Australia used to have cheap electricity, but it was the dirtiest in the developed world. In future Australia will have cheap electricity that’s close to 100 per cent renewable. That’s at least a decade away, but for a preview of the future see South Australia. We have a messy decade of transition ahead, and energy costs will be high for those not engaging with new approaches to energy management and energy procurement.
There are two relevant megatrends to consider: the decentralisation and the decarbonisation of energy. We need to transform a centralised system designed in the 1950s, with generation where the coal was, to a much more decentralised system, where individual buildings can be power stations and play their part in the grid. This is like moving from mainframe computing to the internet of energy.
Buildings as part of the solution
Buildings can be an active participant in the energy transition, but conventional attitudes to energy management and energy procurement may stand in the way of achieving this potential.
As always for buildings the first step is energy efficiency, followed by locally generating as much of the building’s energy as possible.
But beyond these, buildings can assist the grid by changing the timing of their electricity use. Whether driven by cost or by emissions reduction goals, the answer is the same. Electricity prices are lowest when the grid renewable content is highest.
Renewable electricity is cheap, so you can cut your bills by shifting consumption to times of the day when the grid is green.
Understanding the real cost of electricity
We know solar and wind are the cheapest forms of new generation, even firmed, so they aren’t what’s made our electricity very expensive since 2022. That’s about geopolitics and international fossil fuel prices, and this affects us because we rely so heavily on often-unreliable fossil generation to fill the gaps when there isn’t enough renewable generation, notably just after the sun sets and before it rises.
The price of electricity changes every five minutes, but hardly any electricity users get to see the real price. Our retailers “shield” us from this complexity using the old peak/off-peak model. Traditionally prices were higher during the working day and lower at night. With the continued roll-out of solar on the demand side, and of solar farms on the supply side, prices are increasingly depressed on sunny days, with negative prices now common in the middle of the day.
This has implications for future electricity costs. First, the traditional peak/off-peak model of pricing is now meaningless as we are starting to see off-peak prices exceed peak prices.
Second, the value of exported local solar generation continues to decrease, which should encourage shifting of discretional loads to daytime and the use of storage to capture excess solar generation.
Third, the value of non-solar renewable grid generation increases. Where there is discretion available to adjust the timing of consumption it’s advisable to operate plant and equipment primarily during daylight hours.
Clearly this will only work if more electricity users see the real price of electricity. Being on a flat price or peak/off-peak pricing prevents the market’s price signal reaching electricity users. Accessing the real price of electricity particularly makes sense for offices and other buildings with daytime heavy consumption, as prices are already low or negative in the middle of the day for much of the year.
Some businesses are already exposed to the wholesale price, usually alongside inexpensive, long term offtake from a mix of new renewable projects for up to 10 years.
If they are then able to shift the timing of their consumption to take advantage of low prices and avoid high prices, they further lower their costs and improve their real-time renewable matching. Battery, thermal or other storage, and the ability to use local generation sources can complete the solution, but much can also be achieved just by behaviour change.
Buildings able to access cheap renewable electricity and wholesale prices have an enduring competitive advantage.
Perception of risk and knowledge gaps
While this may seem risky and pushes into areas people may not be comfortable with, it’s far less risky than traditional approaches to electricity procurement and building operations.
This has been brought home by the roller coaster behaviour of electricity markets since the 2022 global energy crisis. We believe there’s significant value in setting up your building with a long-term renewable power purchase agreement (PPA), accessing the wholesale market, and then shaping consumption as much as possible.
The industry can expect far greater uptake of this approach and it’s already visible in the market. Where this approach is not embraced it’s usually due to a knowledge gap. An inclusive change management approach is needed to engage all necessary stakeholders.
In educating the industry it is important that, while the investigation, modelling and business case development processes need to be rigorous, the language used to explain the findings also need to be understood by non-technical audiences.
Success looks like an engaged team, aware of their current climate impacts, motivated and primed to take concrete, achievable action to reduce their emissions and costs over the short-to-medium term, while delivering uninterrupted service excellence to customers.
Ben Waters is an engineer and together with Hudson Worsley, founded Presync, a B Corp sustainability consultancy.