Distribution – the grid (Transmission network service providers)
It then flows over ‘poles and wires’ (distribution) that may be owned by the government, utilities or as in Australia, mostly privatised. These need to charge a transmission fee to cover repairs, maintenance, upgrades and profit.
The sale of ‘poles and wires’ bailed out several State governments helping to balance budgets and invest in other infrastructure. In doing so, it added a layer of cost and still has not achieved a national interlinked grid.
But solar has upset that comfortable arrangement
As we generate more household solar energy (and consumed ‘off-grid’) retail electricity sales drop, but the grid and generation infrastructure costs remain the same. The result – less grid power purchased means a significant increase in the delivery cost per kWh.
It all comes down to the management of solar, which today is not really managed at all. Management of solar can only really come from the intelligent use of battery storage, and this is where energy industry incumbents get really nervous as a properly functioning solar and battery system effectively means fewer profits for the big end of town in the energy space.
That is unless the public are foolish enough to give these same energy retailers control over our solar generation and battery storage assets. It’s a bit like the fox minding the chickens.
Retailers add services like billing and accounts
Then you have a plethora of retailers and resellers. They buy ‘capacity’ from the grid and overlay accounting and billing systems. Retailers (under Australian Consumer Law) are the provider of your electricity and the reason why our electricity costs so much is in the diagram below
Now you understand the mechanics you begin to see why our electricity costs so much.
Energy costs fluctuate wildly during 24 hours due to demand, the capacity to service that demand and a whole lot of layers add to complexity and cost.
For example, those hot summer nights running AC need more power, but solar does not work then. So, we ramp up traditional energy generation that is much more expensive. Energy prices can vary between an average of $80/MW (Megawatt) in the middle of the day to over $14,000/MW. To put it into context that is like paying $14/kWh when the average cost is about $0.38c/kWh.
Add to this, the cost of energy delivery has also steadily increased over time due to solar power not needing the grid.
This is one hell of a balancing act, and the easy way is to force consumers to pay more. That is why our electricity costs so much.
And just when you thought it was safe, we throw another spanner in the works.
Enter battery storage. The amount of electricity a solar system generates depends on its kWh size. Most install 3kW or 5kW systems, although larger 10kW systems are growing in popularity.
An average household requires 20-kilowatt-hours (kWh) over 24 hours to run everything. If you install a 3/5/10kW solar system in Sydney, you can expect to generate 10/20/40kW. If you produce less power, you buy from the grid and vice-versa if you have more than you need and you can sell the rest. But you need a battery to even out demand over 24 hours and store any excess.
Now you find incentives to install off-grid battery storage. For example battery maker Sonnen has a scheme where households can install a 10kWh battery at no up-front cost (you must have a suitable 10kW solar system first), and pay a fixed monthly fee of $30, $40 or $50, depending on the system size and energy usage. BTW that monthly connection fee is really the ‘connection cost’ to stay on the grid. You become a mini generator.
Some State policies and retailers are also driving battery uptake, with similar deals of discounted or zero up-front cost.
But buyer beware, there are many terms and conditions you must meet to get the benefit of this system. It turns you into a mini generation asset manager to ensure you don’t use too much energy or that your solar is always performing correctly; fall outside these contractual requirements, and you get financially stung. You can read more here.
Now solar costs energy costs nothing to produce (forgetting panel/inverter/battery costs for a minute), so these schemes give the provider a free source of energy to feed back into the grid. But the catch 22 – this leads to increasing costs for non-solar/battery consumers.