In ‘Pears report’ Category

Alan Pears

The Pears Report: Electricity industry potential

The electricity sector is broadening, with yet more complexity in store. Alan Pears examines the opportunities and risks.

Our definition of the electricity sector has broadened in recent years, but it will become even more complicated. If we step back and look at the fundamentals, we can see why. As I’ve noted before, people (and businesses) don’t want energy (or electricity)—they want energy-related services, such as lighting, cooking, heating, clothes washing and internet.


The overall costs of an electricity-related service are comprised of both supply-side and consumer-side costs. These include:

  • supply-side costs of the electricity used, reflected in the retail price and fixed charges for the electricity
  • consumer-side costs of electricity supply infrastructure, such as wiring, on-site generation, storage and electricity management systems
  • consumer-side costs to purchase and install energy-consuming equipment
  • ongoing consumer-side costs of maintenance and ‘consumables’, such as provision of cable TV and internet services, repairs, detergent, etc.

Estimating the consumer-side costs

Since no one else seems to have attempted to estimate the costs on the consumer side of the meter, here’s a try.

The 2010 ABS survey of household expenditure on goods and services shows average weekly household energy bills were then $32.52 (more like $40 to $50 now). But the weekly average purchase and non-energy-related operating costs of appliances, IT and AV equipment, internet and phone amounted to $93.26. Of this, $36.78 covered appliance purchases and $44.97 covered the payments to providers for internet, pay TV and phone usage.

So, in 2010, direct energy costs comprised only about a quarter of the total household cost of providing energy-related services (excluding spending on building features such as insulation, house design and draught proofing, but still including heating and cooling appliances and running costs).

We should also keep in mind that each appliance purchase locks in energy use for a decade or more; $1000 spent on a new fridge can lock in $1000 of energy waste over 15 years if you choose ‘worst on market’ instead of best.

The big money for businesses and the big savings for consumers are not in supplying energy, but rather in the provision of smart, energy-efficient and renewable energy appliances, equipment and associated services on the consumer side of the meter.

More profit in retail electricity

Based on the Bureau of Resources and Energy Economic’s 2011–12 energy data and my best guesses at electricity prices for each sector, residential consumers provide 43% of electricity revenue, but use only 28% of the electricity. Business retail electricity consumers pay around 45% of total electricity costs while using around 35% of total electricity. This reflects the high network usage and administrative costs for the small consumers in these sectors.

Despite several hours of searching, I couldn’t find out how much industry pays for electricity and gas—from publicly available information (!)—so these numbers are rough. But it seems that a profitable electricity business needs to focus on retail customers (residential and business), not big industry.

The potential profit margins, and the number of places in the supply chain where margins can be added, are greater for retail customers. In contrast, big industry is quite capable of negotiating low electricity prices—or even subsidies.

Opportunities—and risks

There are both big opportunities and risks for the electricity industry in this complex retail space on the consumer side of the meter.

Businesses selling on-site energy efficiency improvement, generation and storage to retail customers compete against high electricity prices—unless the electricity retailers can fool regulators into allowing them to charge high fixed fees… So, it’s not surprising that PV businesses have targeted residential and, increasingly, commercial customers. It’s also not surprising that attractive financing packages and buyer-friendly installations are important.

Broader issues such as what services customers really want, trust in providers, packaging of overall deals and social and environmental impacts of options will increasingly influence decisions that drive electricity demand.

Potential for the appliance and building industries

Many markets, including appliances, building, property, installation, insurance, IT and telecommunications, will influence the future of our electricity sector, as much as or potentially more than the energy industry itself. Players in these markets understand customers better and can move very fast. They are bigger and more powerful than the energy industry. But, at present, they are fragmented.

Once the appliance industry focuses on energy issues, they will see many opportunities. For example, adding built-in micro-storage and smart controls to an induction cooktop, dishwasher, oven or air conditioner cuts installation costs by avoiding the need to upgrade wiring capacity within a house and/or offers better quality services. This ‘added value’ will offset the extra cost—and help cut peak demand costs. Indeed, such micro-storage may also help overall household management of electricity.

There is potential for an appliance manufacturer to partner with a major builder and renewable energy business to offer a house full of high-efficiency new appliances, ‘smarts’ and PV system for ‘free’ (actually paid off via your mortgage) in a new home package. Some banks could even offer a discounted interest rate for such a home.

The appliance manufacturer would gain an ongoing relationship with a household to leverage future sales and get valuable feedback on appliance performance, reliability and user behaviour. The builder would save on wiring and gas plumbing costs, while offering home buyers a very attractive package. This model could easily roll out to low-income households.
Meanwhile, the traditional energy sector, protected by outdated policy frameworks, looks at the supply side of the meter, where scope for profit and customer benefit is much smaller.

Where to on energy policy?

State and local governments, reflecting what I call ‘competitive democracy’ are filling the vacuum created by bizarre national government policies, by supporting renewable energy projects and, in some cases, energy efficiency, as they seek electoral popularity. In some cases, concern about climate change even drives policy!

Global factors are driving closure of Australian energy-intensive industries that are too small to compete globally or rely on outdated technologies. Indeed, free trade agreements and other government policies are making this problem even worse for energy suppliers by driving industry closures.

Global oil, coal and gas prices have fallen —driven by a complex combination of excess (but high cost) supply and lower-than-expected demand. It seems that many economies really are decoupling energy growth (and greenhouse gas emissions) from economic development. And, with asset values of fossil fuel producers and traditional energy utilities crashing, their problems will grow as investors shift their money to safer options. Already, those who have not yet divested from fossil fuels have lost a lot of money.

Existing Australian policies and regulatory requirements, despite being fairly weak by world standards and poorly enforced, are driving step changes in new building and appliance efficiency. Product manufacturers (mainly from overseas) are providing more efficient products because of global demand. And business must respond to higher electricity and gas prices by improving energy efficiency.

So, no government can provide policy certainty in energy. At the same time, declining demand (due partly to energy efficiency improvement) and increasing support for renewables at many levels, means excess supply capacity will remain unless incumbent energy businesses close down a lot of existing obsolescent or high-production-cost plants. And if this happens, governments will face criticism for allowing it, given that it will likely increase consumer energy prices!

Meanwhile, the Australian government and its policy makers are preparing our next Energy White Paper. The Green Paper, published in late 2014, provides little basis for this policy document, as most of it was simply irrelevant to the fundamentals of the situation (see my submission at Of course, official government energy policy is usually out of touch: its main aim seems to be to support ongoing economic growth (based on past directions) and reassure incumbent industries and their investors. So it will be interesting to see what the White Paper actually says, and what government actually does.

I don’t know of anyone who can predict where this will lead. But it is a risky time for owners of large fossil fuel assets and investors in any large energy project that takes five years or more to implement. So, my money is on modular and smart solutions that can generate cash flow quickly, through incremental rollout. S

Alan Pears is one of Australia’s best regarded sustainable energy experts. He teaches part-time at RMIT University and is co-director of Sustainable Solutions, a small consultancy.

This article was first published in ReNew 131.

Alan Pears

The Pears Report: The end, not beginning, of an era

Alan Pears explains why coal seam gas is not the answer and, when it comes to energy-efficient homes, why the cooling side of the equation needs some attention.

Coal seam gas (CSG) has been widely promoted as a game changer that will drive a gas boom. It’s not. It’s a desperate attempt to prop up the fossil-fuel era. It is also a conflict between the established energy industry (backed by governments) and just about everyone else, including state governments desperate to win votes.


However, the predictable failure of CSG will shift the balance in favour of sustainable energy: efficient, smart, renewable, distributed energy-service solutions.

The gas industry and the federal government are throwing everything at supporting CSG. Even the east coast ‘gas crisis’, caused by companies building natural gas plants in Queensland without locking in their gas supplies, has been used to try to justify more CSG development.

The reality of CSG

The CSG reality is that very large numbers of gas wells must be drilled and networks of pipelines built, conflicting with tourism and agriculture, placing underground water resources at risk, exposing people, animals and plants to toxic chemicals, and potentially leaking methane, a very active greenhouse gas.

In addition, the wells don’t produce gas for very long, and they must then be managed for an unknown period to limit impacts on the local environment and underground water resources. And it’s not cheap gas: in fact, high international prices are needed for it to be profitable.

The gas industry has blamed ‘cowboy’ operators for problems. But how do they respond when a responsible operator like AGL is found to have methane leaks from nearly a tenth of its CSG wells in NSW? (

The NSW Chief Scientist has published a thorough report on CSG. While she finds it is possible to manage CSG responsibly, she spends quite a bit of her 24-page report outlining the difficulties in ensuring strong regulation and enforcement, funding to deal with problems during and after production from wells, and strong governance mechanisms.

It seems obvious that these requirements cannot be met by any Australian government. Voters know that no present government can lock in comprehensive environmental regulation and enforcement to ensure future governments manage derelict wells for decades or longer. We simply do not have the governance capacity to properly manage the long-term impacts of CSG.

CSG is more trouble than it’s worth. We have wasted too much time failing to address climate change to be able to enjoy the luxury of using fossil gas, especially leaky CSG, as a transition energy source. The global carbon budget is just too tight.

Moving on

At the same time, technology development, economies of scale and emerging creative financing solutions mean that efficient, smart renewable energy solutions can deliver practical, lowest cost solutions.

While Australian governments and the energy industry wallow in denial, the International Energy Agency, World Bank and numerous leading economists have joined climate scientists and the sustainable energy industry to support this transformation and proclaim that it is practical.

As former Saudi oil sheikh Ahmed Zaki Yamani said in the 1970s (, ‘the stone age didn’t finish for lack of stone’. We have now moved beyond fossil fuels, although we can acknowledge that they have provided a useful technological base on which we are building our sustainable energy future. The shift away from fossil fuels is reflected in the industry’s increasing difficulty in accessing capital.

Why do new energy-efficient houses need cooling?

Last year, CSIRO’s field evaluation of 5 Star homes reported some interesting findings. One big issue was a widespread lack of compliance, due to near-total failure of enforcement by governments and local councils. Another important finding was that, although the efficient homes had much lower heating energy use, their cooling energy use was not lower. The reasons for this outcome are complex, but it’s time we addressed them.

One reason may be that the default settings for cooling use in the NatHERS calculator seem to underestimate cooling. The thermostat temperatures and user behaviour patterns were set many years ago, based on quite limited information. Research has shown people typically use lower thermostat settings (see A 2008 South Australian study proposed changes, but these have not yet been formally regulated.

When estimated cooling energy is too low, it has little impact on the energy rating. In climates that require both heating and cooling, designers are more likely to focus on building features that reduce heating.

This under-emphasis on hot weather performance in the energy rating scheme means features like dark-coloured roofs and absence of eaves have unrealistically low impact on rated summer performance. In cooler climates, the overall annual outcome can even improve the Star rating, as benefits from more winter solar gain outweigh worse summer comfort!

The energy rating is also averaged over the whole building. So some rooms may perform poorly without adversely affecting the overall energy rating. And the rating is for total annual heating and cooling. Separate heating and cooling ratings would ensure the home performs adequately all year.

