SOCIAL EQUITY
AND THE
ELECTRICITY DEATH SPIRAL
Ken Baldwin, Director
ANU Energy Change Institute
ANU Energy Change Institute
energy.anu.edu.au
The Problem
Source: Pitt and Sherry (Nov 2014)
9% reduction
ANU Energy Change Institute
energy.anu.edu.au
Contributors to falling demand
• Reduction in economic growth since the 2008 GFC
• Structural change in industry towards services
rather than manufacturing e.g. aluminium smelters
• Industry/households becoming more energy
efficient
• Electricity price rises and negative demand elasticity
• Affluent households reduce their grid dependence
by installing:
–
–
–
–
solar photovoltaic (PV) cells: >1.3 million solar rooftops
solar hot water systems: >0.9 million systems installed
insulation/double glazing/energy efficiency measures
smart meters and building management systems
ANU Energy Change Institute
energy.anu.edu.au
Electricity Prices
cents/kWh at 2012-13 prices
Real residential electricity prices (representative
Australia-wide price), 2000-2014
30.0
25.0
80%
rise
20.0
15.0
10.0
Demand
peaked
5.0
0.0
Sep-2000
Sep-2002
Sep-2004
Sep-2006
Sep-2008
Sep-2010
Sep-2012
Source: Pitt and Sherry (2014)
ANU Energy Change Institute
energy.anu.edu.au
Electricity Prices by State
Real residential electricity prices, 2000-2014
30.0
25.0
20.0
15.0
Real residential electricity prices, 2000-2014
10.0
35.0
5.0
0.0
Sep-2000
Sep-2002
NSW
Sep-2004
Sep-2006
Victoria
Sep-2008
Sep-2010
Queensland
ACT
Sep-2012
cents/kWh at 2012-13 prices
cents/kWh at 2012-13 prices
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
Source: Pitt and Sherry (2014)
Sep-2000
Sep-2002
Sep-2004
SA
ANU Energy Change Institute
Sep-2006
Tasmania
Sep-2008
WA
energy.anu.edu.au
Sep-2010
Sep-2012
The “Electricity Death Spiral”
• Electricity demand is falling
• Electricity prices rise to cover sunk costs
• Affluent households reduce their grid dependence
by installing more:
•
•
“behind-the-meter” solar PV and solar hot water
•
Insulation and double glazing
•
Smart meters and building management systems
•
Energy efficient devices
Low income households can’t do this – and are left paying
the increasing costs of the grid, which they can’t afford
• The result is – the so-called “electricity death
spiral”
ANU Energy Change Institute
energy.anu.edu.au
Social inequity is here now
Social inequity is already happening:
•
Air-conditioners, swimming pools, plasma screens,
lavish appliances etc. contribute to peak demand
•
Peak demand users are being subsidised by off peak
users due to the high peak electricity spot price (x 104)
•
Network costs (43% bills) are “gold-plated” to cope with
peak demand, yet electricity bills are not demand-based
•
High prices cause affluent users to opt out and
purchase:
•
“behind-the-meter” solar PV and solar hot water
•
Smart meters and building management systems
•
Insulation and double glazing
•
Energy efficient devices
ANU Energy Change Institute
energy.anu.edu.au
Household hardship
Source: Simshauser and Nelson (2014)
ANU Energy Change Institute
energy.anu.edu.au
ANU Energy Change Institute
A wide spectrum of Energy research:
– Technologies
►Artificial Photosynthesis
►Biofuels
►Energy Storage and Recovery
►Enhanced Oil and Gas/ CCS
►Fusion Power
►Nuclear Science
►Smart Grid
►Solar PV/ Thermal/ Nano
–
–
–
–
–
Technology
and Policy
neutral
Economics and Policy
Efficiency and Demand Management
Energy-Water Nexus
Regulation and Governance
~$100 M Energy Research Facilities
Sociology and Risk
~200 Staff and Students
ANU Energy Change Institute
energy.anu.edu.au
ANU Energy Change Institute
A wide spectrum of Energy research:
– Technologies
►Artificial Photosynthesis
►Biofuels
►Energy Storage and Recovery
►Enhanced Oil and Gas/ CCS
►Fusion Power
►Nuclear Science
►Smart Grid
►Solar PV/ Thermal/ Nano
–
–
–
–
–
Technology
and Policy
neutral
ANIPP
Economics and Policy
Efficiency and Demand Management
Energy-Water Nexus
Regulation and Governance
~$100 M Energy Research Facilities
Sociology and Risk
~200 Staff and Students
ANU Energy Change Institute
energy.anu.edu.au
THE SOLAR ENERGY
CONTRIBUTION SCHEME
(SECS)
Ken Baldwin and Bruce Chapman
ANU Energy Change Institute
ANU Energy Change Institute
energy.anu.edu.au
Solar Energy Contribution Scheme
• The Solar Energy Contribution Scheme (SECS)
will not solve the “electricity death spiral”
• Instead – it aims to address social equity AND
expand the uptake of renewable energy by:
– Enabling low income groups to access clean energy
devices (solar, smart meters, insulation etc.)
