Potential threat to electricity: Solar panels will decrease the demand for electricity. Photo: Justin McManus
It is called ''the death spiral'' and it is terrifying power suppliers.
At the moment they are awarded price rises to cover the cost of their spending on cables and substations. If power usage slides (as it has been), they are granted further price rises to ensure they can continue to recover those costs.
It has not been a big problem because their customers have had nowhere else to go. Until now.
Energy specialist Lucy Carter of the Grattan Institute outlined the horror scenario for suppliers while launching a new report to be released on Monday about why we are paying too much for power.
She says network charges account for most of the increase in electricity prices. The carbon tax is small by comparison.
''The risk for the companies is that when people get the option of putting solar panels on their roofs and installing batteries and cutting the cord, demand will fall sharply. The people who end up left on the network will be the only ones left paying.'' They will be stuck with extremely high network charges, forcing even more people off the network, pushing network charges higher still. It is what Ms Carter calls ''your death spiral scenario''.
She says it is not upon us yet, but if battery storage improves and network costs keep rising, it will be.
Part of Ms Carter's proposed solution is for power companies to charge for network costs differently. At the moment customers who put very little strain on the network pay the same fixed charge and the same amount per kilowatt as those whose peak usage necessitates extra spending on high-grade wires and substations.
Those peak users account for about one-third of the extra spending on infrastructure over the past five years, Ms Carter says.
She wants to charge users for the pressure they put on the network rather than for being part of it. Someone who comes home to a McMansion and whacks on all the airconditioners or heaters puts far more pressure on the network than someone who is at home all day using the same amount of power more steadily.
It can properly happen only with smart meters that report usage to retailers. Victoria has them and could adopt the proposal immediately. In other states such as NSW, Ms Carter says, the ability to levy variable charges could build a business case for suppliers paying to install smart meters.
Her other solution is even bolder: a peak usage warning to be delivered by SMS or broadcast on TV the day before extreme peak demand due to events such as heatwaves. In France it is done using a red, white and blue colour code. ‘'Red'’ means the next day is facing an extreme peak and that for that day only electricity will be more expensive. Throughout the rest of the year users will be given rebates to make sure they are not charged more overall.
The system would apply only in locations where the network was under pressure and the alternative was new infrastructure.
If it was in operation over the past five years, the Grattan Institute believes it would have saved $7.8 billion of the $17.6 billion spent on new infrastructure.
Data on household electricity use provided by the Victorian government suggests the change would be unlikely to affect disadvantaged families.