The nature of modern building designs is having its impact, too. The upper storey of a two-storey house has no links to the stable temperature of the ground, and is exposed to higher solar radiation. If glazing is not very carefully designed and managed, it becomes a ‘solar oven’—although the amount of energy required to cool it is not very large if it is well insulated.

More broadly, we need to realise that a high thermal performance home (with good insulation, draught proofing and well-designed glazing) requires very little additional heat to raise its internal temperature above the outdoor temperature—in both winter and summer. Extra internal mass or phase-change materials can help to stabilise the temperature, but climate change is increasing overnight summer temperatures and the duration of hot spells, so thermal mass is becoming less effective.

Careful design is increasingly important, especially glazing and adjustable shading, so that summer sun can be screened out.

Air leakage and poor management of ventilation is another culprit. When an exhaust fan or rangehood is running in hot weather, it is actually bringing in a lot of hot outdoor air—equivalent to a cooling load of 2 kW or so. On a hot windy day, having a window on one side of a house open, even a little, can combine with exhaust fans, fixed ventilation in a laundry or another open window on the opposite side or upstairs to create heat input of up to 5 kW. So, leaky open-plan homes with doors to permanently vented laundries and bathrooms left open can have high cooling costs. Improved building quality and user education are needed.

Of course, this does not mean that 5 or 6 Star homes are a bad idea. If they are built properly and well managed, their peak cooling energy requirements are small, and hourly cooling cost is low, especially when combined with a high efficiency (5 to 7 Star) air conditioner.

We need to further strengthen regulations and enforcement, sort out the under-emphasis on summer performance in the rating scheme and educate home operators. We should also take advantage of the feature in rating tools that allows an energy rater to look at performance of each room or zone during weeks of hot and cold weather. Then designers could identify and address problem rooms.

Also, summer is the time when a typical rooftop PV owner may have excess free electricity. Using some of this for cooling to be comfortable (especially once we get batteries to store daytime generation for evening cooling) need not create load problems for the grid.

Alan Pears is one of Australia’s best regarded sustainable energy experts. He teaches part-time at RMIT University and is co-director of Sustainable Solutions, a small consultancy.

This article was first published in ReNew 130.

Alan Pears

The Pears Report: Future Global Energy Giants

Alan Pears considers the interesting future for energy providers and energy efficiency in Australia, and globally.

Energy and climate policy are certainly entertaining at present. The dominance of crude politics over reality continues.


Australia becomes a world leader at being a climate laggard by dumping its carbon price. Electricity companies apply further restrictions and charges to rooftop PV (but not to air conditioner owners). Governments use shonky economic analysis to justify dumping carbon pricing, the Energy Efficiency Opportunities program, Victorian Energy Efficiency Target and, possibly, the Renewable Energy Target. And the PUPs gambol.

Meanwhile, electricity consumption continues to decline, gas prices accelerate upwards, global coal prices continue to fall and it looks as though we may have a record hot year globally. Then, Senator Ricky Muir turns out to be a renewable energy enthusiast: maybe when camping he uses renewable energy? Or perhaps he’s just an ‘ordinary Australian’: most of us support renewable energy.

Is it time for energy efficiency to shine?

President Obama and PM Abbott have apparently agreed that the November G20 meeting in Brisbane will discuss energy efficiency as a proxy for climate policy. There are also whispers around Canberra that ‘energy productivity’ (more economic output per unit of energy consumed) is gaining support.

The International Energy Agency has declared energy efficiency to be the biggest ‘source’ of energy for OECD countries. IEA also sees energy efficiency as the biggest and lowest cost contributor to climate response.

So maybe the signs are looking good—at last. It would be really nice to stop bashing my head on brick walls after 35 years!

But I’ll believe it when I see it. Unfortunately, many policy makers still believe that since energy efficiency is often cost-effective, the market will just adopt it, maybe with a bit of extra information. But it’s not that simple, and most effective energy efficiency policies involve measures that are unpopular with deregulatory, ‘small government’ thinking and powerful vested interests.

Why are developing countries shifting away from fossil fuels?

Fossil fuels create problems for developing countries, including China, despite the development benefits they bring. A US Agriculture Department study estimated that the $137 billion increase in oil import costs for developing countries in 2005 exceeded the official aid ($84 billion) they received.

Many governments subsidise energy, adding to budget pressures. Then there’s the indoor and outdoor air pollution, health impacts, fuel spills, inequity, fuel theft and more.

Governments are realising that improving energy efficiency, renewable energy and distributed energy systems can help solve all these problems. Shifting to efficient renewables (e.g. LED lighting powered by solar) reduces energy costs, improves quality of services, cuts the need for fossil fuel subsidies and reduces import bills. And it also happens to cut their greenhouse gas emissions.

Australian government and fossil fuel energy policy advisers have underestimated the significance of these benefits and overestimated the amount of energy needed in predicting export demand for their products. So they are repeatedly surprised as their profits decline.

Future global energy giants

It’s easy to get bogged down in the short-term battles for success in both climate change policy and our rapidly changing, cut-throat energy markets. But it is interesting to take a broader view.

We need to remember that energy is a ‘derived need’. That is, what we actually want are services, rather than energy. Receiving those services may involve consumption of more or less energy of different forms at different times, depending on technologies and behaviour. So the amount of energy we actually need can be very different from, and much less than, what we now use.


Businesses that sell high-efficiency, smart, flexible ways to provide services linked to energy will be winners. That’s appliance and equipment manufacturers, retailers and installers, builders, building product suppliers, financiers, internet-based businesses and specialist advisers who can market attractive packages. This could include smart systems that manage energy use to match availability, minimise costs and work with storage and on-site renewable energy. Integrating their energy-related offerings with other non-energy services will amplify opportunities. Finance schemes, home performance monitoring, maintenance contracts and optimised insurance packages are just a few possibilities.


Businesses that combine distributed energy, energy storage, energy efficiency and smart management are also looking good, especially in developing countries and at fringe-of-grid in developed countries.

Many niche markets are actually quite big. For example, many developing country electricity grids suffer frequent blackouts that impact on business productivity and quality of life. Many now use small petrol and diesel generators to cope, but this is expensive, dangerous, noisy and polluting. Energy-efficient equipment combined with storage, on-site low-emission electricity generation and grid-interactive capabilities can solve these problems.

Even larger markets will become available as our electricity industry shifts to time-of-use pricing or other pricing options, and all consumers, not just those with solar, see stronger signals to manage the amount and timing of energy use. For example, in NSW, afternoon to evening time-of-use prices are now over 50 cents per kilowatt-hour—a strong incentive to reduce usage from the grid at those times. And, if adopted, ‘capacity charges’ (which involve charging consumers for the peak supply capacity they use instead of the amount of electricity they consume) will drive more rapid adoption of storage and smarts to limit peak demand at a consumer level and avoid high costs.


At the other end of the scale we have energy-intensive industries that are global in scale: miners, mineral processors, metal processors, chemical companies and large-scale manufacturers and their like. Traditionally, they have sought large amounts of cheap and reliable energy.

But their world is changing. ‘Ores’ from landfill sites, wastes and replacement of existing building and equipment stock provide an increasing resource that can be more concentrated than that from traditional mining. For example, one tonne of old mobile phones contains 400 grams of gold, 80 times as much as is present in a tonne of typical gold ore (

3-D printing, biomimicry, green chemistry, dematerialisation, material switching and other changes are also transforming the fundamentals of energy-intensive industries. 3-D printing supports decentralised manufacturing and involves building up a product, instead of wasteful machining; green chemistry allows new materials to be created that are stronger, lighter, more effective or improve process efficiency; and dematerialisation uses less (or no) material to deliver a given service.

So it’s not at all clear how much energy these industries will actually need in the future, but it will be a lot less than conventional analysts predict.

Nevertheless, the bulk energy supply sector will still have a big market. But what forms of energy will it supply?

There are synergies between the oil industry’s drilling expertise and countries with large geothermal energy resources: sophisticated drilling capabilities are critical. The Pacific ‘ring of fire’ countries and others near boundaries of tectonic plates seem well positioned to access enormous amounts of reliable energy. The Philippines has been developing geothermal technologies since the 1970s, while Iceland has already attracted energy-intensive industries to use its geothermal and hydro energy resources.

Companies that can mobilise and adapt existing expertise and large amounts of capital are well positioned, as they can leverage these to gain market share in emerging markets. Countries with large renewable energy and mineral resources (both recovered and virgin) and whose governments support their development could also benefit—if they can capture a fair share of the returns from their exploitation. Australia’s solar resources offer opportunities: as Ross Garnaut has suggested, we could become a sustainable energy powerhouse by utilising our enormous renewable energy resources.

Countries and businesses that can produce forms of renewable energy suited to export and storage, and businesses that can link these to existing and new energy-consuming equipment that delivers valued services, will be well positioned.

Supply chains that can deliver sustainable transport solutions, in particular, will grow. Electric vehicles (including public transport and low-speed vehicles) will benefit from improving battery technologies and expanded renewable electricity generation. Technologies that use heat or electricity to produce renewable liquid or gaseous fuels for export and that are usable by existing vehicles will be of increasing interest. Oil-producing countries may be able to use their existing cashflow to fund such developments to maintain their market position in a zero-emission world.

Just as discovery of oil and gas in Bass Strait and the North West Shelf transformed Australia’s energy prospects and industrial development, the new renewable energy revolution will create surprises. Countries traditionally seen as importers of energy, such as Japan, could become energy giants, and threaten existing major energy suppliers.

There’s a message here for Australia, as we could be a big winner in the global race towards an energy-efficient, renewable energy future. But it would mean cannibalising our existing energy industries, a bit like the situation Kodak faced when it developed digital photography. Kodak lacked the courage to embrace the future. Will we?

Alan Pears is one of Australia’s best recognised and most highly awarded commentators on sustainable energy and climate issues. He teaches part-time at RMIT University and is co-director of Sustainable Solutions, a small consultancy.

This article was first published in ReNew 129


Induction cooktop

The Pears Report: Peak demand and ‘enoughness’

Why should we expect unlimited access to energy when we can take responsibility for how much energy we use, asks Alan Pears.

THE JANUARY 2014 extreme weather in southern Australia reignited debate over the role of air conditioners in driving peak demand. A few issues have emerged.


A thoughtful study by Ric Brazzale of the REC Traders Association reframed debate about how useful PV is in managing peaks. Since electricity data from the Australian Energy Market Operator (AEMO) does not include PV output, because it happens on the consumer side of the meter, Ric recreated the real demand profile by adding estimated half hourly PV output to the AEMO demand profile. This showed actual peak demand occurred earlier in the day, when PV was producing much more electricity.

This challenges the simplistic approach usually taken, of just looking at PV output at the time of the AEMO peak. Ric also pointed out that PV helped to significantly reduce average prices on peak days below those before the Black Saturday fires. Of course, reducing peaks and peak prices undermines generator and network profits, which is seen as a bad thing by the incumbents and some policy makers.

As demand-response bidding, energy efficiency and energy storage progress, summer peaks will become less of a problem—and less profitable for the electricity industry. I can only wonder how much cheaper electricity costs would have been if the networks had invested in these solutions instead of more powerlines.

As the owner of a small high-efficiency air conditioner operating in a well-insulated and shaded room, my peak cooling load in the heatwave was around 300 watts during ‘cool down’ on arriving home, and around 125 watts at times of extreme heat. That’s much less than a plasma TV or six halogen lamps.


