By Peter Dobney, General Manager Resources and Energy, Orora Limited (Formerly Amcor Limited)
Recent changes in electricity demand and usage patterns are becoming a serious issue for electricity network businesses. How do they fairly charge customers with PV who are connected to their network but only use grid power when the sun doesn’t shine?
Electricity powers all developed economies. It is critical for homes and workplaces and its availability underpins countless aspects of modern society to such an extent that many risk taking it for granted.
In the future it may not be necessary for everyone to be connected to the electricity grid, as more investment, particularly at a residential level, is directed into solar PV.
It’s all about equity really. At a residential level, utilities are now increasing fixed charges in order to compensate for a lack of revenue from customers who have solar PV but still rely on the grid for power when it isn’t generating sufficient power to meet their needs.
However, higher fixed costs and higher usage charges actually penalise those who cannot afford to install solar PV. A similar situation exists for those who cannot afford air conditioning in their homes. It’s difficult to consider this as cost reflective pricing.
The same disparity in relation to cost reflective pricing is also true for large electricity users. There are many commercial and industrial customers that require the same amount of power continuously 24/7. Meanwhile, other large electricity consumers may use considerably more electricity and electricity network capacity during summer or winter, or for specific periods only.
Since one of the main drivers for increasing electricity network CAPEX is the requirement to build more capacity to cope with peak demand, network businesses would be expected to recover a large portion of their revenue from capacity-based charges.
The majority of electricity network tariffs for large customers are based on their monthly maximum demand. This has led to a significant cross-subsidy from large consumers with a relatively constant electricity demand to those with variable or seasonal demand peaks.
Both issues outlined above could be easily overcome if electricity utilities adopted capacity-based pricing similar to gas transmission pipeline pricing where users pay for capacity on an annual basis, based on their maximum daily quantity.
If customers want to have a certain amount of electricity network capacity reserved for their needs, for example on the hottest day of the year, then they should pay an annual demand charge or capacity charge, based on their demand for network capacity.
If customers can accommodate interruptions to their power supply during network demand peaks, then they could opt to take non-firm capacity and be charged accordingly.
There is probably also a midway position where they could take some firm and some non-firm (interruptible) capacity.
This would ensure that electricity networks have a higher level of utilisation, which should reduce their requirement for ever-increasing investment in capacity infrastructure and would help to eliminate the cross-subsidies that have been mentioned above.
Not possible you may think? Well yes it is; as the rollout of smart meters approaches 100 per cent it should be possible for network tariffs to become more cost reflective.
Finally, if you think we have seen the end to huge increases in electricity price increases then think again!
As energy-intensive industries shut down and move offshore, utilities will be left with stranded assets for which they will still be allowed to recover costs. That means ever-increasing electricity network charges for those electricity users remaining on the grid.
In the not-too-distant future, battery technology will have improved to such a level that some electricity users with solar PV could completely remove themselves off the grid. Others will use batteries to store off-peak power and smooth out their maximum demand. Electric vehicles could also be charged up overnight instead of during the day to reduce demand.
In this new era, electricity utilities will have to reform their tariffs and provide the correct pricing signals to all classes of electricity users.
It is imperative that electricity utilities confront this situation now and develop cost-reflective capacity based tariffs for all classes of consumers. This will ensure that both utilities and electricity users can make future investments correctly, rather than based on distorted price signals.