NBN: Needed for "Smart Grid" and other New Century Industries

With the release by IBM of "Australia's Digital Future to 2050" by Phil Ruthven of IBISworld there is now some very good modelling to say "The Internet Changes Everything", with some Industry bulwarks of the past set to disappear or radically shrink and others, "New Century Industries" (my words), that don't yet exist at scale, will come to the fore of our economy.

Previous pieces that link the NBN/Smart-Internet with "Negawatt" programs are now more relevant:

• Smart Internet+Smart-Grid: making money and reducing carbon footprint
• Smart-Grids and Carbon Trading: Enough for an economic Negawatt scheme?

I'd appreciate someone with real Maths and Analytic Economics ability to tear apart my simple assumptions and ideas to create something achievable and provably economically advantageous to Australia. But until then, I have to let my simple arguments try to carry the day.

I think "the Negawatt" is a Big Idea that's been 25 years in the making - and only now are all the pieces assembled to enable it, plus there are strong enough economic, social and political forces demanding it.

The idea of "negawatts" fits into the current Green and ALP programs of Renewable Energy, Carbon Emission Reduction, Economic Stimulus and positioning the economy for the 21st Century, not the 20th. The Nationals and country Independents would also probably be on-side because it supports their constituents and businesses and allows their communities access to New Century Industries.

I'm not sure if the Abbott Opposition could successfully argue against saving money and increasing Productivity and Economic Efficiency, especially for "the smaller end of town" and against creating a widespread economic base for Energy-sector investment/returns - but they've surprised everyone before, possibly including themselves, so I'm not going to speculate on that here.

Can we have a "Smart Grid" and other "Smart Internet" facilities without the NBN, especially without Fibre-to-the-Premises?

The difference between a Turnbull-style pseudo-NBN, opportunistically built from heterogeneous, diverse components, and a majority "pure fibre" NBN is reliability and operational costs.
It's the same as the difference between Microsoft and Apple computing products.

Ten years ago Microsoft was King of I.T. and dominated the market with Apple an irrelevancy.
Since then Apple has come along with multiple game-changing inventions that haven't just redefined the world of computing, but of entertainment and work practices. Along the way they've become one of the largest, most valuable companies in the world.

Ten years ago, nobody would've backed a high-concept, premium-priced product strategy because Microsoft had 'conclusively' proved "Cheap and Cheerful" is what people wanted. Today, everyone should understand the power and desirability of the Apple model in every Industry, not just Technology and Entertainment.

Rudd/Conroy and the ALP may not have been aware of the antecedents or potential of their "Do it Right, First Time" approach to a National Network, but today which approach are investors backing with either wallets: Microsoft's "Cheap and Cheerful" or Apple's "Great Design"??

"Cheap and Cheerful" is all well and good until you need to absolutely rely on it - say for healthcare or energy production. These same factors applying for retail software products translate to National Networks.

There are very powerful reasons people are migrating in droves away from Microsoft platforms and avoiding their new offerings (e.g. Win 8 Mobile): too much pain, too complex, underwhelming performance, features, security, administration and considerably lower "value for money" in the mid-term. What you save in upfront costs you outlay more than ten-fold in making it work for you.

Perhaps a pseudo-NBN might work, but without a unified common infrastructure the technical barriers to entry are high, potentially insurmountable, and the market-access problems with considerably less than universal access will result in a needlessly crippled industry: exactly like Cable TV.

Our multiple overlaid mobile phone and ADSL2 networks  demonstrate exactly what our incumbent Telcos will do if left to their own devices: not just "not co-operate", but actively work towards disparate, incompatible systems.

Without the prospect of universal and guaranteed market access, no sane investor is going to enter the sector, rerunning the Cable TV debacle. Which denies Australia access to an emerging sector it desperately needs economically and which builds on one of our finest traits: inventiveness.

Australian markets seems to foster monopolies and duopolies - the reasons why don't matter.
We are stuck with it, like we are stuck with Coles and Woolies, Optus and Telstra and just a few brands of petrol. Without a common infrastructure, we are guaranteed to replicate the same set of fractured Telecomms enclaves we've seen for the last 25 years of deregulation.

A Turnbull pseudo-NBN will create a balkanised network with crippling access fees and incompatible or conflicting network access software from which we'll never recover, rerunning our Cable TV experience and preventing us from realising a profitable or useful "Smart Grid" and a host of other New Century Industries.

Smart-Grids and Carbon Trading: Enough for an economic Negawatt scheme?