All this brings me to an issue raised in the 2013 book Smart Utopia? by Yolande Strengers. She asks why the electricity industry is expected to provide unlimited power supply at all times.

This piqued my interest. In industry, I have found that the engineers who provide services such as steam and refrigeration often run grossly excess plant (and waste a lot of energy) in their quest to provide as much energy as users ask for, even if the request is unreasonably high. In the 1980s, I found the electricity industry shared this culture.

There is certainly a historical reason for this: without our modern energy options (which allow us to reduce and shift demand), many activities were critically dependent on reliable electricity supply. Indeed, many activities still are, but need not be.

The political price of supply shortages has traditionally been high, as daily life, health and business activity have been affected: heads of electricity agencies can lose their jobs, politicians can lose power. Engineers have a professional pride in providing what their clients ask for, and don’t like being blamed for shortfalls.

But modern energy solutions allow us to limit expectations of the traditional electricity supply system and, instead, place some responsibility on consumers. Such expectations would need to be phased in, with issues faced by tenants and financially stressed people recognised and transitional costs addressed. Incentives and support mechanisms, not just pricing, must be used. The alternative may be a mess, as those who are active, informed and have access to capital will look after themselves while others suffer.

This should be a core focus of energy reform policy.

Energy Issues Paper

In mid-December 2013, the government released an Energy Issues Paper and called for submissions by 7 February 2014. This process is a lead-in to release of a Green Paper in May and an Energy White Paper in September.

The Issues Paper seems to be focused on a list of short- to medium-term problems that the government thinks it needs to address. As far as it goes, this is useful, although the way issues are presented seems to disproportionately reflect the views of incumbent energy organisations and some policy makers.

Hopefully the Green Paper will take a broader view. Let’s face it, when the phrase ‘climate change’ does not appear in an energy policy document, our policy makers are struggling to be credible.

And I wish energy policy people would learn to differentiate between the price of energy and the cost of delivering energy-related services. Price matters much less if you are efficient and can avoid periods of high prices. The policy focus on price distorts energy policy towards measures that increase long-term total costs and social and environmental impacts.

Standing Council on Energy and Resources delays demand management bidding, yet again

A major criticism by the 2012 Senate Inquiry into the electricity industry, and by the Productivity Commission’s 2013 report into electricity networks, was the glacially slow progress on implementation of demand-side action. The Parer Review of 2002 and other studies have repeatedly highlighted the need to get the demand side of the market working. So it was very disappointing to see the ministers from states and commonwealth on the Standing Council on Energy and Resources decide at their December 2013 meeting to delay, yet again, rule changes to support implementation of a demand-response bidding scheme.

The only winners from this delay seem to be incumbent electricity generators and network owners. And some more demand management in the January heatwave would have been handy.

Sydney car trips

The bizarre outcomes of a car-based society were reinforced for me recently by some NSW transport statistics. Apparently 22% of all Sydney weekday car trips are to ‘serve passenger’. That is, they are unpaid chauffeuring trips, where the driver doesn’t actually want to go to the destination.

What is the cost of this planning failure in terms of time, inconvenience, congestion, parking issues, pollution, health and lack of independence? Surely it is time that local and state governments ensured our cities supported low car-dependency living? This would be much better for the young, old, parents, disabled, carers, poor and obese.

Emerging opportunities for energy storage

I wonder who will be first to actively promote an easy-to-add-on storage and smarts package for existing rooftop PV owners? This makes good business sense because hundreds of thousands of PV owning households are getting only 8 to 10 cents per kilowatt-hour for their exports, while paying 30 to 50 cents for energy in peak periods. These people are already committed to PV and frustrated with the efforts of the electricity industry and its policy makers to undermine their financial returns.

A second area for storage that I haven’t seen discussed is at the micro-level, building storage into appliances, or integrating (or plugging in) storage into local wiring within a building. This limits peak demand charges, offers potential savings on upgrading wiring and reduces wiring resistance losses in existing buildings.

Advances in supercapacitors may play a key role here. New Mazda cars use them instead of batteries for energy recovery and storage, and the CSIRO-developed UltraBattery uses supercapacitors to mediate between the battery and the load, to extend battery life and reduce losses. Research on graphene also seems likely to improve supercapacitor performance.

One example of this potential is in the installation of induction cooktops in existing homes. Most induction cooktops have ‘boost’ modes that can use over 3 kilowatts per pot, so manufacturers can claim they heat up quicker than gas. This potentially high peak demand can require upgrading of wiring back to the circuit breakers or even back to the street. But the amounts of energy required are not particularly large, so quite small amounts of storage would make a difference. For example, to boil two litres of water on an induction cooktop consumes less than a quarter of a kilowatt-hour.

A proviso is that the benefits must be balanced against the losses in the storage system.

When you look at the fine detail, the economics of appropriately designed distributed storage solutions could be much better than many expect.

Alan Pears has worked on sustainable energy issues since the late 1970s. He is one of Australia’s best recognised and most highly awarded commentators on sustainable energy and climate issues. He teaches part time at RMIT University and is co-director of Sustainable Solutions, a small consultancy.

Read more articles on energy efficiency in ReNew 127.

Alan Pears

The Pears Report: Poles and wires welfare

The Productivity Commission fights against protection in all other industries—why not in electricity? asks Alan Pears.


The 2012 Senate inquiry into electricity costs delivered a damning report on the performance of energy policy makers and regulators (see my column in ReNew 123).

Now the Productivity Commission has issued its own 820-page report. It is even more scathing.

Just about every criticism made in submissions to the Senate inquiry has been supported.

Statements include:
“These flaws require a fundamental nationally and consumer-focused package of reforms that removes the interlinked regulatory barriers to the efficiency of electricity networks. Reforms made in late 2012, including improvements to the regulatory rules, better resourcing of the regulator and greater representation of consumers, have only partly addressed these flaws.”

“Delays to reform cost consumers across the National Electricity Market (NEM) hundreds of millions of dollars.”

“There is, in effect, no point in simply fixing a punctured tyre if the car has no engine.”

I couldn’t have said it better myself…

It seems to me that the commission had to take a strong stand.

There is such widespread agreement that the energy market is a mess that to make apologies would be to undermine the future of the Productivity Commission’s broader agenda of competition and privatisation. To their credit, they have made strong recommendations with delivery dates.

Yet electricity industry welfare remains

Underlying the commission’s thinking, there is still a deep tension between open and fair markets and an assumption that the incumbent industry must be protected so it can recover its costs. So new market entrants such as solar electricity must receive only the value the incumbent industry places on their input, and pricing structures must allow incumbents to maintain their viability. This is simply a welfare scheme of a type that the commission fights against in all other industries.

The gas industry is not paid according to what it saves the existing electricity industry when someone switches to or from gas cooking. Online media are not paid what they save the hard copy media. And so on.

A classic example of the ‘welfare’ approach is the commission’s conclusion that rooftop solar should, in the short term, be paid only what it saves on generation and, in the longer term, what it saves the networks. In the meantime, it proposes that retail electricity prices should be deregulated: a licence for the incumbent industry to use its market power to block emerging competitors.

The value of rooftop solar

Rooftop solar should be allowed to sell power to neighbours independent of the grid, or be paid the retail price at the time it exports, in the same way that consumers benefit at the full retail electricity price if they save electricity or switch to gas.

On the one hand, the rate paid to PV owners should be higher than the retail price, because this is ‘green electricity’ being fed into the grid, which is worth more. On the other hand, it is fair that the PV owner pays for use of the part of the network they actually use: that is, the very small part of the network used to deliver the PV-generated power to whoever uses it. However, this latter is very different from saying that they should be paid only the wholesale electricity price, or close to it, which assumes they use the whole network and transmission system and deserve no credit for reduced power-line losses.

In theory, such an arrangement should force networks and retailers to introduce cost-reflective tariffs. But they have enormous market power and will not do this unless they are very carefully supervised, and independent analysis is done to cross-check their pricing approaches.

To avoid cost impacts on the grid beyond the neighbourhood level, a network could choose to install local energy storage to absorb the excess PV output at appropriate times. This storage could also enhance network profits if used to store cheap electricity for sale into the grid at times of high prices. So the cost of storage to solve the PV problem could be offset by the potential for greater profits.

Who pays to cover fixed costs?

The argument for higher fixed charges to cover network capital costs is also flawed. As the industry itself tells us, much of the network infrastructure is old. Logically, this should mean its capital value is heavily depreciated, so fixed costs are low for much of the grid. But the buyers of networks paid inflated prices, so their fixed costs are high. Why should consumers pay this cost?

These were business decisions: shareholders, not consumers, should pay the price of poor decisions. And governments that have chosen to inflate the value of their network assets need to take responsibility for their decisions, not solve their problem by killing energy innovation and cost reduction.

The commission needs to step back and imagine what a truly competitive energy services sector might look like, and frame its policy recommendations accordingly.

Debating (again) a national scheme for energy savings

In recent years, several state-based schemes that create energy retailer obligations to deliver greenhouse gas abatement via end-use consumers have appeared. These include the NSW Energy Savings Incentive (based on the previous Greenhouse Gas Abatement Scheme), the Victorian Energy Efficiency Target (promoted as the Energy Saving Incentive) and South Australia’s REES. The Victorian and NSW schemes use trading mechanisms.

Debate about such schemes has a long history, which is worth considering as we debate the federal government’s recent report on the costs and benefits of a National Energy Savings Initiative (NESI).

In 2003, the NSW government introduced its Greenhouse Gas Abatement Scheme—the world’s first emission trading scheme. Abatement certificates could be created through a variety of actions, including energy efficiency.

In 2007, Democrat Senator Lyn Allison (a long-term advocate for energy efficiency) proposed a similar national scheme. This was considered by a Senate Inquiry. I made one of 17 submissions, and also presented evidence. It was very clear that many influential people in the Canberra bureaucracy and politics were strongly opposed to such an approach. In my evidence, I warned that if the federal government didn’t act, individual states would, and we would have to clean up the mess in the future.

The inquiry concluded that the (then) proposed Carbon Pollution Reduction Scheme would deal with this issue within a broader framework. It didn’t. So the Victorian and South Australian governments introduced schemes in 2009.

In its conclusion, the inquiry commented that “An energy efficiency scheme set up in isolation from other climate change strategies may increase the cost of securing emission reductions…“ It’s strange how energy efficiency has to ‘fit in’ while energy market policy is allowed to conflict with policy on climate change. In practice, the present carbon trading scheme doesn’t effectively address energy efficiency either.

The 2010 Prime Minister’s Energy Efficiency Task Group proposed a national scheme. But powerful econocrats argued that carbon pricing would make such a scheme unnecessary, while energy retailers, who would carry the obligation, were not excited by the idea of paying to undermine their profits from energy sales. So it was to be “investigated”, not implemented.

Three years later, we have a paper reporting on (very conservative) economic analysis that shows substantial net economic benefit from a national scheme based on the NSW and Victorian models. I wish I could get excited about this, but the reality is that this was obvious a decade (indeed, several decades) ago.

