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A few thoughts on the electricity 'death spiral'

May 4, 2017Electricity1 comment

One of Germany’s exports has been the idea of ‘energy democratisation’ – the Energiewende is not just a transition to renewable energy but a switch to energy democracy. But was does energy democracy really mean and is it a useful model for thinking about future energy supply?
The thing that makes the democracy idea interesting in Australian is that there is little precedent for it in relation to the provision of public goods. Australians usually express a preference for socialised public services – indeed, Australia’s national health care system (Medicare) is so valued that even minor tweaks are strongly contested – think of the Abbott Government’s disastrous $7 plan for a co-payment in 2014.
We expect socialised education and urban transit. Even corporatised and privatised entities are expected to be firmly constrained by government regulation. It’s easier for a household to ‘democratise’ their water supply and go ‘off-grid’, yet nobody campaigns for ‘the suburban democratisation of water’ – water rates have gone up a lot in Australia as well. What about an exodus from schools in favour of home schooling? Environmental NGOs usually campaign for socialised services – better to invest in trains and urban transit rather than support ‘democratised transit’ (i.e. private cars).
Furthermore, the strong trend is towards outsourcing of home services – think lawn mowing, home cleaning, meal preparation (i.e. restaurants), painting, organised sport and play for children, car repair, etc. In the 1980s, I wouldn’t have dreamed of sending my car to a workshop for repair – who does their own workshop repairs nowadays? Yet futurists talk of bringing our energy production in-house – is this really a one-way trend?
Technology is shifting and it’s easily possible to go off-grid. But what about inverter, panel and battery failures that might take a week to repair? And battery replacement after 8 to 10 years. If the house is sold will the new owners want the responsibility of off-grid, and realise they’re going to need new batteries next year? Will it become the new normal to buy a generator from Bunnings for back up? What about strata title?
My sense is that there is a demographic that loves tinkering and the idea of off-grid. It’s a great idea for those of us who like doing things for ourselves and expect a little inconvenience sometimes. But I’m not convinced that most people will take the leap once they realise that it’s a one-way journey – once the capital is invested, it’s an expensive exercise if you change your mind. What if you want a reverse cycle heater but the system’s not big enough? Go back to the installer – ‘oh sorry, we supplied what you asked for.’
The so-called ‘death spiral’ of electricity utilities is predicated on the idea that the economics of disconnecting will drive an exodus from the grid. I would argue that a stronger incentive will be the reverse – it’s worth paying more to stay on-grid to avoid the hassles of managing your own power supply. What’s the equilibrium value of on-grid versus off-grid? I wish I knew. We live in interesting times.
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1 Comment

  1. Matthias Zeeb, Resilience Economist

    Interesting Antipodean perspective on the Energiewende. As a minor participant, I think the characterisation of the Energiewende being ‘democratic’ is earned by there being distributed ownership of generation assets. This refers to home generation with photovoltaics, to co-operative ownership of wind parks, and to closed investment funds (again mostly for individual wind parks) which drove the initial expansion of renewables. In the German context, the threat to the estabished utility companies did not arise from the combination of home generation and a decision to go off-grid. Grid operators are obliged to buy home-generated electricity from renewables and give it priority over electricity from non-renewable sources. The effect has been a drastic devaluation of the non-renewable generation assets held by the established utilities who had underestimated how quickly the renewables would grow. The legally established, twenty-year feed-in tariffs for renewables installed early in the Energiewende were set so high that home generators saw their PV as an investment project. It would have been financially foolish to combine home generation with home consumption.
    More recently the picture is changing somewhat. The feed-in tariffs for newly installed renewables have come down. PV home generation can now be attractive for home consumption. However, in the climatic situation of Germany true off-grid solutions based on PV will remain unattractive for some time, with the exception of very few special situations.