Gareth Weeks, stock.xchng
Australia continues to show the U.S. what the future looks like when you price incorrectly.
In case you have not been following Australia, here is a thumbnail of the situation that makes utilities strike back. Back in the mid-2000s, air conditioning (“aircon” to Aussies) took off. In response, utilities built lots of new transmission and baseload power plants to meet a significant increase in peak demand that occurred in a very small number of hours each year.
Retail prices soared to over 30¢/kWh. Price structures did not change, so people without air conditioning subsidize those with aircon by about $330/year. They instituted retail competition that created artificial profits for retailers, so now people pay an extra $138/year for the privilege of retail competition that does nothing to lower their rates.
Then solar became much cheaper. People started installing it on their roofs to avoid the 30¢/kWh retail prices even though there is no net metering. Instead, the utilities/retailers only pay 6¢/kWh for any excess power they receive from households with solar panels.
Now the utilities want to change their price structures for solar customers to recoup the $30/year in costs they say solar households avoid. No changes for the retailer subsidy, though. No changes for the aircon subsidy either. People are incensed.
Does the ESAA suggest that air conditioning households should be hit with higher fixed tariffs to pay for network extensions? No, of course not, because the increased use of air conditioners adds to the revenue pool of the electricity industry, and they want to get a return on their grid investment.
The use of solar, however, detracts from the incumbents because rooftop solar households draw less electricity from the grid – leading to the now well documented “death spiral.”
The ESAA wants to arrest this spiral by lifting fixed charges or introducing tariffs for solar households to maintain the revenue pool and protect its business model. This has already begun in several states, and to make itself look like an innocent bystander, the industry has brought the violins to play a song of woe on behalf of the least well off. But this is not about protecting less wealthy households, it is about protecting the business model of the utilities.
What seems inevitable however is that the industry will one day soon need to change its business model of face the same decline as fixed priced telephony or printed photos. They are fast approaching their Kodak moment. (emphasis added) Utilities want higher charges to shade business model from solar : Renew Economy.
This is exactly what Idaho Power tried to do recently. It is similar to what Hawaii Electric tried to do to forestall solar. The comments on the Renew Economy article were very knowledgeable and can be summarized pretty succinctly: charge prices that reflect how costs are incurred and make every customer subject to them.
The problem for the utilities is that they have no concept of pricing or customer service or listening to customers to retain customers and sales. They have been monopolies and have not had to deal with these issues to make money. Now they do and they are woefully equipped, tone deaf, ham-handed, and pig-headed.
The future is being written on the walls of Australia for our utilities to see, but they do not want to look. They are worried about the next quarter, about investing more capital to raise prices to increase profits, completely unaware or uninterested that they now must compete at the point of use on price, service, and customer relationship. Long term equity and debt investors should be concerned, as an EEI report states, but instead we continue to roll toward a coming train wreck.