The questions remain. Will a national scheme actually be introduced against the opposition of vested interests whose business models are falling apart along with purist economic policy designers? Will a weak target be set, creating yet another ‘boom and bust’ sustainable energy market? Will the scheme be designed to deliver real savings? Will it integrate incentives for avoiding peak demand and storing energy?

Don’t hold your breath.

Alan Pears has worked on sustainable energy issues since the late 1970s. He is one of Australia’s best recognised and most highly awarded commentators on sustainable energy and climate issues. He teaches part time at RMIT University and is co-director of Sustainable Solutions, a small consultancy.

Buy ReNew 125 at the ATA webshop.

Alan Pears

The Pears Report: Energy inefficiency

According to the International Energy Agency, energy efficiency is the key to carbon abatement—but that’s not evident in a range of recent reviews in Australia, writes Alan Pears.


The Australian Energy Market Operator (AEMO) was instructed by the government (under pressure from the Greens) to prepare a comprehensive 100% renewable scenario for the National Electricity Market. This was released recently.

Unfortunately AEMO still seems to be trapped in a supply-side straightjacket. They use demand projections that all involve ongoing growth, so the benefits of declining demand are ignored. In their scenarios, the annual peak demand will shift back to winter evenings because of the impact of PV on summer demand. Major contributors to winter evening electricity peak include lighting (residential and commercial), heating, cooking, TVs and electric hot water. All of these loads can be dramatically reduced by energy efficiency and demand management measures. Time-of-use pricing will drive this trend even faster.

AEMO also presents the cost of the renewable scenario relative to prices now, rather than relative to where prices would head anyway under the more costly business-as-usual scenario. This just perpetuates the false debate about the cost of renewable energy, although the AEMO report still shows a renewable future is affordable.

AEMO has done Australian society a disservice by failing to factor in realistic energy efficiency potential. If the energy supply industry uses these scenarios to plan investments, it will be badly burnt financially. And guess who will pay…

The role of the carbon price

The recent crash in the EU carbon price reflects a combination of lower economic (and fossil fuel) growth than expected, as well as the impact of overly generous exemptions and lack of political commitment. This situation is the outcome of being generous to powerful interests during its development, on top of the traditional inability of economic modellers to factor in market failures and innovation when projecting future emissions. The GFC has contributed too.

It highlights the reality that, while a carbon price is important, it is just one element of an effective response to climate change. We do need ‘direct action’—but serious commitment, not the Coalition’s unrealistic and misleading approach.

The linking of Australia’s carbon scheme to the EU means their politics will drive our carbon price and it will be much lower than expected. Given the broad business support to keep the carbon pricing scheme, a future Coalition government should drop its commitment to remove it. Business needs the policy stability created by carbon trading, and the low price leaves plenty of room to adapt. But ideology is a powerful force.

Within Australia, a key failure in the design of our carbon pricing scheme has been the government’s refusal to build in mechanisms for voluntary energy efficiency and energy-related emission reduction to cancel permits—and so make such activities ‘additional’ abatement beyond the carbon cap.

Basically, unless this is done, cutting an individual’s emissions simply frees up permits under the fixed cap for others to pollute more. The carbon permit pie stays the same size, but the voluntary energy efficiency or renewable energy action means that person’s share of the permit pie is reduced, leaving more room for others to pollute. This is an accounting problem, not a justification to stop cutting emissions, but it has provided an easy excuse for conservative state governments to opt out of abatement activity, forced progressive businesses and councils to shift to buying international offsets (‘abatement leakage’), and disempowered the community.

The fundamental problem is that while voluntary action in Australia to cut energy-related emissions is good for the global environment, it is not recognised in our carbon scheme’s accounting approach. Efforts of groups such as the Voluntary Carbon Markets Association failed to force the government to fix this glaring accounting problem. The Climate Change Authority is meant to address this in its review, but they have many other big issues to address.

What makes it more frustrating is that the government has established the Carbon Farming Initiative which fixes this problem for agriculture and forestry. Their carbon storage actions create additional tradeable certificates. But apparently energy is not important enough to deserve fair treatment.

COAG’s evaluation of energy efficiency programs: behind closed doors

In April 2012, the Council of Australian Governments announced that national and state governments would review 74 energy efficiency and carbon reduction programs to ensure that they were ‘complementary’ to carbon pricing and compliant with COAG’s principles for efficiency, effectiveness, equity and administrative simplicity. The results were meant to be released at the April 2013 COAG meeting.

We have already seen some state programs cut under this process. One victim was Victoria’s Environment and Resource Efficiency Program. This required about 250 larger business energy and water users to conduct audits, prepare action plans and implement measures identified that had payback periods shorter than three years. In practice, this scheme was delivering around $90 million of savings at an average payback period of under a year: that’s better than 100% annual return on investment, and a carbon cost well under minus $100 per tonne of CO2 avoided. Yet business cheered when the program was shut down. We live in a strange world.

COAG did release two papers on the outcomes of the review process. The papers do not provide any information on which programs will continue, be shut down or modified. They do tell us that 61 of the 74 programs have been reviewed, and that 34 measures will continue, 15 have been discontinued and 7 rationalised. Eighteen await decisions. Interestingly, 49 measures were found to be both complementary to carbon pricing and to meet the COAG principles. Another 18 measures have been shut down or have reached completion. An additional 88 measures have been identified for review, 50 of which are federal programs.

One of the reports states that about half of the reviews have been published, but provides no web links or other information on where these can be accessed.

This situation is most unsatisfactory. We do not know which programs are being closed or continued, nor why some measures were found to comply but have still been shut down. We are not told what the other measures already shut down are, nor what the additional 88 measures to be reviewed are.

This whole process is a serious failure of transparency. It adds to the uncertainties faced by the energy efficiency industry and potential beneficiaries from programs. Energy efficiency has a hard enough time without this kind of treatment. According to authorities such as the International Energy Agency, energy efficiency is our key carbon abatement option over the next few decades. Australia seems determined to make sure this doesn’t happen here.

PV owners stand up for your rights!

Over a million Australian households are now private electricity generators—more than 10%! Yet they get a raw deal. Now is the time to tell your local MP that you demand a fair deal.

This means prompt and competent service and billing from retailers and network operators. It means either being paid a much higher feed-in tariff (the same as the retail power price at the time of export) or being allowed to sell excess PV power to neighbours via existing power lines for a very small charge. After all, most local PV transfers would be well within capacity limits. Alternatively, we should be allowed to run our own low-capacity cables to neighbours.

Government regulators should limit the size of socially regressive and anti-competitive quarterly fixed charges. It seems that some within the electricity industry (including some regulators) see higher fixed charges as a way of discouraging competition from distributed generation and energy efficiency.

As a matter of interest, the Victorian regulator, the Essential Services Commission, has a specific objective in its legislation to ensure the financial viability of the industries it regulates—that is, the electricity supply industry. So, by law it must oppose competition from energy efficiency and other measures that threaten the incumbent businesses. Clearly this must be changed.

Some community groups are mobilising in this space (such as Solar Citizens—join in!

Alan Pears has worked on sustainable energy issues since the late 1970s. He is one of Australia’s best recognised and most highly awarded commentators on sustainable energy and climate issues. He teaches part time at RMIT University and is co-director of Sustainable Solutions, a small consultancy.

Alan Pears

The Pears Report: If I ran an electricity network…

As Australia looks for leadership on energy policy, Alan Pears rates the recent Energy White Paper as a fail. Find out why.


SINCE my last column, we have seen the release of the final Energy White Paper and the report of the Senate inquiry into electricity pricing. The final white paper was substantially improved from the draft. But it still rates a ‘fail’.

The core scenario on which future energy policy is based is the International Energy Agency’s (IEA) ‘New Policies’ scenario, which is pretty much our past growth trajectory. The IEA’s ‘450 ppm scenario’ to limit global warming to around two degrees is largely ignored. The brief discussion on page 204, titled ‘Integrating a Changing Climate into Energy Planning’ focuses on climate adaptation and climate impacts on energy infrastructure. The overall position is that cutting emissions is not the responsibility of the energy sector, but is dealt with by other government agencies and COAG councils!

So the Energy White Paper 2012, Australia’s energy transformation fails to confront fundamentals such as the IEA view that, if we are to limit global temperature increase to near two degrees Celsius, global coal consumption will decline by 30% by 2035 and that less than a third of the fossil fuel industries’ proved resources could be burned without exceeding climate limits.
The white paper encourages people to explore different scenarios with the online eFuture model, developed by CSIRO. Unfortunately, this only allows consumption growth scenarios to be explored.
Among other things, the paper argues that fossil fuels are not being subsidised, and that the generous taxation incentives simply reflect the varying risk profiles of different activities. An interesting interpretation.

As usual, energy efficiency is dealt with last, in 16 of the 227 pages of text.

Overall, this will be an interesting document for historians to look back at when they try to explain to future generations how misguided our society was, and why we failed to manage climate change.

Senate inquiry into electricity pricing

This report is a thoughtful discussion of the shambles that is our electricity market. It has some useful recommendations and is well worth a read. But the Hansard records of the inquiry hearings are much more entertaining.

Hansard shows how, on one hand, the existing energy sector is unanimous that there have been problems but that they are well on the way to fixing them, so they should just be left alone. On the other hand, they blame each other for the problems and express concern about the lack of information on which to base decisions. For example, the head of the Energy Department’s energy division admitted that his department had done no analysis of demand-reduction activities and their relationship to electricity prices (Hansard 25/9/12). How can the department advise its minister, Martin Ferguson, on energy policy without doing this?

Those outside the mainstream energy sector were unanimous that the problems are serious and will require substantial change. For example, demand management expert Dr Paul Troughton estimated that $16 billion had been spent unnecessarily on electricity supply (Hansard p.67 27/9/12).

The depth of the cultural problem in the energy sector is reflected in a comment by Australian Energy Market Commission (AEMC) chair, John Pierce, in the hearings (Hansard 25/9/12). He drew upon a football analogy, suggesting that the energy sector was just one specialist player, and that there were other specialist players responsible for environmental, social and other policy areas. He suggested that it was ridiculous for other players to try to tell a specialist player how to play as part of a team. He saw the role of AEMC as focused on economic efficiency: others should deal with other issues. He saw AEMC’s role as being “to inform other parts of government what the effect on this efficiency objective is of things they are thinking about…”

He, like others in the energy sector, interpreted the energy market objective in very narrow economic terms and saw no role for energy policy people to help other agencies to develop joint policy. No wonder energy policy conflicts with other policies.

While the inquiry and its recommendations are a very useful step, the big question is whether the energy sector will retake control of the agenda through management of the detail of ongoing changes. Or will they review their approach so it meshes with other government policies?

If I ran an electricity network…

Electricity network operators are the whipping boys of the industry, with some justification. But how could networks become part of the solution instead of part of the problem?

At present, the core business of an electricity network is seen as ensuring reliable and safe supply of electricity to consumers from large power stations and measurement of electricity use for billing purposes. They have no direct links to consumers and their culture is based on building and maintaining poles and wires. Regulators treat networks effectively as regional monopolies—although as I have pointed out before, this is incorrect, as they compete with distributed generation, energy efficiency, fuel switching and demand management—so they are able to exert unfair market power. Networks are also paid based on the size of their assets and the amount of electricity supplied through their wires.

