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Rooftop solar reduces the risk of price hikes … for everyone

How much would you pay to avoid another $250 a year hike in your electricity bill? Does $15 a year sound like too much to reduce that risk? We’ve heard a lot lately about rising electricity prices. That’s…

Putting panels on your roof reduces your power bill, but it also reduces the risk of price rises for everyone on the network. murphyz/Flickr

How much would you pay to avoid another $250 a year hike in your electricity bill? Does $15 a year sound like too much to reduce that risk?

We’ve heard a lot lately about rising electricity prices. That’s understandable. The average household bill is $700 a year more than it was five years ago (see Figure 1). For most people, that $700 isn’t going to break the bank. Yet it is enough to focus short political attention spans.

The biggest culprit for the price hike is spending on electricity poles and wires. By 2015, network charges will have added almost twice as much to your bill as the carbon price and Renewable Energy Target put together. Governments have a plan to fix this. It may work, if consumers can be persuaded to shift their electricity use to avoid times of peak demand.

Figure 1: Australian retail electricity prices Eadie, L. and Elliott, C., 2013, Going Solar: Renewing Australia's electricity options, Center for Policy Development, page 19.

However, what about other risks to our electricity price security? We rely heavily on coal and gas fuels. What happens if fuel prices rise? What happens when drought forces water-cooled power plants to slow down or even shut altogether?

A new report from the Centre for Policy Development puts some numbers on these risks. Gas prices on the east coast have recently doubled, and may treble by 2015. That will flow through to wholesale electricity prices.

Coal prices are more likely to go down than up. However, in 2007 wholesale electricity prices jumped to five times previous levels as severe drought reduced electricity supplies from coal plants and others which rely on water resources.

Looking forward, these risks could add up to $250 a year to the average household bill. That’s about the same as the jump in network charges over the last five years. By comparison, the Renewable Energy Target is projected to add $15 a year to the average household electricity bill between 2013 and 2031.

While such price spikes are not likely every year, risks may increase if fossil fuels continue to dominate our electricity supplies. Gas prices on the east coast are linked to volatile international fuel prices, as local buyers now compete with exports. Climate change increases the risk of drought and high temperatures. By 2040, we may see twice as many years with exceptionally low rainfall, covering twice as large an area.

Renewable energy alternatives can reduce these price risks, and provide reliable electricity supplies. Established technologies like wind and solar photovoltaic power have no fuel costs, or need for cooling. Some newer technologies, like concentrating solar thermal power, can use cooling air rather than water.

Experience in South Australia shows that large amounts of renewable electricity can be managed reliably, if interconnected to adjacent power systems. In the long term, with lots of renewable electricity we may pay higher peak prices to ensure reliability. However, this would be offset by lower electricity prices when the sun is shining and the wind is blowing.

One million Australian households have already invested in rooftop solar to insure themselves against these risks. Two million, or one in five households, are likely to by 2020. Solar costs plunged 85% over the past four years, even without considering government support. Over its lifetime, a rooftop solar system now provides electricity cheaper than the Australian retail price.

Rooftop solar benefits all electricity customers, not only those with solar panels. By increasing supply diversity, it reduces the risk of price spikes due to gas prices and drought. As with all renewable energy, rooftop solar lowers wholesale electricity prices. It can also reduce summer peak electricity demand, which may lead to more productive use of the existing poles and wires. In some places it may also defer or avoid network investment.

Looking to the longer term, rooftop solar could make up roughly 15–25% of a 100% renewable electricity system. This is likely to mean investment in a more flexible electricity grid is needed. While we don’t know what this will cost, we do know that rooftop solar consumers are more actively engaged in managing their electricity demand than others. This may be critical to minimising network costs if climate change leads to more extreme heatwaves and peak demand from air conditioners.

However, consistent policy reform is needed to provide a level playing field for rooftop solar, and other new technologies. For example, in 2012-13, effective support for existing coal fired electricity was $3.6 billion, more than double the support given to renewable energy.

Rooftop solar will play a key role in Australia’s transition to a clean, affordable and reliable electricity system. The public debate needs to consider the risks of not embracing this shift.

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30 Comments sorted by

  1. James Hill

    Industrial Designer

    Given the austerity policies of the conseravtives at state and federal levels are likely to result in blackouts and brown outs then those lucky enough to have solar will be at advantage compared to those who do not.
    That should drive demand for solarpanels and the emerging energy storage technologies.
    Ironic, really, that the anti-science and anti-technology economic vandalism of the new religio-conservatives will in this way result in technological progress towards sustainability and security.
    "God moves in mysterious ways his wonders to perform" even if "He" employs such the duplicitious and Machiavellian Tony Abbott and Rupert Murdoch as his unwitting agents.
    (NB, I am a life long, from the age of four, unbeliever.)

