Energiewende, German for “energy transition,” was the theme of the “Texas-Germany Bilateral Dialogue on Challenges and Opportunities in the Electricity Market” conference held in Austin in late February. The conference was organized by the German American Chambers of Commerce and supported by the German Federal Ministry for Economic Affairs and Energy, in cooperation with ERCOT.
As is well-known, Germany has invested significantly in low-carbon technologies, and their efforts have arguably led to reduction in the cost of production of solar photovoltaics worldwide. Talking at the conference about the transition to a low-carbon energy system were representatives from the German federal government and ERCOT, as well as several companies and consultancies.
I asked about the levels of carbon dioxide emissions in electricity production in Germany and ERCOT. Somewhat remarkably, given the emphasis on carbon dioxide in the Energiewende, there was no direct information about carbon dioxide emissions in any of the presentations. There was information about the shares of renewables, but different speakers had different numbers relating to the total electrical energy and the contributions from various resources.
So I did some calculations. I found about 0.52 metric tons of carbon dioxide emissions per MWh of electricity production in ERCOT and between 0.33 and 0.43 metric tons of emissions per MWh in Germany — assuming 1 metric ton of emissions per MWh of coal generation, 0.5 metric tons per MWh of gas generation, and negligible emissions from renewables and nuclear, and using the energy contributions presented by Falk Bomeke, PhD (German Federal Ministry for Economic Affairs and Energy), Bill Magness (President and CEO, ERCOT) and Arne Genz (German Federal Ministry for Economic Affairs and Energy).
ERCOT per capita consumption of electricity is about double that of Germany, and the emissions calculations indicate that electricity generation in ERCOT emits more carbon dioxide per MWh, resulting in significantly more emissions of carbon dioxide per capita in ERCOT compared to Germany. Clearly, Germany has worked toward reducing its carbon dioxide emissions and has done so without an abundant endowment of low carbon resources.
In contrast, Texas has an astonishing endowment of natural gas and renewables. Although cities such as Austin and San Antonio have set targets for renewable integration, Texas policy has, largely speaking, been indifferent to carbon dioxide emissions. Imagine how much lower emissions would be if Texas policy was re-oriented toward a low carbon future.
Click here to download all of the presentations.
Australia: more competition, affordable prices
First, the problem of confusing retail price structures. There are several features that complicate the comparison of retail tariffs from the various retailers in the Australian market, including the interpretation of discounts. The ACCC has recommended the establishment of requirements to make it easier to compare one retail offering to another and has recommended restrictions on third-party intermediaries. It advocates for the establishment of a “default offer rate” to which all discounted offers would be compared.
The default offer rate is likely a workable solution, but I would like to suggest a much more prominent role for government- or regulator-sponsored websites such as energymadeeasy.gov.au in Australia and powertochoose.org, in the Electric Reliability Council of Texas (ERCOT). Part of the success of the powertochoose.org website was due to heavy promotion from the very start of retail competition, and I believe that better promotion of government-sponsored sites in Australia would also facilitate retail competition, even going beyond the ACCC’s recommendation in chapter 14.
In the case of powertochoose.org, retailers provide information to the website, and consumers wanting to compare rates can simply enter their zip code (post code) to see available offers and evaluate their prospective bill, according to their level of typical monthly energy consumption. It is important to understand that this website is not organized by a third-party intermediary, the likes of which have been criticized by the ACCC. This type of official comparison website, set up by the regulator in order to provide unbiased, consistently formatted, apples-to-apples consumer information, could provide the “reference bill amount” advocated by ACCC in recommendation 32.
Second, the problem of incumbents inheriting customers. That is, the successor company of a previous retailer tends to maintain a large fraction of its pre-competition customers, who may not explore cheaper retail options from the competition, thus disadvantaging new retailers – even when they offer a cheaper product. In its retail restructuring, Texas devised a pricing strategy aimed to give a short-term advantage to new retailers by establishing a temporary, artificially high price that the incumbent had to charge. In effect, this became an easy “price-to-beat” for new retailers. Once a certain number of customers switched to the new retailers, or once a sunset date had passed, the price-to-beat was eliminated.
The price-to-beat was set above expected market-based prices for retail offerings, which may seem like a giveaway to incumbents, but it actually provided an opportunity for new retailers to make an initial entry into the market and undercut the incumbents, thus weakening the significant advantage of the incumbents.
As the powertochoose.org website shows, there are now plentiful retail offerings in ERCOT competing for customers on a level playing field. It is probably fair to say that the temporary price-to-beat strategy helped produce a vibrant retail market.
How does the price-to-beat relate to Australian restructuring? Australian retail restructuring is arguably past any initial transition period, so how could something analogous now be implemented? Here’s a possibility: Note that the ACCC report recommends that state governments take over some of the “excessive” network costs in order to allow for a bill reduction. This price reduction could be used to create Australia’s own price-to-beat. One possibility would be to allow the discount to flow first to customers of non-incumbent retailers, who would then be able to offer lower prices than the incumbents. While this might be criticized as being akin to an “introductory” credit card rate, the key issue here is to establish a more advantageous position for non-incumbent retailers using an instrument with a well-defined sunset clause. Greater competition keeps prices lower, and the regulator-sponsored website makes it easier for consumers to find those prices. A possible recipe for a vibrant retail market in Australia.