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Chris King |

Hot Australian summers? Government commission recommends smart meters, time-of-use prices

In the southern hemisphere, summertime is approaching -- so temperatures and peak energy demand soon will be soaring in Sydney and other parts of the Australian state of New South Wales. A new report from the NSW government"s Productivity Commission recommends several reforms that could help Australian utilities manage peak demand while rewarding consumers for aiding this effort.

This plan would offer households cheaper power prices in exchange for curbing power consumption during heat waves. To make it work, Australian utilities would have to offer new electricity tariffs where price varies according to time of use. Also, more smart meters would need to be deployed faster throughout the region. The government estimates this could save families up to $250 (AUD) per year.

Of course, strict safeguards (perhaps similar to safeguards being developed in the U.K.) would be needed to protect vulnerable customers in Australia. In addition, I personally believe that time-of-use prices should always be voluntary. Also, preferably, customers should proactively choose (opt-in) to participate.

According to the Commission, utilities serving New South Wales must fix their electricity pricing structures to reflect times of network capacity constraints. It noted that households and smaller businesses there generally are not exposed to time-based, cost-reflective network pricing. Consequently, utilities are not sufficiently encouraging customers to shift power consumption away from on-peak hours.

The result? "Non-peaky" consumers effectively end up paying hidden subsidies to "peaky" consumers. The report was quite blunt about this: "Currently, a low-income household without an air conditioner is effectively writing checks to high-income users who run air conditioners during peaky periods."

For example, the report estimated that a household in NSW which runs, during peak hours, a typical reverse-cycle air conditioner (2 kW electrical input), would effectively receive a subsidy of around $330 (AUD) per year. This is because it costs nearly double to serve a peaky customer.

In NSW, which is fairly typical of hotter climates, peak demand events happen fewer than 40 hours total per year -- less than 1% of the time. Yet these peaks account for a whopping 25% of annual retail electricity bills.

The Commission observed that without pricing that supports demand response, Australian utilities end up over-investing in assets intended primarily to serve ever-growing peak demand.

For these reasons, and others, the Commission proposed an accelerated rollout of smart meters and critical peak pricing in NSW. Victoria has committed to and made significant progress on a full-scale rollout.

Furthermore, if NSW adopts the report"s recommendation, it would be joining nearly two dozen nations (including China, Canada, U.K., Ireland, France, Italy, Sweden, Denmark, Norway, Finland, Spain, Portugal and Malta) and states or provinces (including California, Texas, Pennsylvania, Illinois, Idaho, Nevada, Alabama and Mississippi; as well as Victoria, Australia) in the process of rolling out smart meters

Comments on the Commission"s report are due November 23. A final report is due in 2013.

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