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    1. Greg North

      Retired Engineer

      In reply to James Hill

      You might need to check out some solar power units a bit more James for the only PV units that will still be powering along in a blackout will be those who have offline systems with their own storage batteries for the normal mains connected houses with rooftop PVs connected to the grid have those shutdown in blackouts.

      As for conservatives and austerity, we are currently seeing the same with Labor and no mention by them either on building new power stations so yes, I expect quite a few people ought to be prepared for more power shortages not too far into the future depending on where they live.

      You keep going with those beliefs though for if it makes you feel fine that is what counts.

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    2. James Hill

      Industrial Designer

      In reply to Greg North

      Yet the virtues of solar panels are inherent, and remain so, even in the easily remediable absence of a reliable domestic battery system, soon to be supplied with a larger uptake of electric cars.
      I will leave you to contemplate how many conservatives actually understand science and technology at all, and invite you to use a mirror to help you in your search.
      Though you do not seem to share their trivial skills of logic, rhetoric and grammar, not that it is ever likely to slow you down at all Greg.
      I suspect you already use that mirror quite a lot.
      Glad to see you recognise that blackouts produced by non-conservatives will equally drive consumers to make their solar panel systems "stand alone" when necessary.
      You understand that much at least.

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  2. Gary Murphy

    Independent Thinker

    What is needed for PV to reduce network costs is incentives to install domestic heat/cold storage - so that the air conditioners can run during the day when the PV is generating and the heat/cold air can be stored for use in the evenings - which is when the residential demand peaks occur.

    However the industrial / commercial peaks occur during the day - so PV would be useful for reducing peaks in those areas without storage.

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    1. Alice Kelly
      Alice Kelly is a Friend of The Conversation.

      sole parent

      In reply to Gary Murphy

      I think this has already happened for house-holds in NSW this last summer. There has been a huge up-take of rooftop solar panels. Last summer there was no need for NSW to buy electricity during the unprecedented hot days when usually electricity is bought for $2.00++ kw (it's impossible to find out how much is payed for these days), these being the primary cause of price hikes. Air conditioners running during the hottest part of the day, used my excess electricity.
      The latest poles and wires hike…

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    2. Laura Eadie

      Associate, Business School at University of Technology, Sydney

      In reply to Gary Murphy

      Thanks for your comment Gary.

      You may be interested to know that the Perth Solar Cities trial found that rooftop solar produces at the same time as residential demand peaks in some areas, reducing substation peaks by as much as 1.75 per cent. See http://bit.ly/17ACNaC, page 5.

      This was without storage, but incentives to install storage would definitely increase the contribution of solar to avoiding or deferring network costs.

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    3. Gary Murphy

      Independent Thinker

      In reply to Laura Eadie

      I guess what is really needed to flatten the demand curve is Time Of Use pricing.

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  3. Luke Weston

    Physicist / electronic engineer

    Solar power systems, both photovoltaic and thermal, often require some fresh water for cleaning, not just heatsinking.

    All thermal power systems - solar thermal, fission, geothermal, coal, whatever - can use seawater on the coast for once-through heart exchange, or once-through river water heat exchange, or evaporative cooling. The latter is the only method which really consumes fresh water.

    Treated sewage can also be used for evaporative cooling without consumption of natural fresh water resources…

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    1. Greg North

      Retired Engineer

      In reply to Luke Weston

      All systems will have their complications Luke, especially the more we stretch technology and innovations.
      A bit like driving the T model or a fairlane with power windows that do not have such a long life.

      Even without technology, your once through river water exchange is fine as long as you have a reliably flowing river, perhaps an upstream dam a limited guarantor in varying rainfall areas.
      Hazelwood PS in the Victorian Latrobe Valley uses recycled cooling pondage water, the bonus for locals…

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  4. Greg North

    Retired Engineer

    I am a bit disappointed with your article Laura for it tends to jump all around the place with seemingly little by way of substantive support.

    Just your heading alone is debatable for many of the people who have rooftop PVs have done so because of various subsidy/rebate/power buy benefits and say for instance if a homeowner has a deal where they are being paid 60 cents or even 44 cents a Kwh for power when the price an electrical company charges is twenty something cents per Kwh, how do you think…

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    1. Laura Eadie

      Associate, Business School at University of Technology, Sydney

      In reply to Greg North

      Thanks for your comment Greg. You raise a few interesting points which I didn't have space to cover in the article.

