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Who Will Protect Householders in the Democratization of the Energy Sector?

Genevieve Simpson's picture
Senior Government Relations Specialist Western Power

Genevieve Simpson worked in energy policy for the Government of Western Australia before starting her PhD at the University of Western Australia in 2012. She is researching perceptions of...

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  • Sep 15, 2017

The twenty-first century is seeing a rapid transformation of the electricity regime towards what has been called a ‘democratization’ of the electricity sector.  This transition will see end-users engaged in far more complex interactions with electricity.  End-users are no longer solely unconscious consumers of electricity, where the flick of a switch will create demand, but will generate electricity, store electricity, trade electricity, and even use electricity for transport.

End-users will be able to assist electricity network operators with reducing peak demand, and therefore drive down costs, by allowing stored electricity to shift grid-based consumption to outside peak hours.  End-users can also assist electricity retailers with reducing their costs by providing a source of stored electricity when wholesale electricity costs are high.  Associated with these potential benefits to network operators and retailers will be an increasingly complex raft of retailer contracts.

This assistance will only be possible after end-users invest in a collection of technologies, including solar systems, batteries, smart meters, computer integration platforms and even electric cars.  This will generally transfer the risk of cost recovery from industry participants to householders and other community members.

The cost-effectiveness of this transition for end-users lies with their ability to negotiate an electricity contract in their favour.  The increasingly complex nature of electricity generation and distribution, alongside a lack of energy literacy in the general public (particularly in relation to solar), means negotiation powers may be limited.

My research has found evidence of this, with residential householders making solar investment decisions based on rebates acting as a ‘cue-to-action’ before they run out, and based on peer-to-peer interactions, as opposed to rational economic decision-making.  Solar consumers appear to be easily convinced to purchase over-sized systems and often appear to have limited understanding of how to use solar systems to maximise financial benefits.

Solar consumers’ high expectations of financial benefits of solar systems have also been informed by government incentives promoting solar as a form of ‘free energy’, with governments unaware of (or not acknowledging) the need for tariff adjustments to ensure network operators remain viable.

It is clear that considerable work is required to support the increasing development of energy literacy in the general public.  It is important that householders develop the skills, knowledge and vocabulary for assessment and decision-making around these technologies. Or, alternatively, models can be developed to assist householders with decision-making.

Householders are not expected to have a comprehensive knowledge of health care (there are doctors, hospitals and health insurers for this), nor are they expected to have a comprehensive knowledge of the financial system (there are accountants, financial planners, and mortgage brokers for this), and so perhaps there should also be energy advisors who can be trusted by householders to provide reliable information and advice.  The question, then, is who can be trusted to act independently and reliably in providing information to community members?

The ‘democratization’ of the electricity industry is occurring within a highly contested framework of competing interests, much of which has been encouraged by successive governments promoting cost-efficiency and market competition.  Additionally, each player is not necessarily driven by an altruistic desire to see an energy transition so much as an opportunity to access a ‘window’ for their own market growth or continue to fulfil their legislated function.

It is worth asking what the government’s role is in this energy sector transition. My research has highlighted a number of opportunities for government to improve renewable energy policy.

The research has suggested improved information for residential householders around solar, alongside a strengthening of regulations and inspections for renewable generation systems and installation.

In particular, my research has advocated for the development of a government-scale ‘vision’ of the energy sector, acknowledging changes to the roles of generators, retailers, network operators and regulators.

However, Australia, like so many countries, is currently in the grips of post-Global Financial Crisis strategies to reduce government debt, coinciding with a neoliberalisation of the economy, associated reductions in regulation and support for ‘small government’.

Governments may be more invested in developing policies that are ‘simple’ to deliver, quick to roll out and carry favour with the voting public than in developing complex policies that could have greater economic efficiency, lower levels of cross-subsidisation and educational empowerment of the community, but with associated increased levels of planning, regulation, education delivery and opportunities for failure.

Nevertheless, it is precisely at this time that government intervention is required to direct the future energy transition.

Without government support and development of a ‘vision’ for how the future energy system should look there is an increasing likelihood that ad hoc generation and network distribution investments will create market inefficiencies and push up prices; that industry incumbents will continue to ‘push back’ on solar investments; and that consumers may develop a level of distrust for the ‘tools’ of an electricity sector transition, potentially culminating in a lost opportunity to move towards a more economically efficient, low carbon future.

However, there are seeds of hope for a managed approach to the electricity sector transition.

My research has shown that, in spite of the vast market systems, technical machines and regulatory and legislative frameworks that underpin the electricity sector, it is individual human beings who have the potential to instigate change. It is the champions in regional areas who manage to excite an entire community about the prospect of solar, or the lone voices in network operator agencies that guide a change in processes.  It is the renewable energy advocates beating down doors and seeking Ministers’ ears, and it is those Ministers, with energy utility CEOs, heads of regulators and the knowledge of the public service at their feet, who can drive a just, efficient and clean energy transition for us all.

This is (a slightly modified version of) the conclusion from my PhD thesis, which looked at the social acceptance of renewable energy in Australia. As part of my research I performed two postal surveys and many interviews with community, industry and government representatives.  I was interested in looking at how government policies (in particular financial incentives) promote renewable energy investment and what other policies governments should be considering.

Photo Credit: Mirko Tobias Schäfer via Flickr

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Nathan Wilson's picture
Nathan Wilson on Sep 17, 2017

Genevieve, your article starts with a timid peak at the role of (energy producing) households in our future energy sector, but instead of exploring this very important (and controversial) topic broadly, it degenerates into how to promote solar.

As an engineer, I’m more interested in the question of how well the proposed energy system will work. It sounds like you’re promoting a system in which electricity is produced on end-user rooftops, stored on premises, with excess energy exported onto a grid, under terms to be negotiated with a service provider which also participates in a wholesale electricity market.

There are several problems with this vision.

One is that electricity from utility scale PV is much cheaper than that from residential rooftop; similarly utility scale storage is also cheaper (due to both economies of scale, and the option to use alternate technologies like high temperature liquid metal batteries which are not consumer friendly). Another issue is that the retail price of electricity is usually several times higher than the wholesale cost; this is because the retail price includes grid maintenance, billing service, and other costs which are unrelated to the volume of electricity used, but are normally included in the per kWh cost, in order to keep things simple and encourage conservation.

You specifically mention the problem of homeowners getting sold “over-sized” system. Because of “soft costs”, a single double-sized system will always be cheaper than two regular sized systems, yet your analysis concludes the larger system is the wrong option? This should be a hint you’ve made a mistake. You’ve confused the question of “how best to take advantage of the incentive structure” with “what’s best for society“.

A glance at solar energy resource maps always show that in-land deserts have fewer cloudy hours and days than more populated (e.g. coastal) areas; when we consider the impact of fossil fuel backup, this means that rooftop solar is much dirtier than desert solar.

A sober and realist look at sustainable energy must conclude that residential distributed generation will always be an impediment to cost effectively cleaning up our grid mix. Far from “Democratization of the electricity sector“, it creates a group of stakeholders whose interests don’t align with those of other electricity consumers, or with lower cost (utility scale) electricity producers. These homeowners have been conned into buying an expensive energy source which only makes sense when the actual costs are shifted to other consumers.

One of the central challenges of the clean energy revolution must therefore be to minimize the size of the residential PV industry, at least until rate structures which minimize the cost-shifting become the norm.

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