A tale of technology empowered divergence between electricity systems and citizen desires

Posted on 12 January 2015 | 3 Comments

by Morgan Williams

This is a tale of two parts. The first is about personal efforts to build and operate a more energy efficient home, as are members of the Blue Skin Bay community, and the second examines the massive changes that are beginning to occur in electricity production and supply systems worldwide. These changes are being driven by a combination of rapidly advancing technologies, consumer/citizen demands and society’s attitudes to electricity supply, marketing and business models. As has happened numerous times over the last 200 years, the rapid adoption of a new technology by some parts of society has been strongly resisted by others, often business interests, because of perceived threats to their goals. Government policies also play a key role, particularly if they entrench particular technologies and systems and hence limit needed changes. The threat of stranded capital is also a strong impediment to change in electricity generation and supply systems as in other capital-intensive industries.

The personal story

In 2010 my wife, Pam, and I decided to depart Wellington for sunny Nelson, a return to the South Island (our taurangawaewae) and the opportunity to build a more energy efficient home and get back to our love of gardening in an excellent climate. This was our second effort at building a more energy efficient home applying an ‘80/20 rule’. Our building approach has been deliberately conventional but with a design and material focus on energy efficiency, within an acceptable budget.  In short the sort of house that many people could build cost effectively if they wanted a home with lower operating and maintenance costs, higher comfort levels (warmer & cooler) and ultimately a lower carbon footprint for its inhabitants. Our house of 232 sq metres plus garages, designed in 2010 and completed in mid 2012, incorporated the following attributes:

• NW orientation with 600mm eaves
• Two stories embedded into a moderate hill slope
• Roofs with 12 degree slopes, mono-pitch to the NW and SE.
• All timber (New Zealand grown) construction and cladding as far as building regulations allowed
• A significant increase (over zone 3) in the insulation standards. R4.2 for the walls and R5.0 for the roof
• All window joinery double glazed and thermally broken
• Window area reduced from current norms to reduce thermal load in summer and winter heat losses
•  All windows curtained or blinded to enhance thermal performance.
• Lower floor concrete block wall insulated on the exterior to create an internal heat-sink
• Heat transfer system from living/dining room to a SW bedroom and bathroom
• An 8.5 kW pellet burner feeding radiators for primary heating and a heat exchanger in the hot water cylinder
• Gas fire for ambience and back up heating in lounge/dining room
• Thermocell solar water heating – 6 sq. metres and 300L solar cylinder
• All lighting using CFLs or LEDs
• About 56,000 litres of water storage supplied from roof and trickle rural water scheme.
• A 5.76 kW solar PV system using 12 micro-inverters (commissioned Oct 25^th 2013). Provision was made for a PV system when we designed our house but we did not purchase it until prices had reached an acceptable level in 2013. If we had foreseen prices would drop as rapidly as they did from 2010 we would not have included solar water heating panels but simply used some of our excess PV electricity production to heat water.

Fast forward to the end of 2014 and how has the house performed? More specifically how has the PV system performed over its first year of operation and how do we see its contribution to our household energy and overall operating costs in the future?

Box one summaries PV system specifications, performance and return on investment (ROI). In summary it met expectations, though the supply and installation process was challenging – but that’s another story!  Why 5.76kW is a common question. There are two reasons that will become clearer in the second part of this story. The first is to have a grid connected system of sufficient size to ensure the best possible ROI given many of the costs of a system installation are fixed and thus increase the per watt cost of small systems. The second is that eventually the price of storage (and or buy-back prices) will make on-site storage, possibly in the form of electric car batteries, a viable option. Given this is likely to be in the relatively near future we wanted to ensure we had sufficient generating capacity to provide most electricity needs in all seasons. As third-age citizens our overall aims are to future proof ourselves from rising energy costs, being at the mercy of investment and superannuation incomes, and to become ‘resistant to change’ electricity suppliers.

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Box 1

PV System specifications: 24 Panasonic multicrystalline VBMS240AE02 coupled to 12 Enescsys Micro Inverters model SMI-D480W-60 and mounted on a 12 degree slope roof facing NW.

Power and lines companies: Contact Energy and Tasman Network

Cost per watt installed:                                                                                        $2.95

Total production for the year (Oct 25^th 2013 to Oct24th 2014):                          7,960kWh

Amount of production used within the house:                                                     1,668kWh

Amount of production exported:                                                                          6,292kWh

Total electricity used in the house during the first year of generation:              4,307kWh*

ROI (units used within house @ 27.25c, exported @ 17.285c):                        9.1%**

*Electricity consumption was for lighting, one fridge/freezer all year plus a small fridge for summer only, a chest freezer, water pumping for house and 4000sq metre garden under development, pellet feeding into the burner and hot water circulation, solar water heating and circulation, spa pool filter and 90 watt solar panel powered circulatory pump, and a small amount of winter water heating to boost the system.

