How to boost energy productivity

But there’s more. The planning, approving, and building of energy infrastructure has been, and continues to be, a major drag on Australia’s net-zero transformation. Slow regulatory approvals and local community opposition have made it difficult to meet targets for delivering renewable energy infrastructure.

Meeting those targets underpins the broader objective of emissions reduction, and underperformance makes it harder to plan for the closure of high-emitting and increasingly unreliable coal-fired plants without creating supply risks.

Streamlining the infrastructure build is a good idea. Yet greater economic gains could be made from another area: capital infrastructure utilisation.

The electricity transmission and distribution grid and the generation it supports are built to meet peak demand, every hour of every day. For most of the past 100 years, instantaneously balancing the production of electricity with the various patterns in the way we use it has been achieved with high reliability and acceptable affordability. During that time, electricity storage has never been a cost-effective requirement. Behind the scenes, however, the consequence is that this hugely capital-intensive system is dramatically under-utilised. Electricity demand comes within 10 per cent of the annual peak less than 20 hours per year. The cost of that low capital productivity was practically unavoidable.

By comparison, for most of the 19th and 20th centuries, our cities and towns were dotted with gasometers – big storage tanks that matched gas being made at a steady rate from coal with variable consumer demand. Modern systems for the production and distribution of natural gas do the same task with only modest storage. The gas grid was much more effectively utilised. But we have never had the capacity to use storage to balance supply and demand of electricity – until now.

For the first time in history, battery storage offers the same solution for electricity, and dramatically so for renewable electricity. Wind and solar generation sources are inherently intermittent. This means that matching demand and supply is more complicated than with fuel-based generation.

Storing electricity in batteries when it’s produced and using it when needed can be done in the distribution or transmission grids.

Storage in batteries or pumped hydro is already recognised as one way to provide dispatchable power when renewable energy supply is low or demand is unusually high. This concept is behind the federal government’s Capacity Investment Scheme that will subsidise both renewable generation and storage.

A second, not often discussed, benefit of battery storage is to dramatically increase the utilisation of the grid, and reduce the investment needed to meet future demand.

A similar benefit applies to rooftop solar and household batteries. Australians have led the world in the adoption of rooftop solar, and that success has meant that in some areas there is more power being generated than can be used by the local grid. Storing electricity near solar rooftops – where it’s produced and used – would increase utilisation of this zero-marginal-cost solar power, much of which is now increasingly dumped rather than stored to be used when needed.

The solution to unlocking the potential gains in productivity is multi-faceted, and early steps are already visible. Federal and state governments are providing financial support for home batteries, with financial benefits for individual homeowners. Energy retailers are setting up and partly financing virtual power plants that look to co-ordinate the operation of rooftop solar and battery storage across multiple homes. And electricity distribution companies are trialling larger local batteries that would store power from suburban homes during sunny periods to be supplied at other times.

Most importantly, the Australian energy market agencies are working on policies and regulations to support these initiatives.

Two examples illustrate some of the challenges. First, home batteries mean that consumers will be able to use electricity when they need it and the battery can ensure the supply is available. The battery investment will be financially attractive if the battery owner stores electricity when it is plentiful and cheap and uses or sells it when demand and prices are high. Time-varying tariffs will be essential but can be complicated. The challenge is to apply the tariffs to those who can understand and use them effectively.

Batteries connected to the distribution grid may be even more cost effective. But the networks are regulated monopolies and are not supposed to operate in the competitive retail sector. The challenge is to solve that conundrum.

The right planning, pricing, and regulations can unlock huge gains in capital infrastructure productivity. It won’t be simple, but it’s the sort of challenge our leaders should embrace at the Economic Reform Roundtable.