Breaking the grid-lock of Australia’s power companies
About four months ago, the United States-based technology billionaire Elon Musk made an extraordinary announcement on his blog. Henceforth, he said, all the patents owned by his innovative electric car company, Tesla Motors, would become effectively open source.
“Tesla will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology,” he wrote.
Musk, whose other entrepreneurial credits include the establishment of the online payments system PayPal, the space exploration company SpaceX and the chairmanship of one of America’s biggest renewable energy suppliers, SolarCity, went on to explain his motivation for abrogating his patent rights.
The fact was, he said, “it is impossible for Tesla to build electric cars fast enough to address the carbon crisis”. He hoped others would use Tesla’s patented know-how to get into the business.
Musk’s history suggests a man with real environmental concerns, but that does not mean his decision was entirely benevolent, as he was honest enough to admit in his blog.
“We believe that Tesla, other companies making electric cars, and the world would all benefit from a common, rapidly evolving technology platform,” he said.
He was offering something to get something: economies of scale.
If electric vehicles are to compete with conventional ones, there needs to be lots more of them. Electric cars need recharging stations, for example, just as old-fashioned internal combustion vehicles need petrol stations. It’s not worth building those for just a small number of vehicles.
But the main things restricting electric car sales at the moment are the price and supply of battery cells.
And that’s why Musk’s announcement about patents should not be seen just as an act of altruism, but as part of a huge commercial play, the scale of which can be measured by the 930,000-square-metre factory he is building in the Nevada desert in partnership with the Japanese electronics company Panasonic.
It is scheduled to begin operation in three years, and by the time it reaches full production in 2020, this one factory will produce more battery storage capacity than now is produced by the entire world.
The so-called Gigafactory will turn out enough lithium ion batteries – essentially the same type of battery that powers your mobile phone – each year to power half a million cars, plus an unspecified quantity of what they call “stationary storage applications”.
The plan is to further drive down the cost of batteries, which already is falling fast. Elon Musk is making a billion-dollar bet on the future of energy storage.
And he is not the only one making such a bet. The legendary US investor Warren Buffett has taken a 10 per cent stake in the world’s current largest maker of rechargeable batteries, China’s BYD, which also makes solar cells, electric vehicles and other new energy products, and which has grown from nothing to 150,000 employees in less than a decade.
They are backing what is shaping as the most disruptive technology since the solar cell. Maybe more disruptive. Cheap batteries don’t just threaten the makers of traditional internal combustion cars; they threaten the whole business model of the electricity industry.
Just as the precipitous decline in the cost of solar cells and wind turbines over the past 10 or 15 years has made it possible for people to easily make their own power, these batteries will make it possible to easily and cost-effectively store it, freeing consumers from the tyranny of the big power companies.
And it will happen fast, according to Jemma Green, a researcher at the Curtin University Sustainability Policy Institute.
“We’re talking about grid parity in 24 to 36 months,” she says.
“And what that means is it will make more sense to put batteries in and store excess energy during the day than it will to buy power from the grid at night.”
That will not necessarily result in a mass exodus of people from the grid, but it will mean, she says, “that the way power is generated and distributed is going to look a whole lot different within the next five or 10 years.”
If that sounds optimistically fast, consider a few numbers, from John Grimes, CEO of the Australian Solar Council and of the newly established Energy Storage Council.
“Today you can buy an energy storage system for your home, the size of a small filing cabinet, at an effective cost of around 25 to 30 cents per kilowatt-hour [kWh].
“That makes it competitive with the prevailing retail rate [of about 28 cents]. And some people, of course, are paying much more than that. In rural NSW there are people paying 40-45 cents a kWh.
“Of course, you still need to generate or buy the electricity you put into that storage,” says Grimes.
But if you already have a rooftop solar system, that power is free except for the original installation cost. So it’s already a viable option for many people.
And both Green and Grimes expect it to very quickly go from being viable to being very attractive.
“We need to be a bit careful about forecasting the prices of storage,” says Grimes. “But I know there are businesses planning on releasing products within the next year that will be substantially cheaper.
