Here it is, the final installation in the Electricity Series. This one is a good primer for the Bidding Orders and the NEM post.
Here I go into some of the (utterly boring, but important) methods and reasons behind how you and the rest of the grid are charged for electricity use. From this flows discussion of how renewables work in this market and how the Mandatory Renewable Energy target (MRET) is calculated.
Electricity use for domestic users is a pretty simple affair. Almost everyone just pays a flat rate per kWh of energy used. There are also some little charges associated with billing, for connections and administration, plus the fees associated with the MRET.
The only complicator is people who choose to go to Time-Of-Use (TOU) billing or have Off-Peak power. TOU will be discussed in the industrial section further down. Off-Peak power is metered separately and is only turned on over night, using cheap electricity to heat water. There’s a long tirade in your future and mine about the evils of Off-Peak power and the baseload furphy, but I’ll spare you in the short term. Just know that if you have off-peak power you’ll have 2 separate meters, which will be charged at different rates (Off-Peak will be cheaper).
This stuff is actually important in the context of the impacts of a price on carbon.
Big users are charged differently to residential users. On top of the normal charges for energy used, (Energy Costs) industrial users are also charged a premium depending on the maximum demand they have for power throughout the billing period. There are a couple of similar but different mechanisms here, which can be coarsely grouped as Network Charges. So, their bill will be *roughly* 40% Energy Costs, 40% Network Charges and up to 20% administration and levies. These include some charges to keep the network operator in business and some money to cover their MRET contribution.
Energy Costs for a business are based on the time that the energy is used; ‘peak period’ varies between network operators, but is usually an 8 or 9 hour period essentially during business hours. This is the highest energy rate, somwehere in the order of 20c/kWh. Two hours before and after peak period is the shoulder period, where energy rates are somewhere around 15c/kWh. The rest of the time is off-peak where rates fall to about 10c/kWh. Weekends are off peak the whole way through.
Network charges are the fees associated with sizing the network to meet energy users needs. The theory is this; if you have a plant that runs all day at a constant rate (say 20MW) the network only needs to be sized to 20MW (plus a little safety factor). But, if you run at 20MW all day, but peak to 50MW for a half hour period, well then, even though you only use it a little bit, the network provider needs to build the network to meet your 50MW demand.
The way this charge is actually calculated is based on an energy user’s maximum demand during any 15 minute period, during peak hour. This is charged in cents per kW demand, times the number of days in a month (because it’s charged monthly).
Why this is Important – Carbon Costs
So, you can see from the above, that the cost of the actual energy used only makes up about half of the cost of electricity supply to a business. If (likely, when) a price on carbon is introduced, this will only affect the cost of energy; it will not affect the cost of building and maintaining a network.
As an example then, consider a coal fired power plant. These plants produce roughly 1 kg of CO2 per kWh electricity consumed from the grid. If you’re keen, have a look here, on page 218 to see how this factor varies between States.
1kg/kWh is the same as 1 tonne per MWh (multiply them both by 1000). So, for peak power, 20c/kWh is $200/MWh. From this you can tell that 1 MWh makes 1 tonne of CO2 and costs about $200.
Now, add a price on carbon to that. Garnaut called for about $20 a tonne, other numbers put it as high as $40 a tonne. Lets go crazy and call it $50 a tonne. So, your MWh of electricity goes from costing $200 to $250.
A 25% increase.
But, since energy costs are only half of big energy users bills, $50 a tonne carbon price will only increase their bills by half of 25%; 12.5%.
All this crap about electricity prices going through the roof are the worst kind of uneducated speculation and fear mongering. If you see ANYONE talking about how a carbon price will double the cost of power, tell them they’re wrong and direct them here. It’s embarrassing how few smart people, who should know better, get this wrong. Is it cynical of me to think that some of the people that should know better actually do, and they’re being intentionally ignorant to try and score cheap points?
For comparison, have a read of this. This year Energy Australia began upgrading the network in Sydney. This will change nothing for consumers; it is a safety and reliability upgrade. No carbon reduction, no renewables, just network hardware. $18 billion, divided between consumers is ‘roughly $2 a week’. Make it $100 a year, on an average bill of say $1000 a year; 10% increase. This sort of upgrade happens infrequently, say every 3 years and that price increase is almost exactly in line with inflation. A carbon price will only come in once as a step change. After 4 years you can be pretty sure that increase would have happened anyway.
How Renewables and Greenpower get involved
From Part 2 I hope I made it pretty clear that managing the network is insanely complex. The network operator monitors in very short bursts what the frequency of the grid is and brings in and boots generators and loads as need be to maintain that frequency.
The need to switch generators on and off means that electricity from generators that can despatch instantly is worth a hell of a lot more than generators that take a day or so to warm up (like a big coal plant). So, rather than keeping a record of how much of each type of electricity each user consumes, they use retailers as intermediaries. For big users they will negotiate a price per kWh for the year and the retailer assumes the risk that it might be more than that. Retailers deal with wholesalers and even some generators to purchase the required energy as cheaply as possible. This happens in real time through the network operator who determines which generators are on and so the cost of energy from moment to moment.
The actual system is considerably more complex than that, but this level of detail is sufficient for the moment.
Currently the major mechanism supporting renewables in Australia is the Large Renewable Energy Target (or LRET, formerly the Mandatory RET). This sets a baseline for what percentage of their yearly energy use retailers must purchase from renewables. Currently it’s about 10% and will rise in a straight line to 20% in 2020. So at the moment, retailers need to purchase Renewable Energy Certificates (REC), (each worth 1 MWh) from generators to the value of 10% of the energy they sold. This cost is spread across consumers and is part of your bill. This is a ‘cross subsidy’ purportedly worth about $18B over the life of the program.
So, whether you like it or not, 10% of your power is currently sourced from renewables.
Now, I’ve been asked, a few times now, how Greenpower works in this market, and I finally understand it. The question was, if Greenpower subscriptions are greater than the LRET target for that year, does it make a difference?
I can finally answer a resounding ‘Yes’.
Noted above is the fact that the LRET requires retailers to source 10% of their energy from renewables. Greenpower is a retailer who voluntarily buy 100% of their energy from renewables. So, all retailers need to buy 10%; Greenpower buys 100%; the 90% above the LRET will be over and above the LRET for the country. So, I can honestly say, if EVERYONE was on Greenpower, our carbon emissions would drop ridiculously.
Lastly, how does the rise in domestic solar influence this equation?
There are a couple of points to consider here.
First is the interaction of domestic renewables with the LRET, then how domestic generation lowers emissions.
Recent changes to the LRET laws split domestic generation out into a separate system called the SRES (Small RE Scheme). What this means is that any certificates generated by small installations will not count towards the 20% target. So, any domestic generation will be over and above the LRET. This is good.
However, there are conundra for conscientious home generators. To be able to afford the system, a lot of people sell their future RECs to a retailer. This means that the renewable part of their electricity has already been sold and they are effectively using grid power for all their energy, because someone else is using their renewable component. To fix this (we’ve got panels on the roof) I just buy Greenpower. So, we’re contributing to the renewable % in Australia and managing our own emissions. This personal Greenwash costs us about an extra 25% on our energy costs.
Summing Up – Finally I hear you say
It’s been a rollercoaster ride, but the formal part of the Electricity Series is over. Hopefully now you know how energy is measured and moved around and why Nikola Tesla is a genius. I’m not promising this will be the last time I blog about electricity, but this is definitely the last post of this arc.
For your reference here’s a link to Part 1 – The Basics
and here’s Part 2 – AC/DC and the Grid
Questions, clarifications and cock-ups cheerfully accepted.
Until next time.