The main risk networks now face to their businesses is that use of their capital-intensive networks will decline, while peaks become more significant. Unless regulators agree to them extracting higher charges from consumers or separating payment from electricity flows, this will reduce their profitability.

So if I ran a network, I would broaden its activities into the competitive areas of the energy markets, both wholesale and retail, as well as the energy services market.

I would install regional electricity storage systems, which I could use to store low cost electricity and sell it at premium prices. This technology could be located strategically to also store exports from PV and other distributed energy systems locally, before they complicate the operation of the main network. This would allow ‘smart’ consumer technologies to interact better with existing ‘dumb’ grids, reducing the need for high risk investment in networks.

I would seek a licence to bid demand management into the wholesale electricity market and set up a subsidiary business to develop this market capacity.

I would minimise additional investment in the existing network so that depreciation and other allowances in tax rules would allow reducing returns from them to be managed.

I would set up another subsidiary business to sell in-home and in-business displays and smart controls, on-site electricity storage, PV and stand-alone power systems, initially for fringe-of-grid customers, people in high fire-risk areas and where networks are under stress. This would include allowing consumers to share use of backup generators and storage within local areas. This could include leasing these technologies and providing ongoing fee-based maintenance and monitoring services, so that those with on-site equipment need not be deeply involved in running their energy systems. It might also include using under-utilised grid capacity to provide low cost backup.

For the existing business, I would develop more sophisticated network pricing schemes so that PV, other distributed generators and energy efficient consumers gain benefit from avoiding demand or exporting electricity at times and places of most use to the network. This would encourage PV owners to consider orienting their panels to generate more in the afternoon or to install storage to allow them to complement the grid. This might be done through adding to existing feed-in tariffs at certain times of day or by offering rebates on energy bills based on actual avoided peak demand/exports at critical times.

Remote management of specific equipment such as pool pumps and air conditioners and voluntary limits on peak demand, in exchange for discounted prices, could also be part of the new business model.
Partnerships with welfare groups, community groups and other businesses, as well as separate subsidiary businesses, will be necessary to overcome lack of consumer trust in network operators, cultural barriers and limited internal marketing and sales skills within the network business.

Some elements of this model depend on changes to energy market rules. But government policy makers should be supportive, as the alternative is higher consumer energy costs and potential business failures among network operators.

Alan Pears has worked in the energy efficiency field for over 20 years as an engineer and educator. He is Adjunct Professor at RMIT University and is co-director of environmental consultancy Sustainable Solutions.

Alan Pears

The Pears Report: A fundamental technology shift

As energy generation evolves, centralised energy companies will need to evolve as well, or face extinction. Alan Pears explains.


We are part of a vicious technology war on many fronts, as entrenched interests struggle to defend their turf. The fundamental shifts are from traditional physical, centralised technology solutions to a rapidly evolving mix of virtual, decentralised, modular, retail-focused solutions. In media, we see online versus hard copy battling. In transport, virtual transport via communications and electronic devices compete with physical transport and service provision. In water, traditional large water and sewage networks with large dams and treatment plants confront efficiency, local solutions and even waterless solutions. In energy, the battle is between traditional centralised energy systems and the combination of virtual solutions, smart management systems, high efficiency and distributed generation.

Commentator Giles Parkinson has described the crisis facing the electricity industry as its “Kodak moment’: Kodak was an early leader in digital photography, but couldn’t bring itself to cannibalise its core film business by promoting its new approach. So others did it. All existing communication, energy, water, and goods and services retailers are desperately trying to develop new business models and undermine, out-compete or absorb competition from agile, mass-produced, consumer-focused alternatives.

A recent paper from energy company AGL (Economic Policy Working Paper 31) revived the 1980s term ‘death spiral’ as it discussed the future of conventional energy companies. Their cost structure is dominated by capital costs and assets that take a long time to build and last a long time. If energy consumption stops growing (or declines) while peak demand keeps rising, they have to spread increasing fixed costs across lower than expected sales. So they must increase prices and fixed charges to balance their books—but this makes competing options more attractive, which makes the situation even worse: the death spiral.

Policy makers are struggling to understand the emerging reality. For example, they still treat electricity networks as ‘natural monopolies’ and look at emerging technologies in terms of their impacts on the existing electricity industry. As I pointed out to the Victorian Competition and Consumer Commission, mobile phone businesses are not paid based on how much they save landline networks. So why are emerging energy solutions such as PV paid based on how much they save incumbent electricity companies?

The existing electricity industry faces a fundamental problem: the harder they work to block emerging competitors, the more they encourage new solutions and the greater the risk of pent-up demand for alternatives exploding uncontrollably when costs fall enough and technology works well enough. PV is a great example: denying PV owners a fair feed-in tariff encourages a shift to including storage and even going off-grid. Major appliance manufacturers such as Samsung are moving into these markets with enormous economies of scale and sophisticated retail marketing capability.

As the AGL paper points out, these developments create potentially serious challenges for social justice policy. Wealthier people are better placed to invest in PV, energy efficiency and storage to manage their costs. AGL points out that, while families with children at home comprise only 16% of their customer base, they are 24% of customers at risk of disconnection. Yet many are not eligible for welfare support. These families are paying the price for succumbing to building industry marketing and government incentives to buy big, inefficient houses on the urban fringe with poor access to public transport and services. So their problems go far beyond their difficulties with electricity bills.

If we focus on reducing peak demand as well as total consumption, the ‘death spiral’ can be managed. As US energy expert Amory Lovins pointed out many years ago, the electricity sector depreciates the value of its assets each year, gaining tax benefits. So as long as they don’t have to build more capacity, they can hold energy prices stable while consumption continues to decline.

As part of our attack on peak demand, we will face a choice between higher fixed charges and time of use (TOU) pricing. TOU is the lesser of two evils, as high fixed charges are regressive and disempowering. We need to use TOU as part of management of demand, to send signals and manage costs, but we need much more sophisticated and equitable approaches. Victoria’s approach illustrates the problem: consumers pay a high price from 7 am to 11 pm on weekdays. Low income households can’t work around that structure. Alternatives with lower prices from 10 to 2 would allow them to cook a main lunch meal and run appliances. The peak does seem to pass by 7.30 pm, so prices could drop then.

Maybe options with a voluntary limit on peak demand in certain time blocks could also work. In Italy, most households have a 3 kilowatt demand limit—and they think this is pretty normal and reasonable. The Bushlight remote power scheme for Indigenous communities includes negotiated load shedding hierarchies. Their approach shows it’s possible to work with consumers to set priorities to limit peak electricity demand.

As sustainable energy costs decline, there is an increasing financial case for government to deliver social welfare by providing energy efficient equipment and PV systems instead of or as well as traditional energy price reductions. Housing financiers should allow extra funds for higher building efficiency, efficient equipment and PV in their mortgages, and encourage people to consider smaller, more adaptable housing.

Future carbon prices
Conventional wisdom of economists has it that carbon prices will increase as emission targets tighten. Some politicians claim this will drive increasing costs to the economy. This is simply wrong.

First, tighter emission targets will mean we emit less, so we will have to pay for fewer tonnes of carbon dioxide, offsetting the higher unit price. For example, Treasury expects the greenhouse intensity of Australian electricity to decline by around three-quarters by 2050 (Table 5.18 p.103, Treasury modelling report)—so a carbon price four times higher would  have the same overall impact on the electricity price as today.

Second, where we invest in energy efficiency, we save not just carbon cost but also the cost of the energy we would otherwise have consumed. For example, saving 10% of a household’s electricity use offsets its electricity-related carbon cost.

Third, driving innovation harder cuts the carbon cost. A rarely quoted analysis in the IPCC’s 2007 mitigation report (IPCC WG3 Report Cross-sectoral chapter) indicates that more aggressive innovation could cut the 2050 carbon price by 60% for a given target. Why? Innovation means higher energy and resource efficiency, cheaper renewable energy and lower cost renewable and recycled materials. So investment of income from carbon pricing in innovation will pay off.

Alan Pears has worked in the energy efficiency field for over twenty years as an engineer and educator. He is Adjunct Professor at RMIT University and is co-director of environmental consultancy Sustainable Solutions.

Alan Pears

Energy efficiency ignored again

Energy efficiency measures have huge potential for delivering climate change abatement, and yet they are often overlooked in the debate on climate policy. Alan Pears explains.

Many people watched the recent ABC documentary and panel show on the climate change debate. It was interesting to hear that both Clive Palmer and Nick Minchin were prepared to support renewable energy—if it were cost-effective. However, apart from a couple of passing mentions in the panel session, a sustainable energy option that already meets their criteria for cost-effectiveness and climate change abatement was ignored.


Most international experts, including the International Energy Agency, expect energy efficiency to deliver a third to half of all energy-related abatement over the next 20 years. Yet, if it’s mentioned in Australian climate policy discussion, it’s almost always an afterthought.

It’s not that policy people and commentators don’t think energy efficiency is a good thing, but it’s not ‘top of mind’—mostly they have to be prompted. And they tend to see it as a fairly small contributor to solutions. One British study recently estimated that 88% of all energy used globally is wasted before it delivers a useful service: so the potential for efficiency improvement is enormous.

There seems to be some kind of deep cultural driver for Australians to focus on supply-based solutions. I really don’t know how we can overcome this, because it is so pervasive.

At least there is some money (thanks to the cross benches, especially the Greens) in the Clean Energy Futures package for energy efficiency—although much less than for low-emission energy sources. But we will have to withstand yet another attempt by econocrats to cut energy efficiency programs because they fail the ‘complementary to carbon pricing’ test. That won’t be easy, and it will divert our efforts from delivering results to defending the validity of energy efficiency—yet again.

My recent submissions
I’ve been busy recently producing a few submissions to government inquiries (see links at the end of this article).

My submission to the Draft Energy White Paper is in two parts: part 1 is my annotations on the whole document, while part 2 is a 20-page submission summarising my key points. My main recommendation is that they start again with a new and more inclusive process that reflects a ‘whole of government’ perspective and engages households and services sectors as well as big industry.

In my submission to the Victorian Competition and Efficiency Commission inquiry into feed-in tariffs (FiTs), I pointed out that the whole debate is focused on the wrong issue: it’s not about how much PV saves the energy industry. If we step back, distributed generators should have the right to sell power to neighbours at whatever price they can negotiate: that’s how markets are meant to work. So the retail price is the right benchmark for pricing FiTs. Further, there is a legitimate argument for additional subsidies of distributed generation as an emerging technology that competes with powerful entrenched interests. I proposed that a FiT that provides the same price for exports as for consumption has many advantages.

I also made a submission on the proposed National Energy Saving Initiative. I argued that we need two kinds of certificates, as we have for renewable energy. This will allow flexibility to ensure the scheme really works to deliver outcomes and reward reductions in peak demand and other benefits beyond energy savings.

Passing the buck
The Australian Government’s failure to set up a proper accounting system so that businesses, local and state governments and households can qualify their energy efficiency and renewable energy action as ‘additional’ to the carbon target is now visibly backfiring.
The new Victorian and Queensland Governments have slashed programs on energy efficiency and renewable energy because, under the carbon pricing scheme, reducing emissions would simply leave more room under the carbon cap for other states to increase their emissions.