      First, the spending on poles and wires approved for the current 5-year regulatory period is some 62 to 82 per cent higher in real terms than in previous periods (see http://bit.ly/13QMhMt, page 3). Some of this would have been to connect up new homes. However, the housing construction industry has been declining for the past 3 or so years, so is unlikely to be the main driver…

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  5. Alex Cannara

    logged in via LinkedIn

    On-structure solar PV/hot-water is indeed the best, most immediate choice for emissions-free power that also builds a more robust and efficient grid. No need for wasteful wind/wave/solar 'farms' and their inevitable power loss and maintenance, Plus, solar PV has at least another doubling of power per square meter to be gained from advancing technology -- the others don't.

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  6. John Newlands

    tree changer

    The article links to sources that have been hotly debated, for example the extent of Australia's fossil fuel subsidies. The Climate Change Authority's assertion that the RET adds $15 a year to power bills seems to be at odds with a report commissioned by the then TRUenergy that the RET would cost $25 bn to 2030. Some quick calculations suggest an order of magnitude difference. A better question is does the RET save CO2 cheaper than $23 a tonne?

    The big claim is that PV will iron out power price hikes. This is far from clear noting that NEM spot prices have hit $12,000 per Mwh at times. That goes onto power bills. Germany's power prices (for households) are very high and they have PV everywhere. The article lacks rigour and relies on questionable sources.

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    1. Felix MacNeill

      Environmental Manager

      In reply to John Newlands

      While the precise extent of Australia's fossil fuel subsidies depends a bit on how you define them and the source you get the data from (ATO, etc.) the fact that they exist and are in the billions per annum is, of course, absolutely not in dispute - even the World Bank uses the term 'subsidy' to describe these benefits and notes that they run into trillions world wide and that their removal is a key component of any economically sane approach to emissions reduction.

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    2. Laura Eadie

      Associate, Business School at University of Technology, Sydney

      In reply to John Newlands

      Thanks for your comment John.

      I agree these issues continue to be vigorously debated. The role of The Conversation is to engage with that debate using the best available information.

      I've used the Climate Change Authority's assessment of RET costs as the best available, since they have been through a more rigorous modelling and review process than cost estimates by the electricity industry.

      As Bernie Fraser, chair of the Climate Change Authority commented:

      'We subjected our modeling…

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  7. Laura Eadie

    Associate, Business School at University of Technology, Sydney

    Dear reader, a few people have asked me how drought impacts electricity prices.

    Our coal dominated electricity system relies on water for cooling. A typical large coal fired power station uses around 3,000 litres of water to produce 1 MWh of electricity (enough to run a 1 watt clock radio for 1,000,000 hours, or a 1kW airconditioner for 1,000 hours).

    Coal fired plants can't operate efficiently if they don't have enough water. During extreme droughts they may have to shut down completely. This reduces electricity supply. Unless electricity demand drops by the same amount, electricity prices will rise.

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    1. William Raper

      Retired

      In reply to Laura Eadie

      I am interested in water consumption of coal fired generators and your data is the first I have seen, but there is perhaps a typo somewhere in your first paragraph.

      That is, 1 KWh (not 1 MWh) is sufficient to run the clock radio for 1000 hour, so my question is - does the 3,000 litres of water usage apply to 1 KWH or 1 MWh? ( the difference is a factor of 1,000!).

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    2. Laura Eadie

      Associate, Business School at University of Technology, Sydney

      In reply to William Raper

      Hi William, thanks for picking this up. The 3,000 litres of water is used to produce 1 MWh of electricity. See http://bit.ly/10bxaio, page 59.

      This is enough to run a 1 Watt clock radio for a million hours, or a 1 kW window mounted airconditioner for 1,000 hours.

      I'll try to get my original comment updated to reflect this.

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  8. Greg Hedley

    student

    Leaving aside for the moment the absurd mooted proposal of the ATO to see as "income" , personal electricity cost savings derived from consumer's rooftop PV installations,the greatest challenge to widespread takeup is not storage issues nor implied subsidies.Instead,it is the same problem that occurs when you improve fuel efficiency in motor vehicles.This merely makes the fuel cheaper and people drive more and further. By making solar electricity cheaper or more viable ,through policy change, technological advances,scale of production, ease of backup or hybrid methods, we will use more energy than today.Not a good idea.

