Queensland electricity network operator Energex has conceded that its century-old business model is under threat from the increased use of rooftop solar, and a growing interest among its 1.3 million consumers to produce and manage their own energy needs.
The concession was included in the state-owned company’s annual report released last week, which noted that despite the huge population growth in south-east Queensland, demand from residential customers fell 3.8 per cent in 2012/13 from a year earlier.
Over the past four years, Energex says residential demand has fallen 10.4 per cent in south-east Queensland, one of the areas with the highest penetration of rooftop solar in Australia.
Energex cited rooftop solar PV as the main factor for this reduced demand, along with milder winters and summers, and the use of more energy-efficient appliances. Non-residential energy grew by 1.1 per cent in the same period.
The network operator, which manages a $10 billion network, says the number of customers with solar PV has jumped from less than 2,000 in 2009 to more than 221,000 at the end of June, 2013. It made 74,000 new solar connections in the last financial year, and had 675MW of capacity as at June 30.
“The rapidly evolving energy industry, changing energy use patterns and rising electricity prices are resulting in a trend toward energy management options for customers,” the company says in its annual report.
“As energy management options such as smart appliances, energy management software, in-home generation and battery storage become more available and affordable, we expect to see a significant change in the way customers use energy and our network.
“This will have wide-ranging implications for the way the distribution network is planned, built and operated, as well as for our ongoing business sustainability.”
Quite right. This is not just a Queensland, or even an Australian, phenomenon. It is clear that the “democratisation” of energy via solar PV and other forms of distributed energy is a global phenomenon.
As we reported last month, Jon Wellinghoff, the chairman of the Federal Energy Regulatory Commission (FERC), which regulates utilities in the US, said solar is growing so fast it will “overtake everything”, and that once storage is brought in to the equation it will be pretty much “game over” for traditional forms of generation.
The recently retired US Energy Secretary Stephen Chu, who also said that utilities would have to develop a new business model, one modeled around solar and storage, rather than the traditional model of centralised generation. “I’ve been telling them there’s another business model. It goes like this: We – the utility – would own the energy storage and the thing on the roof and the electronics. We’ll sell you the electricity.”
And as we noted in this piece earlier this year, the issues within Energex and rooftop solar are not technical ones, but economic ones.
But the senior executives at Energex may have recognised the challenge, but they are not yet ready to embrace the solution.
Chairman Shane Stone said in the annual report that Energex had and would cut its forecast capital expenditure in the past financial years and current financial year by around 15 per cent, but it would still amount to a total of $2.53 billion.
Stone conceded that this reduction would not lead to lower power bills, although it may help “lay the groundwork” for more affordable power ahead. But he says this will be “quite a challenge” because the company has invested so much money in its networks, it needs to get its returns back from the customers, even if they are using less energy.
“Changing consumer behaviour is continuing to have a detrimental effect on prices. Due to a combination of influences including the significant rise in prices in the last few years and the increasing use of solar energy, there is reduced consumption of electricity which in turn means the mostly fixed costs Energex faces have to be spread over a smaller chargeable base.”
This, indeed, is the dilemma for Energex and other network operators. While the local News Ltd newspaper took the Energex data and noted that all households are paying $32 a year to pay for the (now ceases) feed in tariffs for solar, every household was also slugged an extra $127 a year for additional network costs, which now account for around half of the average bill.
This causes a problem for Energex, because these extra costs must be borne by a shrinking number of consumers. It noted that many of its household customers were now “zero net energy” – yet were accessing electricity network services without contributing to network costs.
“This is a challenge to the traditional method of network cost,” it noted. If it simply responds by jacking up fixed prices, as has been mooted, and which took effect to some extent in the latest pricing determination, this simply gives customers added incentive to install solar and batteries.
“We are working with stakeholders on options to address the technical, cost and social issues associated with changing customer energy requirements and embedded generation. This includes monitoring customer trends and adopting appropriate strategies.”
It could also potential start to look at some of the benefits of distributed generation, as outlined by both the APVA and studies by the likes of the Institute for Sustainable Futures at UTS. In the end, though, the problem with costs – particularly given the continuing fall in solar and battery costs – means that the state government’s may have no alternative than to write down the value of their networks.
That may seem unpalatable – but given that they the governments of Queensland and Western Australia are subsidising electricity costs to the tune of $1 billion a year because of the cost of delivering coal-fired electricity to users – it may be their only option.
Giles Parkinson is a journalist of 30 years experience, a former Business Editor and Deputy Editor of the Financial Review, a columnist for The Bulletin magazine and The Australian, and the former editor of Climate Spectator.