Under the carbon target, reducing emissions is now the federal government’s responsibility. See for detail on the problem and the solutions. How can such a perverse situation be allowed to occur?

Feedback from a reader
In my column in ReNew 110, I included some thoughts about public transport funding. One reader has responded to my comments. I’m pleased, as I was hoping to provoke some discussion. [Ed note: the reader’s letter appears on p17 of ReNew 120.]

The fact that I proposed two diametrically opposite ideas on rail crossings (one to reduce road delays and the other to allow more delays due to rail crossings) shows that I was floating ideas rather than taking a position.

But to clarify my suggestion that congestion due to rail crossings could be allowed to increase as a way of limiting traffic growth, there are some fundamentals here.

Overwhelming evidence shows that if you increase road capacity, it simply fills up to a new, higher level of traffic without solving the congestion problem. Further, if your policy objective is to reduce car usage, you need to increase capacity of alternatives while also reducing road capacity. Otherwise cars come from elsewhere to fill up the freed-up (effectively lower cost in terms of travel time) space. Economists propose road pricing as a way of limiting road use, but this has equity issues.

I was trying to point out that rail crossings can act as a policy tool to limit car usage and increase pressure on road users to shift to other options. It is imperfect, but all the options have their problems. And the money saved from avoiding construction of grade separation could be spent on extending public transport (PT) and buying more rolling stock.

With regard to the reader’s comment on my proposed PT property levy, his comment is focused on a group of workers who happen to live near good PT but work in PT-poor locations. This is a legitimate concern, but the situation is complicated. First, as congestion (or road pricing) increases, those with the cheapest or most practical options tend to change behaviour first, so this should leave more room for those who really need to use cars. Indeed, giving people who live near PT free or discounted PT travel to offset the levy cost provides an incentive to change behaviour and free up road space. The levy also creates a new incentive for PT agencies to improve and extend PT because they are rewarded with more funds. As our reader points out, we need to find more money to improve and extend PT, and this is one possibility.

The situation for tradies is challenging, but there are some options. First, as a rider on early trains into Melbourne, I’m seeing increasing numbers of tradies on PT, complete with wheelie bags of tools. Obviously this only works where there is PT, or where the tradie can travel part of the way by PT and leave their vehicle somewhere secure where PT finishes, so the trip can be completed by ute.
Second, for tradies working on new housing, there is potential to shift a lot of building construction from on-site work to housing manufactured off site. This would significantly increase productivity by reducing travel time and avoiding rain delays and damage. Countries such as Germany are able to produce high-quality, diverse housing using this approach.

For tradies involved in appliance maintenance, smart appliances and mobile phone cameras increasingly allow remote diagnosis and accurate identification of models, so they can spend less time travelling, and may even be able to carry a lot fewer spare parts.

My key point was that we need some creative ideas because present approaches to transport are not working very well. I hope the debate continues and more ideas flow!

Alan Pears has worked in the energy efficiency field for over 20 years as an engineer and educator. He is Adjunct Professor at RMIT University and is co-director of environmental consultancy Sustainable Solutions.

Alan’s recent submissions
Draft Energy White Paper:
Victorian Competition and Efficiency Commission Inquiry into Feed-in Tariffs:
National Energy Saving Initiative:

Alan Pears

Energy efficiency on the agenda

Improved energy efficiency and better public transport funding are essential to cut greenhouse gas emissions. Is a public transport levy the way to go? And could aircraft fly lower to cut emissions? Alan Pears explores the issues.

Martin Ferguson’s Department of Energy and Resources released its draft Energy White Paper in late 2011. Comments are due by mid March, and I encourage people to make submissions. It’s a disturbing document. For example, energy efficiency, considered by most studies to be a major contributor to climate abatement, is relegated to Chapter 6 section C P.170), which is not a good sign.


The introduction to the quite good but modest section on demand-side issues states: “Historically energy policy and market development in Australia have had a strong supply-side focus, suggesting that there could be further potential to realise cost-effective demand-side efficiencies through an integrated market framework.”

This comes after five chapters of supply-side, growth-focused, self-congratulatory material that shows the government hasn’t learnt this lesson. The paper quotes Bureau of Resources and Energy Economics growth projections that Australian primary energy consumption will rise by 30% and electricity consumption by 42% by 2035. Yet electricity consumption has been declining for the past three years.

The paper proposes three objectives:
• Provide accessible, reliable and competitively priced energy for all Australians;
• Enhance Australia’s domestic and export growth potential;
• Deliver clean and sustainable energy.

The impact on business and household budgets is the total cost of energy, not the price per unit. A recent UK study estimated that 88% of world primary energy consumption was wasted, so energy efficiency improvement has the potential to transform our energy requirements and costs.

But this is not used to frame the approach.

If the second objective relates to energy production and use, it seems potentially incompatible with sustainable development of our overall economy and energy (the third objective), which might involve reducing energy consumption and exports.

The ‘old paradigm’ energy industry is facing increasing costs, low rates of return and long transition times. Energy and climate commentator Giles Parkinson recently said the energy industry is facing its ‘Kodak’ moment, as a new paradigm sweeps through.

The paper’s response to the energy market mess seems to be to create additional, separate markets and regulations to ‘fix’ a problem that need not exist, creating conflict between the various market signals and regulations. This is inefficient policy that is costing Australia dearly in both financial and environmental terms.

Let’s hope the final White Paper is a big improvement on the draft.

Big car and SUV buyers

It seems that most large cars and SUVs are bought by business (Richard Blackburn, The Age online, 4 Feb 2012). Private buyers prefer small cars. Since business vehicles receive tax deductions, this means the community is subsidising purchase and use of fuel guzzlers. But it’s worse than that. Business (and governments) typically own their new cars for only 40,000 to 100,000 kilometres, then sell them. Secondhand car buyers can only choose from what’s available on the secondhand market, so they use these large vehicles for the bulk of their typically 250,000 kilometre lives. So buyers of new high consumption vehicles actually lock-in a legacy of ongoing higher fuel use and running costs for future owners.

Public transport funding

The latest strategy by the road lobby in Melbourne seems to be grade separation of railway crossings, so that traffic is not affected by increasing frequency of trains. This seems to be described as rail funding, yet it does nothing for rail performance. As a rail user, it seems there is potential for boom gate closure times to be reduced by modern sensor technologies instead. It’s not hard to monitor the changing speed of a train approaching a station, and to lower boom gates if there is a risk of the train overshooting, instead of lowering them when the train is a long way from the crossing.

We should also be looking at the broader economics. If railway crossings reduce the number of cars in use by increasing congestion, that potentially brings societal economic benefits that may offset the congestion costs. It shifts more car usage to public transport and other options, and the money not spent on grade separation could be used to expand the public transport system.

Public transport funding should be revisited, possibly with a property levy, offset by free public transport entitlements. The levy size would be linked to the quality of access to public transport. My logic is that if someone lives near good public transport, but doesn’t use it, they are depriving someone else of their right to access this service.

In return, each household and business could be entitled to some free public transport usage. This would link funding to service improvement, creating an incentive for operators and government to support public transport. And it would encourage those close to public transport to use it.

A solution for low emission air travel

When British climate commentator George Monbiot wrote Heat in 2006, he found feasible low emission solutions for most aspects of modern life—except air travel. Indirect emissions from contrails (cloudy trails), cirrus cloud formation and pollutants emitted from jet engines amplify the direct warming due to carbon dioxide from aircraft fuel by three to five times, according to the IPCC.

British research that seems to have been missed by climate researchers (Victoria Williams and Robert Noland Transportation Research Part D, 2002 and 2005) has found that creation of contrails and cirrus cloud is very sensitive to the temperature and humidity of the air flown through. If the air is warm enough (typically below 6000 to 7000 metres) these effects are avoided, and the main impact is due to fuel burning, much of which could be avoided by using sustainably-sourced renewable fuel. Many propellor-driven planes already fly at this altitude. It does mean passengers may experience a bumpier ride and it slightly increases fuel consumption. It does not mean we can keep flying as much as we want, because it limits usable air space and the large direct emissions from air travel or the amount of renewable fuel they would consume would still create major environmental pressures.

State government and climate change

Industry environmental newsletter CE Daily (27 Jan 2012) has analysed the number of times the Victorian Premier and key ministers have used the term ‘climate change’ in press releases and parliament during 2011. The results are disturbing. Premier Baillieu used the term once, in a media statement about location of the Climate Change Authority in Melbourne by the Commonwealth Government. Energy Minister Michael O’Brien used it once in parliament, when quoting a Labor MP. Climate Change Minister Ryan Smith used the term only once in parliamentary debate and in two press releases.

The climate sceptics within the Victorian State Government seem to be winning. It reminds me of the Faulty Towers saying: “Just don’t mention the war!” We live in a bizarre world.

Alan Pears has worked in the energy efficiency field for over twenty years as an engineer and educator. He is Adjunct Professor at RMIT University and is co-director of environmental consultancy Sustainable Solutions.

Alan Pears

The great gas debate

Moving to natural gas is not the ideal solution many would have us believe, writes Alan Pears. Plus, the case for running your PV system independent of the grid.

As energy expert Ian Dunlop pointed out at a recent Climate Alliance conference, humans are investing billions of dollars in exploration for more fossil fuels, when we cannot burn those we already know about without risking runaway climate change. Yet this investment is considered ‘conservative’ by many financiers.


Our energy market policy experts consistently overprice emerging sustainable energy technologies and underestimate their potential for growth. This is seen as prudent, even though it increases risk of overinvestment in outmoded technologies that could become stranded assets no one wants.

Study after study undervalues the benefits of sustainable energy. For example, a study for the Clean Energy Council on feed-in tariff pricing for PV power concluded it should be less than 10 cents per kilowatt-hour, when solar advocates argue for retail price equivalence. This study ignored the avoided and deferred energy infrastructure costs. It used an annual average percentage of net exports to estimate the avoided demand on hot days. And so on. Yet work like this is considered ‘safe’, because it makes ‘conservative’ assumptions. It makes assumptions that work against sustainable energy.

The problem is that what has been ‘conservative’ is now risky financially and for the climate. If we under-invest in innovation and over-invest in high emission solutions, we are wasting money and building future liabilities. We need to rethink our energy policy analysis approach, before the hole our energy policy people have been digging gets even deeper.

PV and feed-in tariffs

As usual, policy makers have accepted ‘conservative’ analyses like the one above, that claim limited benefit from photovoltaics (PV). In contrast, a more thorough analysis by Melbourne University’s Energy Institute and Beyond Zero Emissions, in which the hourly net output of the PVs was modelled, gave a very different result: PV is reducing energy prices for everyone.

Efforts by policy makers to cut FiTs assume that PV owners have no choice but to sell their excess power to the retailer when they generate it. They still fail to see customers as partners in a sustainable energy future. Their focus is to prop up the existing industry at the cost of emerging competitors—consistent with the terms of reference issued by misguided energy ministers.

But when some time-of-use electricity tariffs are charging over 40 cents per kilowatt-hour at certain times of the day, the economics of energy storage start to look interesting for PV owners (and, indeed, anyone who can store cheap electricity and use it at high cost times). If you have the choice of being paid less than 10 cents/kWh for PV exports at that price, the cost and energy losses of storage can be comfortably covered if the energy replaces electricity priced at 40 cents/kWh.

