You’ve probably heard the term “Death Spiral” applied to many things. Insurance. Economics. Obamacare. TV (or Presidential) Ratings. Whatever.
Recently there was an article quoted by the smartest Wind Turbine in Australia, as seen on Twitter:
— RottnestWindTurbine (@Rottoturbine) June 23, 2017
I replied, somewhat off-the-cuff, that the “death spiral” was a bit of a furphy, and was subsequently challenged to a blog post about it.
Sounds like the topic of a blog post.
— Robert Massaioli (@echo_rm) June 23, 2017
I’ll give it my best shot – but strictly in layman’s terms, and mainly with a view of the Australian market. Apply the lessons where you will.
WestERN Australia Grid Primer
Western Australia, in terms of land area, is big. I’m talking Texas-plus-Alaska big, for those of you playing in the US of A.
While it has a lot of land, it has less than 3 million people. That means a relatively small market for energy provision. They have a local grid (SWIS*) in the heavily populated south west around Perth (pop 1.95M), one of the most isolated cities on Earth.
* South West Interconnected System
The SWIS covers the SW corner of the state, and is serviced by Synergy. That’s right – there is only one electricity company, and its government owned. But you get your choice of two gas companies!
Outside of the SWIS, everything else is the responsibility of Horizon Power. That is a big area to manage, and big means expensive.
Large towns (by Australian standards) can be hundreds of kilometres apart, mostly on the isolated coastline facing the Indian Ocean. Inland towns might only exist for mine operations, or reside on historical roads that still provide services for farming or Aboriginal communities.
One bushfire out there, or a car accident into the wrong pole, can cut what constitutes a grid connection in an instant.
A lot of the electricity outside the SWIS is also heavily subsidised. Some communities get diesel shipped in for generators to run in parallel with renewables. Cost price to do so is 60c/kWh once logistics is factored in, and would be unfair to ask consumers to stump up for all of it.
But governments are only able to bear these costs for so long.
WA Government Budget Repair
As another article says, the WA Government is increasing power prices in order to undertake budget repair. This includes an electricity price increase for consumption per kWh, as well as fixed charges.
The daily charge residents must pay to be connected to the grid will almost double, resulting in a 10.9 per cent rise on the cost from last year.
Of course, being politicians, they’ve blamed the previous government (now the opposition) for “the mess” inherited. Proving the age-old idiom: Politicians can be raving douchecopters.
Prices are also going up in WA on things like public transport, water, sewerage, and other things like port fees.
Consumers never like increases. Particularly in their electricity bill, and especially in the fixed charges.
You can try to make your household import less energy, but its not going to help a set daily fee get any lower. In fact the data shows that energy usage has stopped increasing in recent years in the NEM on the Eastern seaboard.
In some parts of WA, outside the SWIS, they have a cap on solar installations, to prevent network fluctuations. Seems weird that, in one of the sunniest places on earth, they’d stop installing solar panels, right?
Energy stability is key, particularly in a far-flung network like WA. Its interesting to note that Horizon are undertaking trials to regulate solar power flow in the Gascoyne region shortly (there’s that windmill again).
— RottnestWindTurbine (@Rottoturbine) July 3, 2017
WA is a state with a lot of sun, potential for a lot of wind, but has challenges bringing it to bear in a safe and reliable manner.
The cap on solar installs is something I’m going to address from a market standpoint, in an upcoming post about my time at Renewable Cities Forum in June.
Putting The Article Into Context
The original article quotes Dr Jemma Green of Power Ledger, a company involved in blockchain retail of renewable energy.
“The perverse outcome of increasing the fixed supply charge is that in the short-run you might get more money, but in the longer run you’re going to push people off the network and look for more cheaper alternatives,” she said.
This is a stark warning to electricity generators and retailers. Particularly in the Australian market where prices have risen more than 60% on average in the last decade.
And while Dr Green believes it is a fair way to help the economic state of WA – as a short-term solution – solar households (25% of the state) in particular would feel somewhat resentful.
The point about being a short term fix is important. Governments simply can’t keep forcing consumers to pay more, particularly while solar and storage systems get cheaper.
Would this move by the Government of WA motivate people to leave? Dr Green says:
“… taken to the extreme means the network is no longer getting the revenue needed to support itself and it creates a death spiral.”
A government, or market operator, would be supremely ignorant (or greedy) to miss the warning signs of such a crisis. She has said “extreme” after all.
