WA grid may become first big victim of “death spiral”  

ReNew Economy has a look at the impact of solar power and fossil fuel prices on the WA electricity grid - WA grid may become first big victim of “death spiral”.

The chances of the West Australian electricity grid becoming the first to fall victim to the so-called “death spiral” for utilities appears to have increased after it was revealed this week that the gap between the cost to generate, transmit and sell electricity and the charge to consumer has widened.

The “death spiral” is a term coined by utilities in an attempt to defend their business models against the rise of the “pro-sumer”, customers who are no longer just buying energy but who are sourcing cheaper electricity from their own generation, usually rooftop solar, and cutting demand from the grid.

The WA grid, however, has helped create its own death spiral because it has never recovered the cost of its largely fossil-fuel fired electricity from the consumer. The costs keep rising, and now it has emerged that electricity demand has fallen so low that the major utilities may be forced to pay for fossil-fuel generation they will never use.

It is hard to imagine a more unsustainable situation, and it is quite possible that the WA grid is the most at risk in the developed world from the emergence of cheaper solar and storage solutions.

Synergy, the WA Government-owned electricity and gas retailer that has just been merged with the government owned generator Verve Energy, revealed this week that the gap between consumer bills and the cost of delivery through the grid had blown out to nearly $500 million in the 2013 fiscal year.

This is despite the fact that residential power prices have risen 70 per cent since the Barnett government came to power in 2008. Synergy told the Upper House financial estimates committee that consumer bills would have needed to increase by another one third in 2012-13 to match the cost of production.

Synergy CFO Karl Matacz told the committee that solar panel installations, which have grown from zero to 130,000 in just five years, continue to grow at a rate of more than 2,000 a month, despite the removal of feed in tariffs. ...

If the WA government was to lift the consumer price to reflect the actual cost of generation and delivery, this would put the retail price at close to 40c/kWh. That compares to around 15c/kWh for rooftop solar PV. The difference provides an awful lot of room for alternatives such as storage, and even micro-grids to fill the gap.