**ROI was calculated, rather than payback time, because of the desire to be able to compare use of capital either invested in a power station on the roof, a term deposit, bonds, or the share market. Yes, the returns are very dependent on the export price and proportion used within the house. The former is likely to change in the future (note current customers are note affected by recent decreases in buy-back prices) and an increase in use within the house is only possible through investing in storage or electric powered transport vehicles.

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Our home’s thermal performance has met expectations. It is warm and cosy in winter and airy and cool in summer. It has proven to be very easy to maintain the winter-living area temperatures of 20^°C to 22^°C on sunny days with input from the pellet burner for a few hours in the evening and an hour or two in the morning. We have not run the burner over night given that living and bedroom temperatures in the 20^°C to 22^oC range at about 10 pm will only fall 3–4^°C even on the coldest nights to date. The combination of house orientation, level of insulation, thermally broken glazing and use of curtains or blinds ensures maximum benefit from all passive gains on sunny days over winter. On overcast or wet days we run the pellet burner for a few more hours or boost living room temperatures with the gas fire operating off 9kg bottles of LPG. Last winter we used 6kg of gas for the winter and 500kg of wood pellets. These two energy sources are, of course, additional to our electricity consumption but the wood pellets are at least carbon neutral.

 So far so good … but the longer-term future for ‘generator households’ looks challenging in New Zealand short of going totally off-grid which is not cost effective unless well away from an existing distribution network! While a few of the line companies and gentailers (e.g. Vector and Mighty River Power) appear to see that major changes in electricity production and supply systems are needed, the sector as a whole appears to be digging in to protect the status quo. The recent decreases in feed-in tariffs offered to new suppliers by Contact Energy and Meridian are but one small indicator. To shape a new ‘consumer/gentailer’ relationship within the wider electricity sector is going to require much more proactive consumer engagement well beyond debates about feed-in tariffs or other incentive policies and measures. The first step will be creating a major dialogue about the need for new electricity systems and supplier/customer/business relationships. A critical part of this dialogue will be getting acceptance that major industry changes are inevitable because they will be driven by the financial impacts on current businesses of the unstoppable uptake of solar power: unstoppable because of people’s desires to break free from the ‘shackles’ of the gentailers. The tide has turned and lack of industry movement will lead to more than wet feet as is already evident in other parts of the world right now!

Technology driven change

The evidence that major changes are already threatening current electricity systems is growing rapidly overseas – but alas not in New Zealand. A Guardian article in July 2014 headlined “Solar has won” is an excellent example of it becoming a mainstream media issue while being a good summary of the key issues and impacts as they are playing out in Australia. It reported that in Queensland in the first week of July 2014, “the wholesale price of electricity fell into negative territory in the middle of the day. For several days the price, normally $40-$50 a megawatt hour, hovered in at around $0/MWh. Prices were deflated throughout the week, largely because of the influence of the newest, biggest power stations in the state – rooftop solar.” Negative pricing in the electricity industry, particularly when generation includes a lot of coal-fired or nuclear stations, is not uncommon. However it mostly happens at night during periods of low demand and when generators can’t reduce output – so they pay others to pick it up. However negative pricing in the middle of the day is a new phenomenon since it’s normally when fossil fuel or nuclear generators get the highest prices? But in Queensland the influx of solar has dramatically changed this. There is 1,100MW of installed solar on 350,000 buildings in Queensland “producing electricity just at the time that coal generators used to make hay (as the sun shines)” reported the Guardian. The impacts have deeply shaken the big generators because wholesale prices have been so low that hardly any of them, in Australia, made a profit in 2014 and few did the previous year. Not surprisingly the generators, lines companies and retailers are blaming rooftop solar and want to slow down the rate of installations. 

However the problem for consumers in New Zealand, Australia and increasingly many other parts of the world is not simply generation costs but the costs of delivering the electrons – transmission and distribution networks, retail costs and taxes. It is these costs that have steadily pushed up the total price of delivered electricity to consumers in New Zealand and elsewhere rather than generation costs. The end result is a rapid increase in uptake of rooftop solar. (This has also been the case in several countries even when formerly generous feed-in tariffs have been reduced or even eliminated). This trend called the ‘democratisation of energy’ is presenting the biggest challenge to the centralised model of electricity generation since electricity systems were established more than a century ago.

