The transition to all-electric households is missing key steps that would help Australia to meet net-zero emissions targets, and free more customers from unhealthy and increasingly costly gas services. By Mike Seccombe.

How the gas industry traps customers

A gas flame in the blue sky.
A gas burnoff flame at a plant in Dampier, Western Australia.
Credit: Paul Mayall Australia / Alamy

You’re paying way too much for your home-cooked meals. And your hot showers. And your cosy rooms in winter.

If, that is, yours is among the five million-odd Australian homes that use gas for cooking and/or heating. Collectively, these households are paying billions of dollars more for their energy than they need to.

All-electric homes, according to a fast-growing stack of analyses, are not just better for the environment and healthier for their occupants, but also cheaper to run than those that rely on gas.

How much cheaper depends on where you live, who your energy supplier is and your pattern of use. A unit of gas costs more for a household in Brisbane, for example, than for one in Melbourne, but the Melbourne consumer likely pays more in total because they use it for heating, not just cooking.

The big picture, no matter where you live in Australia, is that the cost advantage of electric over gas is large, and it has grown as the share of cheap renewables in the energy system has increased and as the technology of electric appliances has improved. Induction cooktops, reverse-cycle airconditioning, heat pump water heaters, are vastly more efficient than their gas equivalents.

It seems each new cost analysis grows more dire for gas. A 2020 study for the ACT government found yearly savings of up to $593 for homes that used electric appliances instead of gas. If they also had rooftop solar, the savings increased to $985.

Last July, when the Victorian government released its first-in-the-nation Gas Substitution Roadmap, it estimated the annual cost saving for all-electric households over those that used gas to be in a range of $740 to $1020 for homes with no solar, and $1070 to $1250 for homes with solar.

A few months later, the Climate Council released figures for all the state capitals, plus Canberra, and found annual savings ranging from $800 (Perth) to almost $1900 (Canberra and Hobart), without rooftop solar. With solar, the savings increased by roughly another $800.

A report released just last week by Renew, a non-profit group that monitors energy prices, and Environment Victoria found Victorians could cut their heating bills in the winter months by as much as 75 per cent if they ditched gas in favour of efficient reverse-cycle airconditioning.

More numbers are available, but the point is made: there is no rational financial case for the domestic use of gas.

There are other strong reasons to get households off gas. A growing body of medical evidence has found health risks for those who use it. Unburnt gas that leaks from appliances includes toxic substances such as benzene – a carcinogen. When burned, it produces nitrogen dioxide and fine particulates that are a respiratory irritant, particularly for people with existing conditions such as asthma.

Of course, “natural” gas is a fossil fuel, and fossil fuels are the main driver of climate change. Australia’s five million gas-connected homes account for 17 per cent of total gas consumed in Australia.

“Australia will not hit its 2050 net-zero emissions target unless it gets off natural gas,” began a new report last month from the Grattan Institute. “Governments should start by ensuring all Australian homes become all-electric.”

One might assume people would not require much encouragement to act – if not out of concern for the environment or their health, then out of concern about their cost of living, which polls continually show to be their No. 1 issue.

Yet the number of Australian households connected to fossil gas has not crashed. In fact, says Alison Reeve, deputy director of the climate change and energy program at the Grattan Institute and one of the authors of the report, while the number of people leaving the gas network is ticking slowly higher, at least until recently “you still had more people joining than leaving”.

There are several reasons for that. A big one, she says, is that governments long encouraged the connection of gas to homes and, in some cases, they compelled it. Most notably this included Victoria – the jurisdiction whose households burn by far the most gas.

Two million Victorian homes – 80 per cent of all dwellings in the state and 40 per cent of the national total, are hooked up to reticulated gas. The penetration rate of gas also stands about 80 per cent in the ACT, another jurisdiction that mandated gas connection. That number is significantly lower elsewhere, almost 60 per cent in South Australia, 45 per cent in NSW, 10 per cent in Queensland and just 6 per cent in Tasmania.

Last year, the Victorian government dropped the requirement that new developments be connected to gas. There was immediate blowback from the industry and its supporters, including in conservative politics and the media. The claim was that Premier Daniel Andrews should instead have opened up more gas mines.

