Savings as a Service - Issue 19

Electrify Everything! Saul Griffith's Electricity Australia has released an ambitious plan to finance the energy transition for Australian households

Savings as a Service - Issue 19

It's been another big month in the retail energy marketplace, with the release of new industry reports that further define the incredible renewables transition now in full swing in Australia but also highlight the serious problems still to be solved in scaling renewables generation and storage.

Also, this month we saw an innovative proposal from Rewiring Australia for a government-backed financing solution to support Australian households to 'Electricity Everything' in their households, while harnessing solar, battery and electric vehicles to drive down energy bills and fuel costs.

It may come as a bit of a shock to many that the Clean Energy Council's recently released 2023 report, indicates that renewables now account for almost 40% of Australian generation capacity.

Renewable energy accounted for 39.4 per cent of Australia’s total electricity generation in 2023

The Clean Energy Investor Group's Energy Storage Financeability report explores serious challenges in financing the storage elements required to support the renewables transition. By 2030, we'll need about 7x the battery storage capacity we have today and nearly 20x by 2050.

Most of this is projected to be domestic batteries, not grid-scale- storage, which begs the question of how cash-strapped households already under significant cost-of-living pressure be expected to finance this.

Could the solution be a government-backed HECS-style financing scheme? Saul Griffith's team at Rewiring Australia think so.

In other news, this month, the Australian Energy Regulator and the Essential Services Commission in VIC have released their draft determinations for Default Market Offer and Victorian Default Offer pricing for the financial year 2024-25. The news is not all good, but in general, it signals that retail prices are coming down.

In times like now when market prices are unwinding, retailers rely more than ever on consumer inertia to keep their P&L statements fat. Wholesale prices are now well down from the dizzy heights they reached in late 2022 last year, and the price reductions are beginning to creep through into retailer offers. However all a retailer has to doo ios hold off on the price decrease in order to improve their profitability, so now more than ever is important to shop around to make sure you stay on the leading edge as energy price decreases finally roll through the market.

That means checking the alternative options across the market, or having Bill Hero do it for you.

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HECS-style financing to Electrify Everything and Reduce Bills?

Electrify Australia has a plan

Things are continuing to accelerate for Australian renewables, but unfortunately not quickly enough to meet the Renewable Energy Target commitments.

The Clean Energy Council published its annual market update for 2023, highlighting that a record 5.9 GW of new renewable generation capacity was added to the grid in 2023, making renewables now account for just under 40% of Australia's total electricity generation capacity.

Privately owned (and financed) domestic rooftop solar, continues to lead the renewable energy transition, representing 3.1 GW of that new capacity, with 2.8 GW from utility-scale renewable generation.

However, renewables will need to more than double over the next 6 years to meet the Federal Government target of 82% renewables by 2030, so there is a long way to go. In its Draft Integrated Systems Plan (DISP) released in late 2023, AEMO indicated Australia needs at least 6 GW of new utility-scale capacity in the National Electricity Market each year to meet the 82% target — 2.8 GW of new capacity in 2023 is a good number, but a rapid acceleration in investment and deployment is required.

The Renewable Energy Target (RET) target is to add 33,000 GWh of renewable generation every year until 2030, aiming for a total generation capacity of 82% renewables by 2030.

This is an enormous project, and it also needs storage to make it work. As the Clean Energy Investor Group said in their Energy Storage Financability report: "There can be no clean energy transition without storage". Lots of storage.

AEMO's Draft Integrated System Plan says that 19 GW of storage will be needed by 2030, up from only 3 GW connected today — 1.4 GW of batteries and 1.6 GW of pumped hydro — with a total of 57GW required by 2050.

57 GW of battery storage is required by 2050, most of it projected to be supplied by households

Only 12% of this required storage capacity will be utility-scale — AEMO projects that the system will rely significantly on ‘behind-the-meter’ customer-owned domestic battery storage, a big ask for cash-strapped Austraklia households already under pressure significant pressure from the cost-of-living crisis.

How will households finance this transition?

Saul Griffith's lobby group Rewiring Australia has put forward a solution. This month, they launched a proposal for an ambitious government-backed financing scheme to do for the electrification of Australian homes what HECS does for higher education — make it much more accessible and much more affordable for all Australians to participate.

We are proposing a scheme for the government to help every Australian household finance the electrification of that household. That's solar and a battery, which Australian's are pretty familiar with, [and] it's also the electrification of the water heater, the space heater, installing a vehicle charger

The Electrify Everything Loan Scheme (EELS) proposes that households receive a government-backed loan secured on the property that doesn’t need to be repaid until the house is sold. This would ensure that all households, regardless of income, could access solar and electrification.

