Chris Bowen’s free-energy plan ‘another poorly thought-through’ market intervention
Labor’s plan for three hours of free power will likely spike prices over the rest of the day, a leading analyst warns.
Chris Bowen’s plan for three hours of free power could drive up energy prices, boost the nation’s struggling coal industry and discourage the renewable energy and large-scale battery projects needed to deliver the government’s emissions reduction targets.
Analysts on Tuesday were quick to outline a host of unintended consequences that could flow from the Climate Change and Energy Minister’s decision to require energy retailers to offer at least three hours of free electricity to households during the middle of the day.
They also warned that the Solar Sharer plan would likely exacerbate energy inequality, given that he structure would be incompatible with the lifestyles, meters and appliances of many Australians.
And the mandated free power would almost certainly lead to an increase in prices across the rest of the day, they said, given the need for energy retailers to recoup their margins.
MST Marquee analyst Saul Kavonic told The Australian that the plan was “another poorly thought through market intervention by a minister who thinks he knows more than everyone else in the energy market”.
“There is no free lunch and customers will ultimately still have to pay for this. The window of free electricity during the day will have to be offset by higher prices at other times to cover the fixed costs,” Mr Kavonic said.
“This is can just as easily be seen as a measure to penalise customers for using electricity in the evenings when they want to, under the guise of cheaper electricity at other times of the day, in order to cover up for the energy policy failings that have led to too much intermittency and left the market too stretched during peak demand periods.”
While Australia has the highest uptake of rooftop solar of anywhere in the world, that – along with significant investment in large-scale solar farms – has led to a glut of energy during daylight hours.
That “lumpy” supply has become an increasingly difficult challenge for governments and electricity retailers and has spawned a wave of investment in large-scale battery projects aimed at storing that low-cost daytime energy to re-sell into higher priced markets once the sun goes down.
Rystad Energy analyst David Dixon said there were likely to be a host of follow-on implications from the policy.
If the scheme succeeded in changing consumer behaviour, the rollout of large-scale batteries would likely slow.
Installation of rooftop solar would also taper off given the ability of consumers to tap hours of “free” energy without the need of an upfront investment in panels.
Instead, he said households would be more likely to jump straight to the installation of home batteries that could charge themselves during the free hours.
Conversely, any success in driving up demand during the day would be welcomed by established solar farms and by coal-fired generators, many of which currently need to curtail their output during the day.
“The winners of all this will be the coal and solar generators, the losers will be those peaking technologies like batteries and gas,” he said.
Mr Dixon said the scheme would likely open up two tiers of energy consumers, given the free power could be accessed only by those homes fitted with smart meters.
Outside Victoria, where all households are fitted with smart meters, only around 40 per cent of homes are equipped with the devices.
“It will create this bifurcation between those that have smart meters, who are probably the solar and battery folk, and those that don’t, like the renters,” Mr Dixon said.
“The consumers that actually need to access this are the ones that are less likely to have the smart meter to access this in the first place.”
Aidan Morrison, the energy analyst at the Centre for Independent Studies, labelled the scheme “a desperate attempt to try to transform people’s lifestyles to fit the pattern of the weather”.
He said the plan would not be a great deal for people who did not work from home, those with older appliances, or those unable to install smart meters.
“It will increase the degree to which there’s disadvantaged and advantaged people in the energy system,” he said.
The plan could also cause more headaches for the government’s emissions reduction plans, he said, given most modelling was predicated on solar continuing to grow at pace.
The free daytime energy would discourage investment in both household solar and new large-scale utility solar, making it harder for Australia to meet those emissions commitments.
Asked about the potential of Solar Sharer to discourage investment in rooftop solar, Mr Bowen said there were still “enormous benefits” in getting solar panels.
“We all benefit. I don’t think that extending the benefits to some other people means that the benefits of yourself putting solar panels on are somehow reduced,” he said.
He said 110,000 Australian homes had now installed, or were in the process of installing, home batteries.
University of Western Australia adjunct professor and sustainability consultant Bill Grace said Mr Bowen’s plan would likely prove popular with consumers, although he expected prices outside the free window to rise.
“Free energy is such a strong price signal, I think it’s more likely to incentivise behaviour change to change demand patterns,” he said.
Driving more demand towards the middle of the day, he said, would ease the pressure on battery storage investment to help smooth out supply.
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