The government was also criticised from the other side, for not having gone further by banning gas connections to new builds, as the Labor–Greens coalition of the ACT has done.

A year later, on Thursday this week, Energy minister Lily D’Ambrosio announced the government had taken that all-important next step. From January 1 next year, all new homes and residential subdivisions will be electric only. 

“This is a very positive move,” says Reeve. “It doesn’t ban all new connections. It’s only new homes. But it’s the first big step towards stopping the gas network from expanding.”

It certainly represents a rapid reversal of fortunes for the household gas sector in what has been its biggest market. Although the other eastern gas states, New South Wales, South Australia and Queensland, are understood to have no immediate plans to follow suit, Victoria’s move feels like a fundamental shift. 

No doubt the Victorian government will be subject to renewed criticism from the gas lobby and its political surrogates for limiting people’s choices about their home energy sources. But, says Reeve, “the problem is we’ve got a very short period of time to do this.” And decisions people make now about their appliances will have consequences far into the future. As the Grattan report says: “A gas water-heater installed today will still be burning gas in 2035.”

Multiply that by the number of gas appliances and you see the magnitude of the task of getting Australia off gas. According to Grattan’s data, there are 4.5 million gas water heaters in Australian homes, five million gas stoves or cooktops, and 2.7 million gas heating systems.

As the report also notes, though, it can be done. “In Victoria alone, 423 water heaters reach the end of their lifespan each day; Victoria needs to replace 274 per day [with electric units] to achieve zero gas homes by 2045.”

In the absence of leadership from state governments, says Rob McLeod, policy manager with Renew, it’s local governments “who are really leading the way. We’re seeing real pressure on local governments in places like New South Wales.”

He notes, too, that a growing number of property developers are choosing not to connect gas to new builds, in large part because it’s cheaper.

Last year, a couple of giant commercial landlords, Lendlease and The GPT Group, joined the Global Cooksafe Coalition, an organisation devoted specifically to making kitchens all-electric. This week more came aboard, including Frasers Property, Cbus Property, Powerhouse Museum Group and Barangaroo’s International Towers. All up, says Cooksafe, the total of assets and funds that have shifted behind the campaign is $127 billion.

That is an impressive number, but it remains the case that most developers still go with gas, driven by consumer preference. And that’s all about cooking.

“Cooking is to gas what vaping is to cigarettes. It’s like a gateway drug,” says Laura Kelly, director of Cooksafe.

The message from property experts, she says, is that “people didn’t care what heated their space or water, but demand for gas cooking was driving new gas connections”.

Kelly believes the problem is people have not yet caught on to the fact that advances in induction cooking mean it now outperforms gas, and they continue to believe “bogus” claims from the industry about the superiority of gas.

The Grattan Institute’s Reeve cites data underlying the point. Between 2010 and 2020, in all states except Victoria, the number of new gas connections grew faster than the number of new houses.

“What that implies is that you had people who had moved into an all-electric home in an area where there was gas available … and made the decision to pull the electric stuff out and put gas in.”

Clearly, consumers’ perceptions about the relative benefits of gas versus electric appliances must change if Australia is to make the transition to zero-emissions households.

But there are signs that change is imminent, and some of the clearest are coming from the gas industry itself. One is to be found in the most recent round of price increases imposed on Victorian gas users.

One element of the price hike that began on July 1 was an extra charge of between 1.6 and 2.6 per cent for accelerated depreciation, says Emma Chessell, energy project manager with the Brotherhood of St. Laurence.

That does not sound like much – it equates to about $20 to $50 per residential customer a year going to the state’s four networks (three distribution, one transmission). Over the next five years it adds up to only $362 million.

What makes it significant, Chessell says, is that it indicates the industry sees a looming risk of being left with stranded assets, as more and more people move away from gas.

“Normally, what we have is straight-line depreciation,” she explains. “So, if the networks go and spend $100 million on a new pipeline and that pipeline will last 80 years, consumers through our bills will pay back the pipeline over that time.

“What accelerated depreciation is doing is acknowledging that gas demand is falling. It’s acknowledging that there’s growing consumer interest in electrification, it’s acknowledging … a situation where if more people leave, then paying back the network costs is sitting with a smaller and smaller pool of people.”