Households could receive the funds today to install solar, batteries, smart EV charging, water heating, induction cooking, split system air-con, and home efficiency upgrades. The loan would be indexed to inflation and households would pay it back when they can afford to, choosing to make repayments or simply wait until they next sell their house.

The EELS proposal also has some answers for renters and landlords

Landlords could also access EELS to upgrade rental properties without paying upfront, and we recommend complementary policies that further support renters, such as mandatory energy disclosure on bills and minimum efficiency standards.

What EELS is asking for

Rewiring Australia has priced the EELS proposal at $2.8 billion expenditure on budget over the next 3 years (2024 - 2027) to establish scheme and deliver complementary policies to reduce the costs of electrification for consumers:

  • $300 million to establish EELS administration 
  • $2 billion to make provision for loan concessions 
  • $340 million to demonstrate intensified electrification in 17 Zero Emission Communities across representative climate zones and in urban and regional areas 
  • $95 million to build networks of medium-speed level 2 EV chargers to provide low-cost charging and soak up rooftop solar in communities
  • $10 million to review and rewrite the National Electricity Market around households-centred rules that allow electric households to compete against fossil fuel generators and retailers
Those numbers sound high, however our modelling shows that [under this plan] consumers will save $1.7 trillion by 2050, and if funded by flexible finance like EELS, the real cost to the budget will be just 1/20th of the consumer savings. In other words, this is a modest investment to unlock a lifetime of savings.

Default Offer Prices are finally going down

Energy consumers will be pleased to hear that, at last, some retail energy bill relief is in sight. The latest draft determination for the upcoming 'DMO 6' 2024/25 Default Market Offer pricing is down as much as 13% on the DMO 5 prices that were set a year ago and still apply for for the current financial year.

Hurray! DMO prices are coming down!

While we're all in favour of this indication that prices in the retail energy market are finally beginning to retreat, it is important to recognise that Default Offer prices are little more than an indicator of price movements in the market, and the actual DMO prices apply only to the less than 10 % of energy consumers actually on Default Offers.

The vast majority of energy consumers are on Market Offers, and as we explored back in Issue #17, the actual rates that energy consumers face are very different to the DMO rates that inevitably suck up all the oxygen in media analysis and discussions about energy pricing.

Savings as a Service - Issue #17
New ACCC study shows that the Default Offer has failed to deliver a ‘safety net’ for energy consumers.

In Victoria, the Victorian Default Offer (VDO) is going through a similar process, and the current draft decision for FY 2024/25 proposes to reduce the VDO price by around $112, or 6.4%, for residential customers and around $266, or 7%, for small business customers from 1 July 2024.

Changes in average domestic costs benchmarks, $ nominal (average across all five Victorian distribution zones)

In the news

Just as solar is not confined to affluent households, so too the uptake of electric vehicles is accelerating faster in less affluent locations. The fuel cost savings that electric vehicles can provide are making the economics of EVs compelling for all households.

Electric car sales are booming in Australia, but it’s not where you think it is
Nanda, who lives about 60km from Melbourne’s CBD, says he’s saved up to $6,000 a year thanks to switching to an electric car. He’s part of a growing trend that has seen EV sales in outer suburbs boom as cost-of-living pressures bite.

Further supporting the call to 'Electrify Everything' is a recent study from IEEFA which finds billions of dollars in potential energy savings from switching from fossil-powered appliances to electric, with hot water heaters being the single biggest opportunity

Total lifetime savings potential in changing from gas or resistive electric hot water to heat pump hot water
Kicking gas and electrifying households can slash energy bills by billions a year
Each year new gas appliances lock in $1.2 billion in lifetime energy costs for households across the country. Victoria is bearing nearly $900m of this total cost.

Similar to taking clunkers off the road under vehicle standards, the regime removes poor performing products from stores while giving consumers confidence that the energy efficiency of products they’re buying is genuine.

Regulating and labelling appliances has saved Australian businesses and households up to $18 billion in energy costs from fiscal year 2011/12 to 2021/22, according to the federal government data.

Up to 67 terawatt-hours of energy were saved, equivalent to electricity used by all Tasmanian, Northern Territory and South Australian households during the same period.

Efficient electric appliances save consumers $18 billion over 10 years - One Step Off The Grid
Choosing the right appliance can shrink your power bill and make a dent in a business or household’s carbon footprint, according to federal government data.

Peak gas?

Energy Coach

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Read the current March issue of the Energy Coach newsletter for actionable tips and tricks to minimise our energy consumption as wee start moving into Autumn.

Energy Coach - March
As we head into cooler weather, Energy Coach has you covered with quick wins for maximising energy efficiency in March, coupled with longer-term solutions that will pay off year round.

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