'Utilisation Benefit' synergies from EVs?

When Origin Energy's Marc Van Beek speaks of 'transport', he doesn't mean road transport. He's talking about the transmission of electrical power through the national grid. This is an important point to remember, because otherwise his promotion of 'utilisation benefit' is hard to get your head around.

Basically, Van Beek, Retail Strategy & Growth Manager for the electricity supplier, sees the large-scale introduction of electric vehicles in this country further amortising utility costs faced by the average family.

In the give and take of supply and demand, electricity suppliers such as Origin pay different tariffs to wholesalers for the supply of electricity -- at different times, depending on demand.

If consumers are using more electricity (preferably in off-peak periods to recharge the car batteries), there's a proportional cost saving to the retailer -- buying more electricity (and further reducing the relative cost of 'transporting' the power) from the wholesaler.

"The electricity grid... particularly the transport grid, is a very fixed system that is really not utilised to 100 per cent capacity," said Van Beek, speaking yesterday at the company's Future Focus Forum. 

"It's built for one or two days a year when we have a peak event -- generally here in summer when it's very hot and all the air conditioners are running. But for the rest of the time it's underutilised. If we, as in Australian society, manage to get significant additional loads onto the grid without impacting peak demand -- without increasing our peak demand -- that will actually have a downward pressure on electricity prices and particularly on transportation prices.

"It is [an argument] that is a bit more difficult to understand," he admitted. The Carsales Network subsequently sought clarification from Van Beek, who, contrary to all that has been said in the media in recent times, advised that power prices were actually on the wane. And another myth he dispelled is that the grid is fixed and immutable. In fact it's growing all the time and it's the growth of the grid that contributes to rising prices. This is what he means in part by 'transportation'.

"In Queensland and New South Wales, you see very large electricity prices going into the market," he explained. "Now this is quite interesting, because the wholesale price of energy is actually falling.

"The key reason for [increasing retail prices] is that the network component of a [residential] electricity bill... is going up significantly. If you get like a $1000 bill at home, people don't realise that $500 -- we collect as Origin and hand straight over to Powercor, City Power [and others] -- this is purely transportation costs, transportation and metering costs. 50 per cent of your bill is JUST transportation costs, systems network costs...

"Now what we're seeing in Queensland and New South Wales is... massive penetration of air conditioners -- and that has driven peak demand. Peak demand has grown faster than total demand. The system needs to be designed for the super-hot day when everything's going. So the whole infrastructure is designed for at most a couple of hours a year.

"From a utilisation perspective, that's just not very smart. If you built a factory, you wouldn't build it for a hundred units a day and only run at that maybe a couple of hours a year. You want to get as much through as possible to get your unit cost down.

"If you get significant additional load into the grid that does not contribute to the peak demand... therefore the amount of infrastructure that they need to build... that will actually have a downward pressure on prices, because they have a fixed cost and they have more volume to divide by."

According to Van Beek, if you use more power (off-peak or otherwise), it will show up in your electricity bill, but, based on the half of the bill amounting to 'transport', that's where greater power usage could translate into a cost saving -- or at least a lower price increase. Bear in mind too, that electric vehicles already offer considerably lower running costs than petrol-engined cars or even diesels.

But the reduction in transport costs will require "significant uptake" and will only happen over a five or ten-year timeframe, says Van Beek, because "the prices for the distribution companies are set every five years."

Why is transportation a problem? It comes back to those air conditioners in the northern states. Distribution companies are currently building additional infrastructure to carry the extra load -- and guess who's ultimately paying for that? The user pays for the luxury of no brown-outs.

So find a way of amortising the cost of building the new infrastructure without exacerbating peak demand (large scale adoption of EVs, for example) and the retailers will be able to contain some of that 'transportation' cost.

Finally, Van Beek reveals that the distributors are subject to regulations that preclude them from what some might uncharitably describe as price gouging. If they earn more from EV owners charging their car batteries at night, the distributors have to return at least some of that additional transport-derived revenue to their retail customers, "because they can only make a regulated return -- they can't hold onto that".

It's all very simple really...

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