– Forcing the industry to address social needs
Indeed, SECS may accelerate the “death spiral” and
bring forward the need to change the electricity
business model to one of satisfying customer
energy needs – rather than selling electrons !
ANU Energy Change Institute
energy.anu.edu.au
Income Contingent Loans (ICLs)
Debt only starts being repaid once income reaches
a set threshold. Advantages:
•
No one pays unless they can - protects the debtor
•
No defaults arising from temporary income loss
•
The tax office is an efficient collection agency
•
•
Low transactions costs
•
Has all the necessary income records
Implicit government subsidy can be built in:
•
The debt can be CPI adjusted (less than govt. bond rate)
•
An up front surcharge can be added to reduce the subsidy
The ICL can therefore be designed to be low
cost or revenue neutral for government
ANU Energy Change Institute
energy.anu.edu.au
SECS Pilot Study
• Government provides an Income Contingent Loan
up to $10,000 for energy saving devices
• We use a trial subset of borrowers (aged 25 – 55) :
•
Individual income $13K - $110K p.a. (not self employed)
•
Couples with total income below $150,000 p.a.
•
Who are not renters and not living with their parents
• Income defined as wages, salaries and pensions,
but not social security receipts
• Repayment starts @ 2% income for $20 - 30K p.a.
then +0.5% for each $5K p.a. thereafter
• Debt linked to CPI (not govt. bond rate - subsidised)
ANU Energy Change Institute
energy.anu.edu.au
Comparing SECS with HECS
• Repayment threshold $20K p.a., starts at 2% of
income, rising to 4% @ $50K p.a., then as for HECS
• HECS threshold ~$52K p.a., starts at 4% of income
• Repayments are smaller - $400 p.a. @ $20K p.a. c.f.
$2K @ $50K p.a. (average electricity bill ~$1700p.a.)
• SECS has a 25% surcharge - c.f. 0% for HECS
• Loan amount $10K - c.f. up to $100K+ for HECS
• Income cap on SECS at $110K p.a.
• HECS is a loan on human capital
• SECS is a loan on a physical asset
ANU Energy Change Institute
energy.anu.edu.au
Modelling
We use the HILDA data set for income profiles:
We determine the implicit government subsidy assuming
a 3% discount rate and equal take-up probabilities
ANU Energy Change Institute
energy.anu.edu.au
Results
Overall subsidy rate of -4% (c.f. +15% for HECS)
ANU Energy Change Institute
energy.anu.edu.au
Next Steps
• Extend the study to :
o Include the self-employed and renters
o Allow dynamic changes in income levels
o Link the loan to the sale of the property
o Include those with other ICLs e.g. HECS
o Address selection through varying take-up probabilites
o Offer an early repayment option (from lower energy bills)
o Include rapid technology learning rate (delayed purchase)
ANU Energy Change Institute
energy.anu.edu.au
National Electricity Market Reform
To further address equity, NEM reform is needed:
• Smart meters need to be installed
AND
• Electricity charges must reflect time-of-use
and place a premium on peak demand usage
AND
• Should reflect no. of days at maximum load to
relieve pressure to expand network capacity
• A fixed network connection charge should be
considered to reflect the cost of backup for
behind-the-meter generation
ANU Energy Change Institute
energy.anu.edu.au
Averting the “death spiral”
Factors that increase demand:
•
Reduced electricity costs driven by these reforms
•
Economic growth
•
Electrification of the transport system (climate change)
Structural changes to NEM charges:
•
Introduction of a network connection charge
A change in the energy business model:
•
To satisfy customer energy needs broadly speaking:
energy efficiency and energy generation, as well as
energy use
ANU Energy Change Institute
energy.anu.edu.au
ANU
Energy
Change
Institute
Thank you !
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