The Australian Energy Regulator (AER) has just approved a $16.5 billion upgrade of NSW’s electricity distribution infrastructure. At first glance this seems like a great idea to keep the lights on and generate jobs during a recession. But a closer examination reveals that this upgrade is simply about rebuilding an outdated electricity network.
Instead of investing in next-generation technologies, the AER’s decision promises to lock NSW into a coal-fired future of significantly higher household bills and soaring greenhouse gas emissions.
Since the AER took over energy regulation in July 2008, NSW is the first state or territory to have its electricity expenditure programs determined by the body. In coming to its decision, announced on Thursday, the capital works budgets and operational cost structures of the state owned electricity distributors — Energy Australia, Country Energy and Integral Energy — have been assessed against projections for customer growth and energy usage over the determination period. The ruling of the regulator effectively sets the price of electricity distribution in NSW for the next five years. By supporting such a massive capital expenditure program, the regulator has locked in huge and unnecessary price rises for NSW consumers for the next five years.
The decision the regulator has taken in NSW — which it is likely to replicate in other states — will certainly have a dramatic impact on household and small business electricity bills. But it will also have a profound effect on the future of the electricity industry and the ability of Australia to reduce greenhouse gas emissions.
The regulator has allowed the Rees Government to provide NSW with the best technology the 1960s could offer. By ignoring international moves to smart grids, better demand management, and embedded renewable and high-efficiency gas generation, the state’s energy minister is squandering opportunities to join the global push to slash greenhouse gas emissions and build a new, green economy. NSW is building the electrical equivalent of a superhighway from polluting coal-fired power stations to household powerpoints.
If Australia is to address the massive 34.4 per cent of its greenhouse gas emissions that comes from the production of electricity, there has to be a substantial shift away from traditional generation and distribution networks. Coal must be replaced by renewable and low-emissions options such as wind and solar and high-efficiency gas generation, and the distribution networks need to be designed to permit and encourage embedded generation options and incorporate smart load control systems.
Embedded generation offers an opportunity to substantially improve the efficiency of electricity production. It brings the energy source closer to the user, reducing the demands on a distribution network. These technologies are particularly suited to central business districts and light industrial environments with their large demand for electricity for powering air-conditioning, lifts, lighting and industrial processes. There is the space in these localities to support roof-top solar systems, as well as low-emissions generation like high-efficiency gas.
But this kind of essential transformation to our network has been undermined by the failure of the regulator and the NSW Government to articulate an energy future where coal isn’t the central player.
The lack of foresight by the Government and the regulator is astonishing. A $16.5 billion spend could directly purchase these types of systems and/or encourage investment in them, which would avoid the need to spend huge amounts of capital on the distribution network, plus have significant emission reduction benefits and create jobs.
Current international best practice uses high-efficiency gas-fired generation systems that exploit the waste heat from the generation process to both heat and cool water. This so-called "trigeneration" technology is most effective when located close to the consumer for both heating and cooling.
Coal-fired power stations are only 20-25 per cent efficient with 75-80 per cent of the heat energy produced in burning coal being lost in the generation process. Trigeneration systems capture and use the lost heat for water heating and cooling, exploiting up to 90 per cent of all primary energy from burning the gas. In the UK, trigeneration has played a major role in reducing the carbon footprint of the town of Woking by 77 per cent of 1990 levels by 2004.
But NSW is heading in the opposite direction, strengthening the lengthy pathways from remote coal-fired power stations to homes and small businesses, rather than bringing power generation and consumers closer together.
One of the major reasons cited for the huge spending program is the perceived need to meet increasing power demands during a few hours of peak consumption. Energy Australia, for example, proposed spending $2.78 billion on strengthening its network to cope with an estimated peak load growth of 860 MW by 2014. This money could be better spent — and in many ways saved — by managing that demand and improving efficiency.
Strategic load control can lop off these peak demands. Around the world, progressive authorities are already building the intelligent grids that interact with residential and business consumer appliances to turn them off or cycle their use through times of peak demand. The people of NSW are being asked to pay billions of dollars to build a system that will only be needed for a few hours a year. The strategy they are being obliged to invest in is inefficient and unfair when there are cheaper alternatives that are much more greenhouse-friendly.
Sydney has suffered three major supply interruptions in less than a month. While this might be a statistical anomaly, it does highlight the vulnerability of traditional distribution systems. Embedded generation and smart grids offer better opportunities to reduce the severity, extent and duration of blackouts. They are a much better option for achieving network reliability and serve consumer energy demands without driving up bills and greenhouse gas emissions.
The regulator flagged a distribution price increase for NSW consumers of around $75 in the next financial year. They also indicated that the cost recovery for the distributors’ capital expenditure program has been limited in the first year due to the impacts of the global financial crisis. As network charges account for about 50 per cent of the total retail price, the network component alone could result in an 85 per cent increase or greater in household electricity bills over the next five years.
In NSW the economic and political power of coal is about to trump the best interests of the community again. The only hope was for the regulator to inject reason and some up-to-date ideas into the debate. This hasn’t happened.
Now, although the AER has given the plans regulatory approval, the Rees Government must think again. While the rest of Australia is wondering how we can reduce greenhouse gas emissions, the NSW Government and its electricity distribution companies seem happy to lock households into an expensive and highly polluting future.
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