Wednesday, January 22, 2014

Clipping peaks. Why we'll allow power companies to turn off our air conditioners

It'll save us a fortune
Productivity Commission
Only an idiot would turn off their air conditioner during near-record heat. But the economics of electricity mean that’s what we’ll have to do if we want our power bills to stop rising.

Last week’s extraordinary heat was unusual. One estimate says Melbourne hasn’t had a run of days like it for 100 years. But the generators and the cables had to be build to handle it (they nearly failed).

In NSW the rare spikes of extreme electricity use last for just 40 hours a year when added up. That’s a mere half of one per cent of each year. But the Productivity Commission says the cables, substations and generators built to handle them account for around 25 per cent of each electricity bill.

It’s a financial cost that dwarfs the carbon tax. And the physical cost of generators we otherwise wouldn’t need and rarely-needed maximum strength cabling is enormous.

Sometimes the peaks last just minutes.

Twelve years ago extreme peaks were only an emerging problem. Australia had half as many air conditioners as it does today. In NSW 65 per cent of homes are now air conditioned, in Victoria and Queensland it is around 75 per cent, in Western Australia 86 per cent and in South Australia more than 90 per cent.

Queensland estimates suggest that each 2 kilowatt air conditioner imposes a cost of up to $7000 on the entire system. This isn’t the cost of running it. It’s the cost of building otherwise unneeded capacity to be able to run it on those rare occasions when nearly everyone else is running their’s.

The Productivity Commission says the $7000 figure is an overestimate...

Many new air conditioners simply replace older ones. And they are getting more efficient (although although more powerful).

Its calculation, allowing for the fact that even in peak periods some air conditioners are not fully used, is a one-off cost of $2500. It says that’s amounts to an extra cost of $350 per year per air conditioner, paid by all electricity users, whether or not they cool their homes.

Productivity Commission
It’s even more unfair than it seems. It isn’t just the few Australians without air conditioners who are paying money they needn’t to build up the system for those with them, it is also Australians with only small air conditioners who are paying far more than they should to support houses with massive three-phase ducted systems.

Rarely has there been a problem in economics to which so many inappropriate solutions have been offered.

A decade back South Australia imposed a higher electricity charge in summer than it did in winter. It was meant to impose greater costs on users of air conditioners. But all it did was impose greater costs on everyone in summer, even those who couldn’t afford to or didn’t need to cool themselves.

The Electricity Supply Association suggests imposing a larger fixed supply fee on those households with double the usual electricity consumption (typically those houses with lots of air conditioning). But the main effect would be to lumber them with a fairly inescapable cost. Already being liable for the fee, they would have every incentive to run their systems at full bore in extreme heat.

In December the Commonwealth government issued an issues paper proposing greater time-of-use pricing. The idea is that high prices at times of high use would encourage people to move their use to other times, as happens with variable road tolls.

It’s an idea that seems to have promise because Australians are indeed price sensitive when it comes to electricity. Energy analyst Hugh Saddler of pitt&sherry says that as electricity prices took off from 2008 household electricity use steadied. As prices soared still higher from 2010 household electricity use fell for the first time in a century. Houses use less electricity now than they did five years ago.

But that doesn’t mean they will use less in a heatwave.

"No one is going to avail themselves of time-of-use pricing on a 45 degree day,” he tells me. “No one is going to turn off their air conditioner when it gets extremely hot just because of time-of-use pricing. The only time you would need them to respond to time-of-use pricing is the time they won’t.”

Economists, conditioned to believing that prices always change behaviour, find this hard to accept - unless they themselves have been locked inside a building during five straight days above 40C.

The economic problem of finding a way to avoid massive infrastructure costs brought on by mere days or hours of extreme peaks is probably best solved by turning away from economics.

Queensland is showing the way. The government-owned Energex offers customers cheaper electricity if they install “PeakSmart” air conditioners. PeakSmart means remotely controlled. As peaks approach, the electricity supplier sends a “ripple” down the line which can switch the cooler off or into a less cold method of operation (the fan stays on so it still feels cool). At test sites in Perth and Adelaide most of the users couldn’t tell the difference. The switch-off might last just minutes, not much longer from what happens automatically when the system is operated by a thermostat. But because different suburbs are powered down at different times, PeakSmart can eliminate extreme system-wide peaks.

Eight manufacturers are already providing machines that are PeakSmart ready. You might have bought one yourself without even knowing. Australian ministers will meet soon to decide whether to make PeakSmart readiness compulsory. After that it’ll be up to us and whether we are prepared to have our machines turned off remotely.

It’s less scary than it sounds, extraordinarily simple, and urgently needed.

In The Age and The Sydney Morning Herald

Related Posts

. "You rigged 'da what?" Why electricity charges are climbing

. Easy listening. Why power prices are really climbing

. Could baseload power demand be a myth?