As one would normally do, chat about renewables and impacts on the utilities business model while relaxing with friends. It was a case of too much uncertainty over how the consumer would be treated because of change. Central to the discussion was that a provider to the electrical distribution system could threaten the current regulatory and centralized generation models of ‘essential services’.
What does this mean? The business as usual model is failing where supply centric economics demanded you build additional load capacity and transport the capacity to the place of need. This model also meant the assets, including the customer, was owned by the utility. If you think of it this way, Governments tend to discourage demand side solutions. Demand Management was tended to be more of a series of incentive programs for utilities to duplicate infrastructure to transport to the demand source.
So, what happened to change the balance? The obvious: Technologies improved, carbon became issues for society and clean energy and renewables were being shown as a better way to address the logistics of meeting demand where it was needed. As a result some of the conventional infrastructure was at risk of being a stranded asset and the need to build conventional infrastructure required incentives from Government to reduce the financial risk. For example, the Demand Side Incentive scheme (DIS) formulated at about 2004 is dramatically underspent but is comforting for utilities in being a facility to reduce the financial risk.
If we note the changes in the needs of society as a driver for change: Governments and their policies encouraged that traditional public ownership be phased out to pass the needs to private investment. Government was happy for this ‘fix’ as they see it as the asset is sold for a value and ongoing regulated charges and fees and taxes are being paid to treasury, and that is a public benefit. The perfect storm in Australia is this action is also one of the drivers for electricity tariff increases in Australia. Recently the state of Queensland announced a 21% increase to its general tariff. A source, CO2Land identifies as SF said: “Therefore those consumers with solar PV are subsidising those consumers that don’t have solar PV”.
From that last statement we can assume government policy (Federal and State) is very much the catalyst that resulted in the model change. Whether the change was necessary was more of a political move in this instance. It followed that technology and innovation evolved and the model change was inevitable. If you follow the beliefs of the 5th Column existing, this was done by infiltration of the policy areas by a particular group. It follows, in contemporary Australia, Government policy is more reactive than before, and since the 1970’s the rule of law was modeled as to be reactive to the needs of the dominate influence. Below is an explanation of this view as posted by CO@Land.org on 3 April 2013. Where:
Co2Land org now asks: If we consider the four primary schools of thought in general jurisprudence :
- Natural law is the idea that there are rational objective limits to the power of legislative rulers.
- Legal positivism, by contrast to natural law, holds that there is no necessary connection between law and morality and that the force of law comes from some basic social facts although positivists differ on what those facts are.
- Legal realism is a third theory of jurisprudence which argues that the real world practice of law is what determines what law is; the law has the force that it does because of what legislators, judges, and executives do with it. Similar approaches have been developed in many different ways in sociology of law.
- Critical legal studies is a younger theory of jurisprudence that has developed since the 1970s which is primarily a negative thesis that the law is largely contradictory and can be best analyzed as an expression of the policy goals of the dominant social group.
If you think of the debate of tariff increases. Then you should consider it may have been ‘an expression of the policy goals of the dominant social group’, as critical to that issue. We should then think about the set of claims that the “Renewable Energy Targets” (RET’s) had undesirable consequences, and how governments (Federal and State) now realise that the larger than expected number of early adopters who signed up for the long term contracts are now having a negative impact on state & federal budgets, and this is one of the dominate drivers for electricity tariff increases in Australia. For those needing an introduction to the scheme, the RET’s are a federal government initiative commencing during year 2001, and from those bills and legislation various states and territories introduced those targets as various incentive schemes for customers to invest in solar PV with generous feed in tariffs. This incentive had the effect of distorting the demand supply balance, and the popularity embarrassed and alarmed treasury. If we use SF as the source again; “Queensland Govt initially offered 44cents per kWh this has now been reduced to 8cents. That said the response from the customer was rapid with Australia now having 2500MW of solar PV with and average capacity of 3.5kW.”
CO2Land org chose to give an example of Queensland for convenience, as this states geography and population patterns influence the custom that those consumers with a service, are asked to provide subsidies to those that do not. In the case of electricity you could argue the subsidy required is determined by the length of the extension cords needed. You might understand why that state found it Initially appealing that solar PV was a localized delivery point. However, managing the asset is a different matter.
