rise for everyone else.Of course the rise in price encourages more consumers to adopt power-saving technologies and to install PV systems. So these consumers also reduce their consumption of traditional power. But the network costs are still fixed. So the price of electricity has to rise for everyone else.
This lead to a group of haves and have-nots. The well-off, who can afford to install PV systems and buy power saving appliances will avoid much of the high power prices. Those who cannot afford solar systems and new energy efficient appliances will pay a high electricity price.
He adds the obvious solution is to fix the pricing. The problem is created because a fixed cost has been turned into a variable price. If the network charges are turned back into fixed charges that can only be avoided by disconnecting from the electricity grid, then the problem disappears.
.. when you generate your own power you do not pay for the power that you no longer use. But if you are still connected to the electricity grid, and have the option of using that grid, you do pay for the grid.
Fixed costs need fixed charges. Network tariffs need to be reframed, but the problem is that increased fixed charges will simply remove the incentive to conserve energy, be efficient and will just encourage more people to leave the grid.
Utilities in Australia, faced with whose market share decline, are relying on regulatory protection, supported by the degree of regulatory capture to protect their old business models. They are trying to make the uptake of solar less attractive by refusing solar connections, or forcing solar users to change tariffs.
The industry has problems because the combined effects of global climate action, renewables growth, economic decline and pollution reduction have worked to dampen growth and undercut investor confidence in the fossil fuel industry. This includes power stations and coal terminals.