So, she says, the Victorian networks sought – and the Australian Energy Regulator approved – the “front-loading of payments before too many people have left the network …”

It’s not hard to see the risk here: charging gas consumers more to cover the risk of potential stranding only increases the incentive for more people to move to the cheaper electric option. So can begin a “death spiral” in which ever fewer customers face ever higher costs until the system collapses.

Nor is it hard to see why this is a particular concern of a charitable organisation such as the Brotherhood of St. Laurence. The people more likely to leave are those who own homes and can afford to switch their appliances. Those left behind are the customers without the means to quit gas – renters and lower-income households.

Chessell is critical of the regulator for having allowed the accelerated depreciation without insisting on other action by the industry. The decision, she says, should have been accompanied by measures to limit the risk of stranded assets “by avoiding spending to connect new suburbs, for a start”.

Alison Reeve agrees. The Grattan report argued for the sale of gas appliances to be phased out “well before 2050”. In recognition of the big equity issue, it said government should pay for public, community and Indigenous housing to be upgraded to all-electric, and provide low-interest loans “or similar financing arrangements” for home owners and tax incentives for landlords to replace gas appliances with electric ones.

But the obvious first step would have been to stop any further expansion of the gas network. “I mean, there’s not a lot of point in governments spending a billion dollars to encourage people to electrify their homes if you haven’t banned new connections. It’s like pouring water in a bucket with a hole in it,” she says.

Insisting the new builds be all-electric is actually the easy bit, says Renew’s Rob McLeod. “It’s a no-brainer: you have lower bills from day one; you’re just better off straightaway.”

Retrofitting homes with electric appliances, while expensive, is also relatively straightforward. The really hard issue is what to do about decommissioning the gas infrastructure already in place.

Obviously, says Chessell, the network needs to be maintained for safety reasons, apart from anything else. But it’s problematic. Why keep spending on what will inevitably become a stranded asset?

“A staged shutdown of the network … that’s going to be unavoidable sooner or later. But we haven’t even started thinking about how to do that yet.”

The gas companies, for their part, are employing various strategies to try to keep people in the network. Such as charging extortionate fees for those who try to disconnect. Even if you use no gas, as long as the pipes still run to your home, you are billed for your connection. And “abolishment”, as they call the process of disconnecting, can be very expensive.

Last August, Saul Griffith, who literally wrote the book on the advantages of electrification, made news when his provider tried to sting him $1100 for abolishment. The Sydney Morning Herald found other examples of people being charged up to $2000.

One positive element of the new agreement between the energy regulator and the Victorian networks was the imposition of a limit of $220 for permanently disconnecting.

The gas industry has also tried to shore up its green credentials by suggesting its reticulation network could in future be used to deliver green hydrogen instead of fossil gas to homes.

There are several problems with that idea, as Reeve enumerates. First, she says, “you need to make sure your network is in a fit state to do it, because hydrogen is really tiny molecules that tend to leak out of things”.

Second, the transition would require new appliances, because old ones could not run on a blend of more than about 10 per cent hydrogen.

“Anything beyond that, you’d need to make a switch to 100 per cent hydrogen… which means, if you think about it, in a street that’s got a whole lot of houses on it, you need to be sure every single one of those houses has a hydrogen-compatible stove or heating system. And you need them all to make the switch at the same time. The logistics of doing that are quite hard.”

Third, and most important, green hydrogen is expensive to make, because it requires large amounts of renewable electricity to run the electrolysers that split off the hydrogen from water molecules.

No doubt, Reeve says, the costs of hydrogen production will fall in the future, as the costs of renewable electricity fall.

“But if you’re getting cheap hydrogen because electricity is cheaper, then it’s even cheaper to simply use the electricity.”

Most experts agree there is a place for hydrogen in the energy future, but it is in a limited range of heavy industries with specialised needs. It has no place in the home.

Nor does fossil gas. Not if you care about climate change. And not even if you don’t care about climate change but do care about the cost of cooking and showering and keeping warm in winter.

This article was first published in the print edition of The Saturday Paper on July 29, 2023 as "Homes stuck on the range".

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