“I’m being told more like 15 cents a kWh. That will make it really interesting.”
It will be all the more interesting because of the way the power companies and their allies – and in some cases owners – in government have treated consumers.
One issue, says Green, are the massive rises in power costs that consumers have had to bear over the past decade as a result of perverse incentives that gave power distributors guaranteed returns on their spending on new capacity, whether or not it was necessary.
Another issue is the winding back or abolition of so-called feed-in tariffs.
Last decade, when governments were trying to encourage the take-up of rooftop solar, they offered generous payments to people who put their excess power into the grid. In some cases the payments were probably overgenerous, but they worked. There are now some 1.3 million domestic solar systems installed in Australia
In fact the uptake of solar was greater than planned for. It was messing with the profitability of the utilities.
At the behest of the electricity industry, the governments cut the tariffs.
“So, if you don’t use all you are generating and you export the excess, you get virtually nothing for it,” says Grimes.
“People hate the idea of sending energy into the grid, only to have the power companies sell it at the full rate. They’re inclined to say, ‘I’ll be buggered if I’m going to give my power to you free of charge,’ ” says Grimes.
“This makes for an interesting dilemma for the utilities. The more they penalise people for taking control of their own energy generation, the more they will drive the uptake of storage technology.”
It’s not that a lot of people will cut the wires to their premises. It’s just that they will draw much less power from them.
This applies not just to domestic homes, either. Other users, such as supermarkets, lower-intensity factories and businesses, also will be able to arbitrage their power prices by generating and storing some of their own.
“The utilities’ business model is to sell as many electrons as possible and spend as much on the infrastructure as possible,” says Grimes. “This business model is fundamentally broken.”
It’s broken at the retail level, at the transmission level and even more broken at the supply level.
Hence all the debate in Canberra now about the future of the renewable energy target, which currently requires that large-scale generators source 41,000 gigawatt-hours a year of electricity from renewable sources by 2020.
When the target was set a few years ago that equated to about 20 per cent of total supply and, on the basis of the 41,000 GWh figure, companies invested heavily in renewables, particularly wind generation.
But since then, Australia’s electricity demand has fallen for reasons including the decline of energy-intensive manufacturing, greater energy efficiency and reduced consumption in response to rapidly increasing prices.
Now the projection is that 41, 000 GWh would equate to 26 or 28 per cent of supply.
You might, if you believed the climate science, think that a good thing.
As Andrew Stock, an electricity industry veteran and Climate Council councillor, noted in a recent report for the council, Australia’s generation sector was the dirtiest of any developed nation. Per capita, Australia produces twice the emissions of any other OECD country.
That’s not only because our electricity comes overwhelmingly from burning coal, but because we burn it in a fleet of ageing power stations using obsolete technology.
“Within the decade, around half of Australia’s coal-fuelled generation fleet will be over 40 years old, with some currently operating stations approaching 60 years,” says Stock’s report.
It would seem that now might be a good time to encourage new technologies that might replace them.
The federal conservative government does not see it that way, however. It wanted to close down the RET, and having failed to persuade the parliament to do so is seeking to reduce the target from 41,000 to 27,000 GWh. Negotiations are continuing with the Labor opposition, which so far is playing tough.
In the meantime, says former Liberal Party leader John Hewson, “the uncertainty is killing investment”.
The government’s position is inexplicable in either economic or environmental terms, Hewson says. He puts it down to two factors. The first is the “climate-change denying bias” of the Abbott government. The second is “the political influence of dirty coal companies, the minerals council and the big polluting industries”.
The federal conservatives, just like their state counterparts, have acquiesced to powerful vested interests.
But it’s a King Canute situation.
Last year, for the first time, the greater part of new global generating capacity was renewable. Non-renewables, including coal, gas, oil and nuclear, accounted for just 42 per cent.
It’s not a one-off. The direction has been the same for more than a decade now: towards renewables. And the advent of cheap storage will only accelerate that shift.
The smart money is following the trend.
This article was first published in the print edition of The Saturday Paper on Nov 1, 2014 as "Breaking the grid-lock". Subscribe here.