Already some inverter manufacturers offer the capacity to add storage and run independent of the grid. Battery technology is improving and costs are falling due to electric vehicle development.

Great gas emission debate

The gas industry has promoted shifting to gas as the panacea to cut greenhouse gas emissions. A recent study by climate specialist Tom Wigley has challenged this. Wigley uses a climate model to explore the year by year warming effects of replacing half of global coal use with gas by 2050 (phased in at 1.25 percent additional coal replacement each year to 2050). He includes a range of options for methane leakage from gas production from zero to ten percent. This provides some interesting insights.

Wigley’s work is much more useful than the Worley Parsons industry study, which uses warming factors averaged over 100 years: this understates the significance of the short term impacts of methane leakage and simplifies the complexities of atmospheric processes.

There are actually two independent factors at work in Wigley’s study. First, there is the effect of a reduction in coal use, which cuts emissions of CO2 and methane leakage from coal mines, reducing warming. But it also reduces air pollutants such as oxides of sulphur and carbon particulates, which reduces their short term cooling effects. Wigley’s paper suggests this loss of cooling will offset most of the reduction in warming from cutting coal use until mid-century, when the long-term effect of reducing CO2 begins to swamp the air pollution effect.

Reduction in coal use could happen independent of gas use, driven by strong energy efficiency improvement, rapid adoption of renewables or even economic collapse. Indeed, the only way to achieve significant reduction in net warming by 2050 from cutting coal use seems to be through replacing it with zero emission options, because of the loss of the air pollution cooling effect.

Second is the impact of increasing gas consumption, which depends on how much methane leaks during production, the amount and type(s) of energy used for processing, liquefaction and regasification (if sold as LNG), transport, and the efficiency of gas usage compared with the coal it replaces. Wigley assumes all extra gas is used at 60 percent efficiency to produce electricity that replaces 32 percent efficient coal-fired electricity. He ignores LNG (liquified natural gas) production and transport (which, according to the Worley Parsons industry study data adds 22% to gas CO2 emissions). So Wigley’s assumptions are generous to gas.

If we consider CO2 emissions only, replacing coal with gas does reduce net warming progressively from the first year, due to its lower greenhouse intensity and higher assumed efficiency of use.

The change in methane warming impact depends on the balance between the reduction in leakage from coal mines relative to the extra leakage from gas production. A net increase in methane leakage gives net warming, particularly in the first few decades after the methane is released, as methane is a very greenhouse-active gas over this period.

In Wigley’s study, the reduction in cooling from sulphur oxides and particulates as coal use declines, offsets the reduction in warming from gas replacing coal (at 1.25 percent additional substitution per year) until 2050. As I pointed out earlier, this air pollution effect will happen whatever causes a decline in coal use, not just gas.

Overall, the loss of air pollution cooling offsets the reduction in warming through gas replacing half of coal usage to 2050, even with no methane leakage from gas. At 2.5 percent leakage, the breakeven point is around 2055. At 10 percent leakage (a high scenario), it is 2140. Not good. So the net climate benefit of replacing coal with gas over the next century is very sensitive to the overall efficiency of production and use of gas relative to coal, and the extent of methane leakage.

If gas is to help achieve a sustainable energy future, the industry must change. It must drive efficiency improvement in gas production and usage hard, so that gas consumption at many sites actually declines. For example, combining on-site efficiency improvement with cogeneration can reduce total site gas consumption while replacing imported electricity.

The industry should use renewable energy for production and transport where possible. It must aim for zero methane (and CO2 from gas fields) leakage, and accept independent monitoring for credibility.
Gas companies should also buy offsets to balance all emissions in their supply chains, while encouraging consumers to buy offsets to balance emissions from gas usage.

They must invest in zero emission options such as biogas, renewable synthetic gas and possibly hydrogen. Lastly, coal seam and shale gas must prove they won’t damage our underground water resources.
Then the gas industry might be able to claim a transitional role in the path towards a sustainable future.

Alan Pears has worked in the energy efficiency field for over twenty years as an engineer and educator. He is Adjunct Professor at RMIT University and is co-director of environmental consultancy Sustainable Solutions.

Alan Pears

Playing carbon politics

The carbon package offers a constructive path forward, despite the current scare campaign, writes Alan Pears.

When is a lie a lie in politics? Julia Gillard is under enormous pressure about a semantic issue: whether a three-year fixed price carbon permit scheme applying to about 500 entities is a tax or the first stage of an emissions trading scheme, negotiated by a minority government. Meanwhile, Tony Abbott can claim that individuals and small businesses will be harassed by ‘carbon police’, that industries will shut down and that many will experience massive costs, all with no basis in fact. Indeed, we all know that the Hazelwood or Yallourn power stations will shut down eventually under either a Tony Abbott or Julia Gillard-led government.


Media can run with lead articles about the scale of impacts on industries being far higher than that estimated by Treasury, based on ‘gut feelings’ of people from within the affected industries, or selective quotes from carefully qualified consultancy studies, the detail of which no one bothers to read. At the same time, powerful vested interests can manipulate our media with impunity.

This is a serious challenge to the governance of our society.

Government Clean Energy Future package
The government’s carbon package shows the value of a range of people with constructive intent negotiating a path forward. The outcome is much better than was developed behind closed doors by the Rudd government with its bureaucrats and consultants.

The package combines a price signal on emission of carbon dioxide and an important structural change to income tax. The large increase in the tax threshold is an equitable alternative that encourages greater workforce participation without slashing worker rights.

The package links ‘direct action’ measures to the carbon price and very (indeed, overly) generous compensation. Importantly, it does not lock us into a weak 2020 abatement target. It creates floor and ceiling prices to reduce risk for investors in abatement and limits use of international permits. It also includes a range of review mechanisms to allow adjustment where assumptions underlying the package prove incorrect, and in response to stronger global action.

Lastly, it gives us time to work out how to ensure that voluntary abatement action can be properly treated under the trading scheme. In the package, the government commits to treat household voluntary action as additional by factoring it into the levels of future targets (section 3.3.1). Unfortunately this won’t be enough to satisfy carbon accountants and the ACCC. And voluntary action by local and state governments and business must also be additional if they are to be empowered to lead on abatement.

The emphasis on renewable energy is welcome, with billions of dollars allocated to drive innovation and cost reduction. But energy efficiency is still seriously underdone: the foreword, from the Prime Minister, treasurer and climate change minister, does not mention energy efficiency (our most cost-effective abatement option) once.

Later in the package it’s mentioned that the Clean Energy Finance Corporation will also support energy efficiency. Other measures add up to $1.5 million of very worthwhile actions. But this is very modest compared with resources allocated elsewhere.

And, while the government has committed to expedite a national energy efficiency scheme, there are no guarantees it will implement it or set a meaningful target (see below).

The real energy war
The energy supply sector has used the carbon price to justify massive compensation. But the carbon price is really a relatively small factor in the perfect storm facing the conventional energy sector. On one hand, if it is to deliver reliable energy, it has to invest massively, leading to large increases in energy prices. On the other hand, it faces a wave of non-traditional competitors that can be rolled out rapidly and which attack the most profitable areas of revenue. And energy consumers are increasingly seeking to insure themselves against future energy price increases by adopting competing alternatives.

Consider two examples. In 2010, 384MW of additional photovoltaic capacity was installed, tripling Australia’s total capacity. By late May this year, another 275MW had been added. So by the end of 2011, 1000MW of PV power may be installed over two years, and this operates well on hot days. This undermines the most profitable operating times for power stations (including coal plant, which receives the ‘marginal’ price bid by the highest cost operating power station). So not only does PV undermine the case for network investment, but it also removes a disproportionately large chunk of profit. And it is being rolled out very fast.

On the demand side, there are many millions of inefficient low-voltage halogen lamps installed. We are just reaching the tipping point where LED and compact fluorescent lamps can provide enough light of good enough quality at an affordable price. Once supermarkets start selling these products, the impacts on demand will be significant. Replacing 10 million halogens reduces potential demand by up to 500 megawatts, plus the reduction in cooling needed to offset the heat they generate.

There are many more factors at work, such as tightening building codes, phase-out of electric hot water, radical efficiency improvements in TVs and so on.

The electricity industry has traditionally used its enormous political and financial power to block competitors. For example, the energy market rules were designed and used to block cogeneration and energy efficiency. But energy price increases and the climate issue mean that politicians are under increasing pressure to support alternatives. So past strategies will no longer work. The challenge is to become part of a sustainable energy future.

This means energy retailers need to own and operate cogeneration systems hosted by industries and sell energy services to customers, as Origin is already beginning to do. Retailers and network operators need to treat customers as partners, not passive victims to be exploited. Governments and regulators need to focus on the public interest, not maintaining the viability of the existing energy industry. And we all need to confront the reality that past poor business decisions and arrogance will come back to bite some industry participants. They will go down fighting hard, and aggressively seeking ‘compensation’ for their poor judgements, based on the well-worn argument that ‘they’re too big to be allowed to fail’.

It’s also interesting to note that, in the Australian Energy Market Commission’s recent review of expected energy price increases, 60% of Victoria’s expected 27% price increase (that is, 16% price increase) over the next three years is due to increasing retailer charges. Apparently the extraordinarily high rate of customer churn (changing from one retailer to another) is adding major administrative and marketing costs for retailers. Indeed, Victorian households will be paying more for the privilege of being harassed by aggressive salespeople offering no real benefits than we will pay for the carbon price!
Government and regulators claim this high churn shows we have a successful market. I suggest it shows we have a serious market failure, as reflected in the high rates of consumer complaints and the (now visible) extra cost. Other states can look forward to similar waste of money as their retail markets become more ‘competitive’.

The increased VEET target
Another interesting development is the recent doubling of the target for the Victorian Energy Efficiency Target to 5.4 million tonnes of abatement. This compares with Victoria’s annual greenhouse emissions of around 125 million tonnes. It sounds impressive, until you look at the fine print. The target is for ‘deemed’ abatement spread over the lives of the measures rewarded by the scheme. So it’s more like 0.5 million tonnes each year. More PR magic. Keep in mind, the Commonwealth government is looking at a similar national scheme, so we will need to carefully analyse any target they set.

Alan Pears has worked in the energy efficiency field for over twenty years as an engineer and educator. He is Adjunct Professor at RMIT University and is co-director of environmental consultancy Sustainable Solutions.

Read the full article in ReNew 117

Alan Pears

Watching energy efficiency potential slip away

Energy efficiency is still being overlooked as a primary method of greenhouse gas reductions, explains Alan Pears.

A recently released International Energy Agency study found that 2010 public expenditure on energy efficiency in Australia was the lowest of a sample of 18 countries. How can we afford not to invest in the most cost-effective abatement option that also enhances competitiveness? Look at the lost opportunities.


In 2010 the star rating scales for several appliances were toughened­—but there was no public information campaign about the good news that appliances had improved efficiency beyond the existing scales. And first home buyer schemes continue to ignore the potential to target them towards smaller, more energy-efficient homes and installation of on-site renewables.

As we move towards the transition to digital TV, millions of old TVs are being discarded, and valuable resources lost, because governments have largely failed to establish large-scale recycling schemes. Government has run frequent TV advertisements warning people to get ready, yet they make no mention of the importance of choosing an energy efficient set-top box or new TV.