We are seeing similar issues being evident from around the world – business as usual is failing as the utility model. The danger is stranded assets and less control being possible. A story titled The Clean, Simple Solar and Storage Solution to US Utility Business Model Woes .
Tells of an interview “ with former United States Secretary of Energy Stephen Chu on utility business models. While the gist of what he said wasn’t new to me, the clean and elegant way he laid out what he sees as the future of utilities and solar power is worth sharing.
Similar to how in the past telephone companies – he specifically named AT&T – used to own the entire telephone system from the overhead telephone lines up to and including the phone in your house, Chu feels that utilities ought to own solar panels and energy storage systems that they put on their customers’ roofs and in their garages. He said if utilities could outfit homeowners with solar panels and a 5-kW battery system, they could continue selling that customer power just as they do now. The utility would own the system, maintain the system and the customer would have no out-of-pocket expenses for it other than continuing to buy power at the same rate or at perhaps an even lower rate.
In the three-minute interview, Chu didn’t explain another huge reason that utilities should consider this option: distributed generation used in this way counteracts the need to build additional generation as the load capacity needs increase. And lastly and most important, the utility gets to keep its customer.
Utilities should probably get clear on their approach soon. When it’s just a quarter or a half of one percent of a utility’s customers that have their own PV and are selling their solar power to the grid at the retail rate, the utility doesn’t care. But energy storage and PV panel costs are dropping, and once that percentage of utility customers’ that are zeroing out their bill goes to 5, 10 or 15 percent then “it’s a big deal” said Chu.
Chu said he told utilities that PV and energy storage is going to come and they should “form a new business model” NOW so that what today is a potential revenue loss, could become an area of growth for them in the future. Plus, he said this model would eventually lead to a more stable grid for us all. “
CO2Land org is finding it difficult to solely blame the RET Scheme as the problem. The evidence is the splitting of the RET’s scheme into a ‘small scale’ offering for predominately solar PV is the problem. It is appropriate to say any change to the utility models would and did have a cause and effect disruption on the industry, and cause and effect type of disruption suggests any intervention will introduce more shocks in the industry, and we can expect that ideologies will continue to influence the Governments policy advisors who are without a full understanding the implications. It also follows that a large dependence on small scale or residential solar PV services implies a need for significant workforce skills shifts to cater for the growth and scope of the model change for utilities to take control of the assets at a domestic level to be to be effective. That is a significant cost driver, and it is reasonable to ask why should the utility be the provider of choice for these services where it would serve to drive up prices?
In defence of RET’s large scale systems, it follows that large systems do not directly affect the utilities mechanism to preserve the current regulatory model, but they shift the balance so that the model needs to be reviewed of the purpose and objectives in the delivery of the product. It follows that centralised generation models are what utilities do very well, and large scale transportation and distribution are well established capabilities of the industry. Expanding that capability to large commercial rooftops and installations might be a good idea. However, it too is not without the need for change. Albeit less dramatic than small scale.
CO2Land org is not proposing we should concentrate on picking winners for the model change. However, ‘the battery concept’ leads to deeper thinking. The demand initiative needs to be expanded and a battery concept is not just a means of storage of an electron! It can mean tools and equipment that is readily available to balance the total load needs, and not just peak demand requirements. We know solar’s great weakness is peak availability profile and traditional batteries concepts take up rare earth minerals to manufacture. Are they already defunct? A far more sensible battery concept is something that can utilise what we have already consumed and discarded to be returned to there natural elements while producing energy and balancing the supply needs. If you prefer think of it as a provider it can be an insurance tool for a supply imbalance, So can what they do be a source of energy rationing and balancing that fits neatly into the traditional delivery mechanism.
One such battery concept is the waste to energy gasifiers and their products including pyrolysis retorts. These can easily be written into the current infrastructure and be part of any new regulatory mix – even provide a result for policy without implications – it is not creating anything new – just making something old new again!
For the future, CO2Land org can see a lot more independent renewable sources becoming the norm, and utilities will be using energy exchanges to sell power to customers. This differs from ownership of customers in that bidding could be managed power purchasing agreement with give and take provisions in the price. What regulators will have to deal with is that nationwide and globally installing microgrids for Businesses and Communities will need to fit into economic as well as technical delivery models. A real power of choice if you prefer to think that way.