A couple of recent major Australian studies have highlighted the magnitude of this challenge and its inevitability. These are ‘Change and Choice – The Future Grid Forum’s analysis of Australia’s potential electricity pathways to 2050, CSIRO December 2013’ and   ‘Exploring the death spiral, Grace, October, 2014’. A brief review of these provides a good basis for debating the need for major redesign of New Zealand’s electricity system and the role of solar.

The Australian Future Grid Forum modelled four scenarios developed from a consideration of drivers that already exist - e.g. electricity bills have already risen, peak demand and consumption have reversed in most states since 2008-09, there is an oversupply of generation capacity, residential electricity prices are not well aligned with the costs and services, there is uncertainty around carbon policy in Australian politics and attitudes towards electricity system reliability, and its costs are shifting. 

Against this backdrop the Forum believed that Australia’s electricity landscape will change significantly in the decades to 2050, and that the greatest changes are likely to come from:

• ‘megashifts’ brought on by the advent of low cost electricity storage, sustained low demand for centrally supplied electricity, and the need for significant greenhouse gas abatements.
• consumer choice as an outcome of potential new business models, a greater degree of cost-reflectivity in pricing, and a higher overall level of consumer engagement.

They also noted that any changes in fuel prices, carbon and energy policies and their specific targets and mechanisms, changes in the costs of other technologies, and any adaptation to a changing climate, would also create significant uncertainties in the system. In framing their approach the Forum concluded that “if the electricity sector is to effectively plan and respond to these changes, it is important for it to fully understand how all this might play out” – hence the use of scenarios despite the limitations of such as approach.

The Forum’s four scenarios were:

• ‘Set and forget’  - a central control model with sustained high retail prices.
• ‘Rise of the prosumer’ – a customer-centric model where customers trade, generate and store electricity.
• ‘Leaving the grid’ – a new energy service model appealing to a desire for independence and empowered by competitive storage on-site and in electric vehicles.
• ‘Renewables thrive’ – a centralised renewables generation model focusing on utility, network and consumer storage to shift demand.

In conclusion the Forum, rather lamely, considered its findings a starting point to help all players to fully understand, manage, and benefit from the many changes and choices now emerging. However the evidence it collated, via the scenarios, made it very clear that changes will be profound and far-reaching. But being good bureaucrats they simple said, “the nation has to continue this crucial conversation”. Yes they sure do and so do we!!

The second study, by Bill Grace of the University of Western Australia, modelled the effect of increasing rooftop solar and the future potential for private electrical storage within Western Australia’s south-western interconnected system (SWIS). The work was initiated because the electrical industry worldwide is talking about the so-called ‘death spiral’ and elements of the problem are emerging in WA. As in Queensland, customers were reducing their electricity demand through improving efficiency and/or private generation, mainly rooftop solar, thus reducing the profitability and market dominance of conventional electricity networks. Given many network costs are fixed, this results in increases in unit costs and therefore increased prices for delivered electricity. Price increases exacerbate the problem – hence the term ‘death spiral’.

Bill’s study concluded that:

• The growth of solar is inevitable and will have major implications for the SWIS network regardless of any proposed changes. 
• The solar increase, in homes and businesses, will merely hasten a transformation of the network that is needed anyway.
• Global forces, that are lowering unit costs, are driving growth of solar.
• Western Australia cannot escape the reality of this momentous technological shift.
• The days of the electricity industry being the sole provider of energy services to consumers is over.
• Policy must drive the most efficient economic outcome not seek to ‘protect’ the existing industry players.
• Excess solar generation during the day will create an over generation problem on the network in coming decades. This will either require base load generation to be intermittently reduced or private and network storage established. Private storage will be insufficient to balance the system so network storage will be essential.
• Early establishment of network storage could ‘head off’ widespread installation of private storage.

The future of New Zealand’s electricity system – how are we going to contribute to the inevitable changes?

The ‘we’ I’m taking about are communities such as Blueskin Bay, solar households such as ourselves (Pam and I), and the many other households and businesses that have or are installing solar PV. The evidence outlined above makes it very clear that while major redesign of electricity systems and business models is inevitable, there will be plenty of resistance to needed changes. Yes, New Zealand’s electricity system has some significant differences to those of the various Australian states, for example the dominance of hydro generation and the system flexibility it creates.