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  9. Peter Lang

    Retired geologist and engineer

    >"Rooftop solar reduces the risk of price hikes … for everyone'

    What a blatantly dishonest headline to this article.

    Rooftop solar guarantees price hikes … for everyone!!!

    Solar PV costs a mint and has no effect on global GHG emissions.

    Roof top solar PV cost about five the cost of grid power. The CO2 abatment cost is about $600 per tonne CO2 - i.e. 120 times the EU carbon price and 25 times the Australian carbon tax.

    How can academics in a so called "business school" get away with advocacy for subsidising and mandating economically irrational policies like solar and wind power?

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    1. Laura Eadie

      Associate, Business School at University of Technology, Sydney

      In reply to Peter Lang

      Peter, the CO2 abatement cost of new rooftop solar is now as low as $25/tonne. See http://bit.ly/ZzlQYJ

      The number you quote is from a draft Productivity Commission report, which overlooked more recent but lower cost estimates made by the same organisation. See http://bit.ly/10hN9XI

      I'm sure you're already aware of this. Someone pointed you toward the correct methodology a week ago, in response to a comment you posted on Climate Spectator. I've copied your original comment and their response…

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    2. Peter Lang

      Retired geologist and engineer

      In reply to Laura Eadie

      Laura Eadie,

      >"Peter, the CO2 abatement cost of new rooftop solar is now as low as $25/tonne. See http://bit.ly/ZzlQYJ";

      That figure is absurd. I can't see how you derived it because your link goes to a Google search.

      You also quoted a comment of mine from last month and a response by Ed Flow. Why did you not quote my response to him. Perhaps you can quote it here for completeness.

      I am aghast that you would use comments by renewable energy campaigners such as Giles Parkinson as your…

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    3. Peter Lang

      Retired geologist and engineer

      In reply to Laura Eadie

      Laura,

      I forgot to give you the link to the paper I was referring to. It is:

      Graham Palmer (2013) "Household Solar Photovoltaics: Supplier of Marginal Abatement, or Primary Source of Low-Emission Power?"
      http://www.mdpi.com/2071-1050/5/4/1406

      The article you quoted has many fundamental flaws, herte are a few:

      1. The cost the community bears is the total system bears. It includes the cost of grid, grid strengthening to allow a high penetration of residential PV, extra costs carried…

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    4. Peter Lang

      Retired geologist and engineer

      In reply to Laura Eadie

      Laura Eadie,

      You've gone quiet since I sent you the link to the Graham Palmer paper. Are you considering it and running your own calculations or are you of a mind to dismiss it?

      By the way, I ran a simple analysis of the cost of a renewable energy system for the NEM here (15 months before the new AEMO report).
      http://bravenewclimate.com/2012/02/09/100-renewable-electricity-for-australia-the-cost/

      Download the pdf version to see the appendices and the footnotes in the text. You can also download a spreadsheet and do your own simple calculations. But Graham Palmer's approach is far better than mine, (but fairly similar results)

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    5. Laura Eadie

      Associate, Business School at University of Technology, Sydney

      In reply to Peter Lang

      Peter,

      Thank you for the Graham Palmer article. It certainly highlights the need for energy policies that avoid the 'lock-in' of emissions intensive electricity generation, such as gas plants.

      However, I was not able to find a figure that matches your estimate of $600/tonne abatement cost. Nor was I able to find a similar figure in your article 'Renewable energy for Australia - the cost'.

      Palmers figures seem to be more in line with those of the APVA or Productivity Commission revised…

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    6. Peter Lang

      Retired geologist and engineer

      In reply to Laura Eadie

      Laura Eadie,

      >”Thank you for the Graham Palmer article. It certainly highlights the need for energy policies that avoid the 'lock-in' of emissions intensive electricity generation, such as gas plants.”

      What it highlights is the very high cost of residential PV, the enormous subsidies consumers are paying, and the enormous cost of abatement; i.e. over 100 times the EU carbon price. It highlights how irrational and grossly irresponsible are the policies that are encouraging and propping up renewable…

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  10. Kevin Paul

    Manager at Euro Solar

    Installing solar panels is best alternative to reduce carbon emission. And Solar panels is one time investment which does not affect future price hike. And also many states in Australia are giving feed in tariff installing solar panels an easy task for customers.

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  11. David Marler

    logged in via Twitter

    May 30, 2013: All Queensland households with solar panels could be slugged hundreds of dollars in a shock overhaul of the scheme: Channel 9 News Qld: http://youtu.be/k0pdVsirGMI

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