Ju

ne 2012, V

How Can Job creationcontribution

Number ofcreated

ContributioGDP

Source: EW

and the Eco

Electricity CurrentsA survey of current industry news and developments

The Right Time to Slash Renewables’ Subsidies?

In Electricity Currents This Month:

The Right Time to Slash Renewables’

Subsidies? . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Consumers’ Transformation into

‘Prosumers’ Prompts Migration to DG

and Efficiency. . . . . . . . . . . . . . . . . . . . . . . . 1

Why Are Prices So High for Electricity

in Australia? . . . . . . . . . . . . . . . . . . . . . . . . 3

Natural Gas Prices Firming, on Output

Cutbacks, and Surging Demand . . . . . . . . . . . 5

Electricity Currents is compiled from the

monthly newsletter EEnergy Informer pub-

lished by Fereidoon P. Sioshansi, President

of Menlo Energy Economics, a consultancy

based in San Francisco. He can be reached

at fpsioshansi@aol.com.

Mindful of the fiscal belt tightening currently in

vogue nearly everywhere, renewable energy advocates

and their trade associations have changed their sales

pitch to appeal to the austerity-minded politicians and

bean counters. Instead of vouching for renewables’

environmental benefits, the focus is on creating jobs,

greasing the economy’s wheels, avoiding expensive fuel

imports, and supporting export industries of the future. It

is a powerful message, even if exaggerated.

The European Wind Energy Association’s (EWEA)

latest glossy report, titled Green Growth: The Impact of

Wind Energy on Jobs and the Economy, is almost entirely

focused on why wind – and by extension all clean

technologies – are deserving of governments’ largess

even in these fiscally constrained times. It is an

impressive pitch few politicians can afford to ignore out

of hand.

Currently accounting for 0.26 percent of EU’s GDP,

the European wind industry is already bigger than

footwear, and likely to eclipse clothing and furniture

manufacturing. If recent growth rates can be

maintained, someday it may even exceed the important

aerospace sector, currently accounting for 1.5 percent of

EU’s GDP. That is the sort of industry and jobs that a

ol. 25, Issue 5 1040-6190/$–see front matter

Continued on page 6

We Afford Not to Support Wind? potential, in thousands of direct/indirect jobs and

to EU’s GDP, in € billion2010 2020 2030

jobs 238,000 521,000 794,000

n to EU’s €32.4 B €94.5 B €173 B

EA, Green Growth: The Impact of Wind Energy on Jobsnomy

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onsumers’ Transformation intoProsumers’ Prompts Migrationo DG and Efficiency

Every now and then, one comes across

lternative visions of how changes in

egulations, technology, prices, consumer

ttitudes, and other developments might

nfluence the future evolution of the industry.

mong the significant changes taking place is

he fact that passive consumers, whose

emand was traditionally taken for granted,

re gradually becoming proactive, engaged,

nd empowered prosumers. There are several

reasons for this:

1

2

� First are rapid advancements in technology and

equally rapid drop in prices that are increasingly

making customer-side distributed generation (DG)

not only feasible but cost-competitive in high-price

regions;

� Second is advancements in technologies

that allow customers not only to monitor their

consumption but modify and adjust it in ways

that would save money; and

� Third, changes in regulations and policy that

actively promote and encourage consumers’ active

engagement in balancing supply and demand.

Let’s examine these in turn.

First, in some high-cost regions with rising

multiple-tier electricity tariffs, consumers don’t

need any complicated math to conclude that

investing in solar hot water heaters, rooftop PVs,

and energy efficiency is cost-effective. For a high-

consumption household that typically gets into the

high top tiers, rooftop PVs generating juice at 16

cents/kWh may sound expensive but are a real

bargain. This is true in California today, and likely

to apply to other jurisdictions in the future.

In California, where the bottom two tiers were

frozen until recently, all price increases have been

applied to the top tiers. The top tier for heavy

users, which was around 25 cents/kWh in 2003,

had risen to 50 cents for Pacific Gas & Electric

Company (PG&E) by 2010. Similarly high tariffs

apply to the other two private California utilities.

There have been adjustments in PG&E rates

following a consumer revolt, but the top tiers are

projected to approach a range of 50 cents/kWh by

2020 if not sooner. Prices will continue to creep

upward because of increased costs associated with

meeting the state’s ambitious 33 percent renewable

target by 2020 as well as necessary investments to

maintain and upgrade the transmission &

distribution (T&D) network.

Similar cost pressures – with or without the

added burden of meeting renewable targets – are

present across the industry and not just in the U.S.

In the case of California, renewables are an

important factor but projected investments in T&D

are even higher. Lower natural gas prices are

projected to keep fossil fuel costs modest.

1040-6190/$–see front matter

Making matters easier for consumers to avoid

paying rising grid-provided electricity is the

option to lease solar rooftop PVs even if they lack

sufficient funds to invest. An increasing number of

PV installers are willing to sell the output of PVs

to consumers under a long-term contract, with

virtually nothing down. It is an option that many

consumers find hard to refuse, given the lure of

modest to significant savings in monthly electric

bills from virtually the first day the PVs are

installed.

