Australia’s low-cost electricity, thanks to cheap coal, was once a source of substantial competitive advantage. While Australia’s electricity prices are still below the OECD average, the urgent need to reduce greenhouse gas emissions is a major challenge to cheap electricity.
In a report released today by CSIRO and Energy Networks Australia, we show that Australia is so far making rocky progress on reducing emissions, maintaining energy security and keeping prices low. But we also show how Australia can regain world leadership, delivering cheap electricity with zero emissions by 2050.
The challenge facing Australia
Australia is the world leader in adopting rooftop solar. Rising retail electricity prices and subsidies have encouraged households to embrace solar with enthusiasm. As a result 17% of Australian households now have solar panels.
This can be seen as Australians exercising greater choice about how their electricity is supplied. However, it also highlights some of the problems our electricity network is facing.
Retailers sell electricity in Australia by volume (the kilowatt hours and megawatt hours on your electricity bill). This made sense when most households contained a similar set of fairly low-energy appliances.
But the rapid increase in high-energy air conditioners and the adoption of rooftop solar mean fees are less suited to each customer’s demand on the system or any services they provide.
More panels and electric cars
The are two major opportunities to reduce electricity prices for Australia.
First, we need to harness the power of more households producing their own electricity through solar or other distributed sources. In coming decades, households are expected to invest a further A$200 billion in distributed energy sources.
We need to avoid duplicating network expenditure (poles and wires) and support balancing supply and demand as the share of renewable electricity increases. But this can be an opportunity if we introduce the right prices and incentives.
This means using household devices such as batteries to support the electricity network, and paying customers for this service instead of building more poles and wires. This would require many actions (detailed in the report), including pricing reform, some regulation change, improved information sharing and minimum technology standards.
Second, we need to use the existing network more efficiently. Demand has fallen in recent years, chiefly through improvements in energy efficiency and increasing rooftop solar.
Because of the reliance on volume-based retail pricing, when consumption falls, networks are forced to increase prices to recover the fixed cost of delivering their services. Conversely, if it were possible to increase demand for grid-supplied electricity without increasing the fixed costs of the system, then network price could be stabilised or reduced.
Our research found that electric vehicles offered the greatest opportunity to increase demand for grid-supplied electricity. These have the added benefit of supporting greenhouse gas emission reduction goals.
The report recommends that light vehicle emission standards should be pursued as a relatively cheap way of supporting electric vehicles. Appropriate pricing and incentives will also be needed to encourage car owners to charge their vehicles at off-peak times, reducing the need to add more capacity to the network.
Keeping bills low
Residential electricity bills will need to increase gradually over time in all countries due to the cost of decarbonising electricity supply. Australia’s goal should be to be the most efficient at achieving that.
Relative to taking no action on these issues, CSIRO estimates that the measures described above will together reduce the average residential electricity bill by A$414 per year by 2050.
Those savings are funded through reduced network spending and customers needing to spend less on their own distributed energy devices (to avoid higher bills or go off grid). These savings add up to A$101 billion by 2050.
At the same time, customers have more choice to participate in providing services to the grid, are receiving fairer payments for doing so, and the electricity system is using distributed energy resources to balance the system. All of these will help reduce greenhouse gas emissions from the electricity sector to zero by 2050.
Chief economist, CSIRO energy, CSIRO