So what are current industry responses to solar and possible motivations and implications? A few examples:

• Buy-back price decreases. Late last year Contact Energy and Meridian announced they were reducing their purchase prices for solar power for all new connections, by over 50%, while retaining the former rates for existing customers. The reason given was that they wished to keep their buy back rates in line with other renewable energy options in the energy market so that no one form of renewable energy is incentivised over another. On the face of it this is a perfectly logical reason but it’s also a highly predictable response, as evident in Australia where the gentailers see the democratisation of electricity via solar as a long-term threat to their current business.
• Buy-back price increases: In December 2014 Vector introduced a 13-month offer to top up the retail buy-back rates of other retailers to a total of 16c/kWh for all new solar systems installed by Vector Solar. This package is clearly a time bound promotion aimed at sustaining sales of new installations for their own business. It is a marketing investment aimed at offsetting any reduction in sales that may have been caused by the Contact Energy and Meridian buy-back reductions. It is insignificant in the longer term.
• Storage: In 2013 Vector rolled out an innovative package for their lines customers called SunGenie. It consisted of sets of PV panels, inverters etc. plus a lithium battery storage device that could supply power to the house at night or be accessed by Vector to feed power into their network at peak times. By February 2014, Vector had installed just over 250 of these systems in Auckland. However by December 2014 there were no details of the PV/storage system option on their website other than a note advising that if you were interested in storage to contact Vector. So why the change in heart? Top up the buy-back rate to keep up sales of conventional systems but down play the very innovative storage option? Had they read Bill Grace’s conclusions – early establishment of network storage could ‘head off’ widespread installation of private storage?
• Electric vehicles: New Zealand companies, Mighty River Power and Northpower, have been talking up the benefits of electric vehicles and leading the way with company purchases. EV’s certainly ‘fit’ New Zealand’s energy future very well given we currently spend over $4 billion per year on importing fossil fuels for our road vehicles when we could use our abundant renewable electricity to charge car batteries for the equivalent of 26c/litre – a point highlighted very recently in the Dominion Post by Mike Underhill, EECA CEO. Yes electric vehicles could save New Zealand very significant sums of foreign exchange and greatly enhance the opportunity to create a solar generation storage system for homes, though this could be offset by any additional purchase price over conventional vehicles. However given the likely ongoing resistance by electricity gentailers and line companies to the inevitable major changes to their business models, the high average age of New Zealand’s car fleet of 14 years, slow fleet turnover, an apparent lack of strategic leadership for change in the electricity industry or a transition to an electric fleet, electric vehicle uptake will remain slow for many years – despite Mike Underhill’s optimism which I would also like to share.
• Electricity sector leadership. The global evidence, and the Auzzie examples highlighted above, indicates that a momentous technological shift is underway in the electricity world and a deep redesign of systems and models is essential and inevitable. What signs are there that this pending ‘flood tide’ is being fully recognised and given serious consideration? The establishment of the New Zealand Smart Grid Forum in 2013, by the National Energy Research Institute, at the invitation of the Ministry of Business Innovation and Employment and the Electricity Network Association, is a good start given its focus on dialogue, information sharing and analysis. In contrast leadership by the Sustainable Electricity Association (SEANZ) is weak to non-existent, if a recent presentation by the Associations CEO, Brendan Winitana, entitled ‘Solar NZ 2040’ is an example. There was no discussion of any of the big issues driving solar power’s future and the massive impacts already well documented overseas. Very disappointing!

Our contribution to needed electricity system changes.  

The most import thing we can do as early adopter/leaders of solar and the pursuit of more sustainable energy efficient homes is:

• Continue to invest in solar systems in our homes and communities (the evolution)  – lead by example.
• Systematically document our system’s performance and analyse financial and other values.
• Constantly seek and encourage citizen participation in dialogues about New Zealand’s electricity future as part of our whole energy future. They are clearly inseparable given the transport implications and New Zealand’s great opportunities given our high percentage of renewable electricity, now around 80% of total generation.
• Focus on ensuring the right questions are being asked about New Zealand’s electricity options and needs. How the debates are framed is critical and this is a field where there will be major efforts to frame dialogues to ensure the status quo is protected as long as possible. Governments will remain major players in these debates as long as they remain major investors. They also hold the policy card!
• Sponsor, where possible, exposure to international studies that highlight both the opportunities and threats of the needed system changes.
• Remain committed to the ‘democratisation’ of our energy system through solar supply and, increasingly, personal storage.

Feedback on this analysis and views would be greatly appreciated.