Since TV energy labelling was introduced in late 2009, a new generation of very efficient 7- to 8-star TVs has appeared. Not only are these more efficient than older flat screen units, but they are also more efficient than traditional cathode ray tube (CRT) TVs. But the old, inefficient flat screen products are still on the market, so informed choice of high efficiency products is not guaranteed.

This demonstrates how fragmented government action misses opportunities to capture energy efficiency potential and leaves us with millions of energy wasting items of equipment. What a lost opportunity.

In my last column I described my bemusement at the mixed signals coming from governments about sustainable energy policy. I think it’s now clear: sustainable energy policy is a low priority for governments. At the national level, the twin forces of the political need to reach budget surplus by 2012-13, combined with the ideological agenda that a carbon price will fix everything, means support for sustainable energy is expendable. In some states, the combination of climate scepticism, environmental politics and efforts to make budget savings have led to cutbacks, and have fuelled public attacks, presumably to justify reduced assistance to sustainable energy. In NSW the government has even attempted to apply retrospective change to PV legislation—setting a dangerous precedent. Recent state and commonwealth budget statements have confirmed serious cutbacks. Things are looking bleak.

Are PVs high cost abatement?

Recently we have seen intensive attacks on subsidies for PVs as ‘middle class welfare’ and ‘high cost abatement’. There’s no doubt policymakers haven’t done well on PV policy. But it has worked both ways. The industry’s development has been hampered by ‘stop-start’ policy. Most states have chosen the more complex and less attractive net feed-in tariff over a gross feed-in tariff. On the other hand, many of the subsidies have been very generous.

But we need to put this into context. Governments have chosen to continue poorly targeted first home buyers grants that drive up house prices and reward those who build large inefficient homes as well as those who want modest sustainable homes. Industries such as car manufacturers and aluminium smelters have been treated generously. We also need to remember that the Howard government introduced, then doubled PV rebates as a blatant vote chasing strategy. Labor matched them as an election commitment. Similarly, states introduced feed-in tariffs to win votes.

More recently, the PV rebate cost was shifted from consolidated revenue to a charge on energy retailers—presumably to make it easier to meet the government’s deficit reduction target. Now governments have been caught as energy prices skyrocket, largely because of failure to drive energy efficiency and distributed generation by the flawed energy market structure.

So PV policy can hardly be described as well planned and consistent.

However, the positive outcome of this ad-hoc shambles has been a transformation of the PV industry. It is now geared to deliver large-scale roll-out, while prices have come down significantly. Part of this is due to the high Australian dollar, but sales and installation have been streamlined and we have ridden the dramatic economies of scale of accelerating global production.

Government now faces a dilemma. If it cuts the PV subsidies, demand may crash and it will be seen as anti-renewables. At the same time, it will be undermining adoption of a very popular emission abatement technology. But if it keeps subsidies, what level of support is needed to keep demand high enough to build this important industry? Good question.

According to my calculations, an unsubsidised 1.5kW PV system is now close to being a zero or negative cost abatement option for a household if it can be financed at mortgage interest rates and its output either replaces daytime electricity (on a time of use tariff) or is paid for exports at that rate. With predicted increases in electricity prices, the financial case looks good.

But this doesn’t mean finance at this interest rate will be available, or that people will act ‘rationally’ and install them without subsidies. This is no different from the behaviour of industry, who had to be forced by legislation to even look for very cost-effective energy efficiency savings that deliver rates of return of 20-50% per annum or better. We are not very rational about future savings.

One option would be to mandate PV installation, for example on larger new homes and new apartment buildings. People building large homes are clearly not struggling to get a modest roof over their heads, and over the long term, it is a good investment for them. For apartments, the split incentive problem due to the disconnect between developer and occupant is a serious market failure.

A bank that looks rationally at the economics of PV would see that its revenue will cover any additional repayments, so it actually enhances the home buyer’s capacity to repay the mortgage. And it provides insurance against future energy price increases. So government could encourage or require banks to offer ‘bonus’ finance to cover a PV system on any new mortgage.

Incentives or subsidies could also be focused on installations in areas where electricity networks are under pressure, where powerline losses are high and where solar radiation is highest. There is also a case for low-income households to be entitled to installation of PV, with repayments delivered via a charge on council rates: this would help insulate them from increasing energy prices.

There are lots of creative policy options to take PV away from being a political football. Let’s hope government has enough imagination to find a constructive path forward instead of undermining the future of the PV industry.

Nuclear backtracking

The recent Japanese nuclear crisis has set back the plans of the nuclear industry to expand. We have seen again how a single nuclear accident can force the evacuation of large areas of valuable land for many years, while causing massive short term economic and social dislocation. Surely nuclear generators should be required to carry insurance against such an event? Of course, if they did, nuclear energy would be much more expensive and would simply fade away. Interesting, then, to see the Japanese government providing assistance to the power company that owns Fukushima.

Alan Pears has worked in the energy efficiency field for over twenty years as an engineer and educator. He is Adjunct Professor at RMIT University and is co-director of environmental consultancy Sustainable Solutions.

Read the full article in ReNew 116

Alan Pears

The national picture – issue 115

Climate change programs have been cut to repair damaged infrastructure caused by extreme weather. Alan Pears challenges the econocrats this issue.

It has certainly been a wild summer of contrasts, with fires, floods and cyclones causing mayhem. But the Federal Government has the solution: a carbon price. In a remarkable decision, energy efficiency and renewable energy programs have been cut to fund repairs. Does this tell the sustainable energy industry it’s expendable? Does it encourage climate change denialists? Does it show that econocrats who believe price signals drive everything are winning in Canberra? Have the pragmatists just tidied up some politically risky programs without thinking about the signals they’re sending? Or is it policy on the run? I’m bemused.


The complexity of carbon pricing impacts was highlighted recently for me when the New South Wales Government announced it would provide cheap black coal for privatised power stations. Some have suggested that this undermines emission abatement. But it’s not straightforward.

Before this announcement, it seemed likely that global coal price pressures would drive up black coal prices. So black coal plants would face both a carbon price and an increased coal price. Victorian brown coal plants would face only a carbon price impact 30% higher than black coal. So the overall outcome might well have made brown coal power stations cheaper to run than black coal.

And, at expected carbon prices, they would still be cheaper than gas and renewables at the margin, especially because gas prices are expected to trend towards much higher international prices when LNG export facilities are built on the east coast and compete for local gas.

So the New South Wales Government subsidy may undermine the financial viability of higher greenhouse impact brown coal power stations, while increasing the financial value of black coal plants.

All Australian export businesses have had to cope with a large increase in the Australian dollar exchange rate, which is a far bigger problem than any carbon price would be. But how many exporters have received compensation? So why does a smaller environmental cost require generous compensation? There is a double standard here.

The way a carbon price will influence any business, household or government will be complex, because it has to compete with many other powerful forces. It will only be one element of a package of measures needed to deliver effective, equitable outcomes.

Carbon Farming Initiative—a step in the right direction?

I am keen to see the Federal Government treat voluntary abatement action appropriately by cancelling Kyoto permits to ensure it is ‘additional’—that is, it should count as global emission reduction instead of just making room under the Kyoto cap for others to emit more. It has been a challenge to get the government to acknowledge the importance of empowering Australians and mobilising voluntary abatement. So I was fascinated when the government recently announced its Carbon Farming Initiative.

The CFI sets an important precedent: the government will cancel Kyoto permits equivalent to certified additional abatement from activities within Kyoto covered sectors (as well as other activities outside Kyoto) in agriculture and forestry. All we need now is for them to apply the same approach to sustainable energy and waste management. Then we can get on with serious abatement instead of battling with econocrats.

Building code in hot water?

From May 2011, the new national 6 Star building regulations will be introduced—with variations in some states. Plumbing is being integrated into what becomes the National Construction Code. It will include not only building energy performance requirements, but also requirements on maximum lighting energy capacity and greenhouse gas emissions from hot water systems. This reflects recognition that, while building envelope performance is uniquely important because of its long life, high upgrade cost, and impacts on health and amenity, other aspects, particularly hot water and lighting, are major contributors to emissions.

Only hot water services that generate less than 100 grams of greenhouse gas per megajoule of heat delivered will be allowed. About eight litres of water heated from 20°C to 50°C (the legal delivery temperature) absorbs 1MJ. Most people interpret this to mean that resistive electric hot water services will not comply, although one-bedroom homes and ‘second’ hot water services of 50 litres or less storage capacity are exempt. This will presumably drive households towards gas, LPG, solar-electric (with at least 70% solar contribution), heat pump (with coefficient of performance of 3 or better), or solar-gas.

While superficially this looks like a sensible ‘performance-based’ approach to regulation, it creates some issues.
For hot water services with high fixed losses (e.g. storage units, shared hot water systems and homes with pumped ring mains), a product may meet the requirement at the ‘standard’ daily draw-offs (125 and 200 litres per day). But for water-efficient or small households, fixed losses may push actual average emissions above the 100 gram limit.

The exemption for small electric hot water services is problematic. A large proportion of apartments, units and granny flats have these units, while second units are typically installed in the largest homes, so substantial emissions may result. But there are situations where resistive hot water services can make practical, financial and environmental sense. Indeed, instantaneous electric hot water units can also avoid most standby losses.

We could require overall compliance with the 100 gram limit for appropriate delivered hot water volumes via either on-site technologies or the purchase of lifetime Renewable Energy Certificates at the time the system is purchased. This would be a comprehensive performance-based approach. The last of these options would encourage growth of the renewable energy industry by removing a lifetime’s worth of RECs from the market today for each hot water system, creating scarcity and driving the REC price higher. This is the opposite of past government approaches, issuing lifetime RECs for photovoltaics and solar hot water, which drove REC prices down and damaged the broader renewable energy industry.

EEO mid-term report
The Energy Efficiency Opportunities program requires large Australian energy users to assess their energy use efficiency and report publicly on identified improvements and what they do about them. There has been some scepticism about the program: econocrats think energy intensive business is already efficient, while interventionists think you need to mandate action to get results.

But EEO is unusual. It mandates a very thorough assessment process, requires preparation of formal business cases and Board sign-off. It makes energy efficiency a corporate and reputation issue.

After two rounds of reporting, cost-effective (i.e. negative carbon cost) savings of 93 petajoules of energy had been identified (seven to nine million tonnes a year of emissions), of which over half were being implemented and only 10% were not to be pursued. Overall, savings of over 8% of assessed energy use have been identified.

A survey showed that the percentage of firms with good documentation and analysis of energy use had risen from 20% to 60%. Existence of barriers to energy efficiency declined markedly. Having no one responsible fell from 45% to under 5%, while lack of senior management engagement fell from 32% to 12%. At the same time, most of the measures identified and implemented delivered payback periods of under two years, so there are still lots of negative cost abatement options to be found.

This is very exciting. It shows that there are real barriers to energy efficiency, even in supposedly efficient energy intensive industries, and that carefully designed programs can change corporate culture and deliver significant outcomes.

Alan Pears has worked in the energy efficiency field for over twenty years as an engineer and educator. He is Adjunct Professor at RMIT University and is co-director of environmental consultancy Sustainable Solutions.