Household electrification is unlikely to produce free money

Households consume around 30 per cent of Australia’s total energy account. They’ve historically been the most expensive to supply, have the most volatile demand and are most politically sensitive customers on the grid.

One way to reduce household greenhouse emissions is to use zero emissions electricity for natural gas and run an electric car on solar panels instead of diesel or petrol. Households could also use zero emissions biomethane or hydrogen. It’s a complex, important challenge that warrants serious thought.

A new report claims fully electrifying households in Australia can deliver big savings and big emissions cuts. The report Castles and Cars by Rewiring Australia claims electrifying cars and replacing all household gas demand with zero emissions electricity could deliver savings up to $46 billion a year by the mid 2030s or more than $5000 per household by 2030. The scale of the claimed savings seems remarkable and warrants further examination.

The difference between considered analysis and campaigning is that analysis explores multiple options in detail and draws conclusions by comparing them. Sometimes the results will be surprising or counter intuitive. Campaigning uses data to justify a pre-determined answer.

Electrifying households is possible and may be desirable. But there are more than 5 million households in Australia that use gas for heating air and water and for cooking. And the process of unravelling is unlikely to be simple or costless.

Castles and Cars promises extraordinary savings based on the logic that households spend more than $5,000 a year on power bills, gas, petrol and most of this would be saved in a distributed, electrified system. That means very big solar systems on every household roof, an unspecified but big household battery, a heat pump hot water system, reverse cycle air-conditioning and electric cars.

The analysis claims to incorporate the upfront capital costs of all these new toys, but the costs are not made explicit. We estimate them at least $100,000 per household. Most of the savings appear to come from big falls in the cost of electric vehicles and no accounting for the cost of the grid still supporting households at times of energy drought.

These tens of thousands of dollars per household are paid for initially by a $12 billion government subsidy, but then the falling cost of future appliances is supposed to more than pay for itself. According to the report, electrifying households becomes like a runaway train of free money.

The paper assumes the rollout of 10-12kW rooftop solar and a battery supplied to every household. Even then, households will still rely on the grid for around 20 per cent of their power.

There are many issues not addressed or unanswered by the report, when they probably should have been. A few obvious ones include:

  • The removal of households from the gas network will increase gas network costs for residential and commercial gas users remaining on the system. This poses escalating equity issues. How would this addressed?
  • The paper assumes both low cost EVs and rapidly falling costs and limitless supply of these cheap EVs. In practice the Australian car market is materially undersupplied for EVs because most OEMs are sending all their electric cars into the heavily subsidised European market. This situation will eventually correct as EVs scale up, but it is unclear how long this will take. To date, the cost of EVs have not fallen at the rate suggested in the report.
  • There is no consideration of retail electricity costs, distribution and transmission charges which will continue.
  • There will still be a (considerable) additional cost of maintaining networks and supplying electricity during times of solar drought, undersupply or during peaks when electricity peak demand is likely to require more capacity because of the increased electrification. This is not included.
  • There appears little consideration given how to address the split incentives between rental and owner-occupied dwellings.
  • More than 30 per cent of Australian households are medium or high density and would not be able to support the distributed energy resources identified in the report. Many inner-city households do not have off street parking to support EV charging.
  • The analysis just assumes that all households will be willing participants in this grand scheme, or that governments will compulsorily acquire every residential rooftop in Australia. Neither is likely. Not everyone wants solar on their roof and not every house can host it. The hostility towards the compulsory roll out of a technology as benign and useful as smart meters in Victoria would be a polite skirmish compared to how a cohort of Australian households would react to mandating full electrification.
  • The report does not appear to include the cost of upgrading to 3-phase power which would be required in many cases given the increased load on each household. Retrofitting is likely to lead to some households incurring other additional costs.
  • Retail tariffs will need to be substantially reformed to efficiently exploit the low-cost electricity savings identified here. There are likely to be winners and losers form any tariff reform.

Making electricity using coal wastes a lot of energy as heat, just like combustion engines in cars. Electricity is an efficient vector and its appliances enjoy lower running costs.

Cheap, ubiquitous electric vehicles are highly desirable for both lower emissions and better energy efficiency. They will  almost certainly drive accelerated rooftop solar PV uptake and bigger systems as more households exploit the natural savings of being able to run their car on their own solar energy. They will still need help from the grid from time to time, particularly in winter, and that means they will tend to all need help at the same time. Planning for and paying for these less frequent but inevitable events will be a critical part of designing energy systems in the 21st century. They are not even considered here and they should be.

For most house owners, there will come a time when all this pencils out financially. in most cases, rooftop PV already does, and replacing old gas appliances with new electric might too in some cases. The barriers in these cases are not financial. Despite suggestions that households can’t afford the up front costs, these are all easily financeable investments for all but the most financially stressed households.

This report focuses on trying to solve things that aren’t really a problem (financing) and ignoring the real challenges (grid balancing in this highly distributed energy system, addressing non-financial barriers that stop people doing things that save them money).

Castles and Cars flags an important discussion, one that warrants more detailed and considered analysis, and less blind optimism.