For the U.S. Electricity Future, Look To Australia

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In many ways, Australia is similar to the U.S. It has abundant natural resources, an individualistic bent, large resource corporations that exert considerable market and political power, a schism between bedrock conservatives and bedrock liberals, and a free market mentality. Two differences, though, are high electricity prices and a lot of sun.

How high are the electricity prices? A residential customer’s marginal price ranges from 30 cents USD to 50 cents USD. There are two main drivers of these costs. First, extremely high peak demand and peak prices (some estimate generators get 30% of their revenues from 30 hours in the year (The world’s electricity business models are broken. What’s next?)). Second, extremely expensive additions to transmission and distribution investments driven by super peaks from air conditioning. Though the super peaks represent only a small proportion of hours, the electric industry chose to invest in transmission and distribution instead of some more cost-effective approach (see Air conditioning is peaking out, time to rethink cool comfort.)

Because Australia has so much sun, and such high prices, rooftop solar has been taking off, much to the chagrin of the utilities. The utilities’ efforts to deal with the explosion of rooftop solar have been, generally, public relations disasters. They seek to stop their customers (not ratepayers!) from doing things that are in their own economic self-interest. Naturally, customers see this as a transparent power-play for the utilities to continue to enrich themselves at their customers’ expense. And when the customers are the voters, this is not a wise approach. See How solar PV is turning utilities against consumersUtilities say no to gross tariffs, yes to battery storage; Is the solar industry being blindsided by utilities?

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With solar prices dropping (DOE target is $1/watt by 2020 from current $3.50 – $4.00/watt), wholesale electricity prices set to rise with any increase in natural gas prices, and retail prices set to rise from large new investments in transmission and distribution, the U.S. is set to be the next Australia. It may be two years, five years, or seven years, but we are on our way. Utilities need to act now.

The increase in customer-sited solar in Australia happened so rapidly, the utilities did not have time to respond in any way that would protect their profits. They have just made customers mad. This is already happening in the U.S. as well, specifically in Hawaii and California (Hawaii’s solar power flare-up: Too much of a good thing?California Utilities Say Solar Raises Costs for Non-UsersCalifornia Utilities Take Aim at Rooftop Solar). Utilities in the rest of the U.S., especially those in areas with high solar insolation (AZ, NM, TX), need to adopt price structures that gradually move prices to be based on cost incurrence and that give customers choices so they do not feel like they are being strong-armed. If they do not start now, it will be too late for them as well.

To see the additional steps utilities need to take besides revamping their pricing, see Disruption On All Sides – What Is A Utility To Do?

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