That is Reason #1 a death spiral is unlikely: despite what we think, the top end of town are not so stupid (or greedy) as to eat their own tail.
Anatomy Of A Death Spiral
To make something spiral (up or down), you’ve got to have some fairly consistent motivating factors. These factors may be constant, or under acceleration.
We certainly have consistent price rises, here in Australia. New South Wales customers are looking at price rises of up to 16% as of this month, as one example.
The quoted figure over the last decade is a jump of prices in the order of 60-100%, partly due to increased network connection costs.
At the same time, we’ve got larger energy providers like Energy Australia posting profits in the tens of millions. So there is a bit of fat to be trimmed there, if needs be.
But will it force customers to leave the grid?
That is probably the wrong question. A more pointed one is: can customers afford to leave the grid?
Certainly not for today’s prices on storage. If you went out and bought a Powerwall 2, and a solar PV system on the larger side (6kW+), you’re looking at about $16K. The number of households who can afford that is in the minority.
Even then, with only 13kWh of storage, the average household won’t make it through a 48 hour period without sunlight. WA gets clouds, too.
Most off-grid types recommend a minimum of 4 days’ storage, plus a generator for emergencies. Now you’re talking about upwards of $30k, because most people don’t fancy sitting in the dark.
Reason #2 the grid won’t death spiral: in the near future, consumers can’t afford to leave en masse. Therefore the network charges, and consumption fees, are still going to keep the grid afloat.
Pardon My French
Plus ça change, plus c’est la même chose
– Jean-Baptiste Alphonse Karr
Don’t worry, that will make sense in a minute.
As the landscape changes in our energy network, newer technologies are emerging, and disrupting, the status quo.
Reposit Power are one of the companies at the forefront of changing this landscape. The concept of Virtual Power Plants is the here and now, and Reposit, along with other companies, want to make it available to everyone.
At Energy Networks Australia last year, and again at Renewable Cities this year, you could see the shift in thinking.
The analysts are vocal because they’re trying to get people to listen. The see a bright future and a market of endless technological possibilities.
The salesman are animated, because they’re trying to set up a market. They see great opportunities to put their products into action, and get that market share.
The industry, both generating and retailing, are a equal parts bemused, scared, and curious.
As we see battery uptake increase across Australia, a lot of these technologies are going to change the market place. Horizon Power are trialing control of domestic solar PV output.
How much easier would that be with a grid scale battery in front? Networks could start doing their own frequency regulation and dispatch, with strategically-placed storage (battery, pumped hydro, train full of rocks, whatever).
They could limit long-term infrastructure spend by tapping user storage in times of need, and at a lower price than it costs to run traditional or renewable generation. And you don’t have to transmit it over kilometres; its right there in the neighbourhood!
If you’re a consumer in 2020, how mad would you be to disconnect from the grid, when you can contribute, and profit, from it?
As old mate Jean-Baptiste said above: the more things change, the more they stay the same. Staying connected to the grid will be as normal tomorrow, as it was yesterday.
Reason #3 the death spiral won’t happen: consumers will eventually become participants.
Rumours Of My Death Spiral Have Been Greatly Exaggerated
Prices go up. That’s capitalism.
Anyone reading this article who isn’t on board with the solar + storage thing is going to accuse me of being a rich man. Of leaving the poor people behind, and forcing those left on the grid full-time to pick up the tab.
And that is certainly a risk that the WA Council of Social Services highlighted when the government announced these price rises. Those who are already struggling to pay the bills are going to be hit hardest.
Of course, it would be nice if prices didn’t go up quite so much as 10-16% in one year. But you can’t blame renewables for that – or you can, but you’ll look like an idiot.
If you want to blame someone, point your finger at the Federal Government’s appalling lack of energy policy.
Look at the State Governments and their mates in the energy industries, lobbying for bigger, gold-plated networks we don’t need.
Now think about the private players who are entering the market. They’re seeking profits, sure, but they’re bringing technology and ideas designed to minimise spending, while maximising value. They’re not interested in a death spiral.
Renewable energy without subsidies is now beating fossil fuels. Distributed microgrids are cheaper (and quicker) to build, and easier to maintain than massive, centralised networks. Even companies like Horizon Power know that, and are putting it into practice.
I don’t think we’re going to see the grid die. I think we’re going to see it grow into something more secure, resilient, and flexible. And the longer term costs of running it will decrease per capita.
The grid will still be there for us, and we’ll be there for the grid. It might get a bit bumpy, so keep your limbs inside the ride at all times.