Second, a growing number of utilities, Pacific

Gas & Electric Company (PG&E), Southern

California Edison Company (SCE), and San Diego

Gas & Electric (SDG&E) among them, provide

their customers with monthly home energy reports

that includes useful information not only on how

much electricity is consumed, but when, and how

their consumption compares to those of the

neighbors and peers.

That’s not all. These home energy reports

compare individual consumers’ monthly usage

relative to similar homes in the same climate zone.

There is no escaping if you have been an energy

hog. It is a powerful tool – empirical evidence

suggests that consumers actually notice and

apparently care how they compare to others in

similarly sized homes in the same climate zone.

Moreover, consumers with smart meters for the

first time can monitor their consumption remotely

in ways that was simply not possible. Some, but

not all, apparently do.

Rising prices, consumer awareness, and

availability and feasibility of options to avoid the

higher prices will result in a gradual consumer

migration to distributed generation and investment

in energy efficiency. As overall volumetric

consumption drops, rates will rise further for the

remaining consumers, encouraging more to do the

same – a vicious cycle scenario.

Such a scenario is no longer far-fetched in

California. Rates are bound to increase to meet the

33 percent renewables mandate as well as for

investments in poles and wires. It does not much

matter how the extra costs are allocated among

consumer classes or tiers. Rates will rise, and not

The Electricity Journal

Ju

just in California (see, for instance, the article on

Australia’s high prices in this section).

Third, regulators at both state and federal level

are becoming more enlightened in promoting

energy efficiency and distributed generation with

tariffs and incentives that encourage appropriate

investments. Nowhere is this sentiment more

forcefully expressed than at the Federal Energy

Regulatory Commission (FERC), whose current

chairman, Jon Wellinghoff, can be described as an

evangelical believer in demand response (DR) and

customer-side participation in electricity markets.

Are there any other indications that the type of

information envisioned by Wellinghoff and

provided by California utilities will be widely

available to consumers who may be interested to

act upon? PJM Interconnection LLC, the largest

wholesale market operator in the U.S., now posts a

consumer-friendly price ticker at its Web site that

allows consumers to monitor what current

wholesale electricity prices may be.

For anyone stressed by looking at the large

swings in stock market prices, PJM’s price ticker,

which does not move a lot from minute to minute

or hour to hour, may provide a calming effect.&

http://dx.doi.org/10.1016/j.tej.2012.06.004

Why Are Prices So HighFor Electricity in Australia?

The question of who pays how much for

electricity, and why, is not as straightforward as it

may appear. It is somewhat akin to asking, what’s

the most expensive city to live in? In that case, the

answer depends on where you live within a ‘‘city’’

– center of town, suburb, high-priced

neighborhood, etc. – how you ‘‘live’’ (renter or

owner?), when you bought it, and such other

variables as the size of the dwelling and its

amenities.

Likewise, how much a particular consumer pays

for electricity depends on many variables,

including the customer class, quantity consumed,

and type of contract or tariff the consumer is on.

ne 2012, Vol. 25, Issue 5

There are taxes and exchange rate issues that

further complicate comparisons across countries.

None of this, of course, prevents people from

trying.

A recent study conducted on behalf of the

Electricity Users Association of Australia (EUAA)

by Carbon + Energy Markets, a Melbourne-based

consultancy, concludes that Australian electricity

prices are among the highest in the world – a most

unexpected result.

And the study was conducted before the carbon

tax that is due for introduction in July, and before

counting the increased costs associated with

renewable energy, which are yet to be registered

in prices.

It is a remarkable conclusion – and

controversial. Its timing coincides with rather

pronounced recent price increases in Australia.

What makes it surprising is that Australia is

blessed with abundant supplies of coal, which it

liberally uses to generate over 90 percent of its

electricity. What it does not use domestically, it

ships to China and elsewhere, where they never

seem to get enough of the stuff. A visit to the giant

export terminal at New Castle shows trainloads of

coal arriving and loaded into ships that are

waiting in line 24/7 to take it away.

With a competitive wholesale market and

efficient coal-fired plants, one would expect dirt-

cheap electricity prices. Why would it be

otherwise? Yet, according to the EUAA study, this

is apparently not the case.

To be sure, there are a few places on earth

where juice is more expensive, but according to

the EUAA report, which is focused on residential

tariffs, four Australian states are among the six

priciest in the world. Only Danish and German

households pay higher retail rates.

What is even more surprising is the rapid rise in

prices in the past few years, and projections of

continued price hikes as envisioned by the

Australian Energy Markets Commission (AEMC).

Whereas average retail residential prices in the

U.S., EU, Japan, and Canada have remained flat or,

in some cases, slightly declined for the period

2002–2011, Australian prices have risen

1040-6190/$–see front matter 3