John FitzGerald: Early adopters can pay a heavy price

In 1992, when the problem of climate change was first beginning to attract major public attention, the ESB held a conference on using wind power to generate electricity.

At the time wind power was a very expensive technology but this did not stop some advocates suggesting an immediate large-scale adoption in Ireland. At the conference I recommended waiting until the cost fell before making a large-scale investment.

Charlie Haughey, who had just retired as taoiseach, chaired the conference, reflecting an early high-level commitment to tackling global warming. However, he suggested that the caution I expressed showed a lack of vision "typical" of an economist.

More than 20 years on we now have major investment in onshore wind power at a much more reasonable price. The cost of subsidising the current level of wind accounts for around 2 per cent of the average electricity bill.

One of the lessons of the development of this and other technologies is that the cost of new inventions falls for some considerable time. Early adopters tend to pay a high price.

This has been the experience in Germany with another even newer technology – solar power. Germany began deploying solar power about a decade ago through a very generous subsidy regime. Today solar generation accounts for more than 30 per cent of German electricity generation capacity and 6 per cent of German electricity consumption.

However, this extensive deployment of solar power has come at a very considerable cost for German households. Today German households, whose electricity is already expensive, pay an additional premium of around a third to pay for solar-powered electricity.

The cost of the solar cells for generating electricity has fallen dramatically since the German subsidy scheme began over a decade ago. As shown in the accompanyoing graphic, the cost today is less than a third of what it was in 2009.

Lower energy bills

If the German government had delayed implementation of the scheme until the technology was as mature as it is today, German households would have dramatically lower energy bills.

Deploying an immature technology prematurely came at a very high cost.

More recently, albeit on foot of a lower subsidy, there has been a similar large roll-out of solar cells on top of houses in Queensland in Australia. About a third of houses in Brisbane now generate their own electricity from day-time sunlight.

The Queensland subsidy was attractive to older and richer households who, by installing solar cells, have dramatically reduced their consumption of publicly-generated electricity.

However, few if any of these households are prepared to rely on their own resources, such as candles, when the sun does not shine at night. Instead, like everyone else, they rely on the publicly-provided electricity supplied in the normal way through the electricity grid.

Because the cost of the connection to the grid is charged on the basis of the number of units of electricity people buy, such households, who only need electricity from the grid at night, pay very little for the grid connection. Instead it is poorer households who could not afford to install solar power who end up paying most of the cost of the grid needed to light richer households when the sun does not shine.

Too late the authorities in Queensland have discovered that much of the cost for solar powered electricity is being paid for by poorer households.

The obvious solution is to charge separately for a connection to the grid, a charge which would account for around half of a standard electricity bill.

However, such a sensible solution, if introduced today, would encounter huge opposition from richer households who thought their investment would dramatically reduce their electricity bills.

The result is an expensive reduction in greenhouse gas emissions where poor households pay for a disproportionate share of the additional cost.

Poor households

While a similar effect is in play in Germany to date the excess burden of the cost on poor households has not evoked significant opposition. There are a number of lessons for Ireland from the Australian and the German experiences.

While solar power remains an expensive way to cut greenhouse gas emission, as shown in the graphic, its cost is continuing to fall. By the next decade, in spite of the fact that Ireland has much less sun than Queensland, it may be one of a number of new technologies that will help Ireland eliminate greenhouse gas emissions from energy consumption at a reasonable cost.

However, before there is widespread adoption of this technology by Irish households it is important that we change the way we charge for electricity to ensure that poor households don’t have to pay a disproportionate share of the cost.

This change will involve implementing a large fixed charge (maybe 50 per cent of the bill) to cover connection to the electricity grid and a separate charge for the true cost of the electricity actually consumed.

The time to make such a change will be whenever solar power is beginning to be installed widely by domestic households.

If the change is made too early poorer households will actually be disadvantaged.

If the change is made too late, as in Australia, the early adopters of solar power will fight to prevent such a reform.

The example of solar power is similar to the experience with onshore wind: research into new technologies to produce clean energy is continuing apace.

Over the next decade hopefully this pace of research in new technologies will pick up, so that by 2030 heat and transport, as well as electricity, will be substantially decarbonised.