Can the Smart-Grid and Carbon Trading create a new, economically viable marketplace in saving power?

In 1997, Amory B. Lovins co-authored a book with a radical new idea to address the Energy Crisis and our Environmental problems (now it might be "Climate Change"):

the negawatt negative watts of power consumed by creating lower demand through more efficient power use.

It is still much cheaper to "save a watt" than for a Power Generator to "build a watt", and the marginal cost of production and distribution is zero to the Generator. The consumer still has to maintain and replace their infrastructure investment.

So why hasn't the negawatt market happened? What's different now that it could work?


There are perverse economic incentives at work that mean no Utility Provider, especially Power Generators, will willingly invest in reducing demand:

Less demand is less income, which wipes out profits and threatens the company.

This is because the billing model is not based on direct production costs, which are dominated by the costs of fixed capital, not the marginal cost of production. Fixed retail electricity tariffs are 3-10 times higher than the variable prices Power Generators receive from the market. Part of this gap are the costs of the network and distribution.

Previously I've suggested three ways the smart-grid could be used to leverage known, proven technologies in domestic and small commercial consumers:

• On-site Tri-generation (power, heating, cooling) from natural gas,
• Small scale Heat Storage Air Conditioning, and
• In-network battery storage for peak-loads.

Lovins negawatt proposal was that large-energy users (companies) should install energy-saving solutions in domestic and commercial premises (like compact fluros, 'super-windows' or improved insulation).

Somehow, the unused energy would be credited, by the Power Generator, back to the large-energy users. But no mention was made of how to bill consumers or that they paid for the benefit at all. They just used less power and enjoyed the savings, without cost.

The idea is based on a profound truth, but isn't economically realistic because of the disconnect between the owners of capital, the investors, and the parties receiving the benefits: the consumers and Power Generators.

Because those unmeasured benefits are hard to quantify, just what is an investment worth?

In Queensland, there is a very large lump of capital (~$1B) that is used for just 35 hrs (3.5 days) a year. It makes for hugely expensive power and inefficient investment. Economically, you'd choose to do almost anything else.

This is a direct outcome of the social contract electricity consumers have with all utility suppliers:

Give me what I want, when I want it, where I want it for a fixed price.
Wow betide you if you run out of capacity.

It's a contract that is well past its use-by for all utilities. We, as retail consumers, pay a lot for this privilege.

With our roads, we don't demand super-highways everywhere, we understand that demand and supply are related. That a little used side-road and a major highway aren't going to be the same standard. Public roads have their own problems: only toll-roads actually directly charge the user. Everywhere else, roads appear to be "Free Goods", mysteriously paid for in an opaque, disconnected manner unrelated to individual benefit or infrastructure impact. Politics determine funding and priorities, giving a far from optimal or rational allocation of resources: some of us have nightmare daily commutes, others love what the system does for them.

When electricity was first reticulated, houses often had one just one power-point in the kitchen along with lighting (60-100W globes, one per room). Household consumption was 1-2 kwHr/day (guess), not the 12-20kwHr/day now.

I think there's a solution if you look at the four stakeholders:

• Regulators. They can set tariffs that can be charged.
• Power Generators, possibly also Power Distributors.
• Consumers of Power.
• Investors looking for returns. Even Government supported schemes like the Solar subsidies

With a Carbon Credits and Trading scheme about to come into force in Australia, the Power Generators get a double economic benefit for every Kilowatt of generation capacity they don't need:

• the saved investment (less capital demand == lower costs)
• the surplus carbon credits freed up. ($23/tonne)

Here's the scheme:

Same as Lovins, Owners of Capital pay for domestic/commercial users to become more energy efficient or be able to move power consumption to "off-peak" (power storage or A/C units storing heat overnight).

There are two different financing options possible:

• direct Consumer/Investor repayments, perhaps as part of the utility bill.
• modified tariffs for all consumers, not just those in the scheme.

Direct repayment scheme:

• No regulator interaction, no modification to supply tariffs.
• Because of the Power Generator benefits (reduced future investment, carbon credits), they need to make co-payments to the Investors, as well as the consumers.
• What may be $3,000 of house insulation, or $10,000 in double-glazing would normally need 10-15%pa repayments to be economic.
• Because two parties benefit and pay, the retail customer might need pay ~5-7%pa [guesstimate]
• If the retail customer made an up-front payment, this would apply to their share of the investment, not the Power Generators an vice versa.
• The debt would need to be tied to the property and transfer on sale of the property.
• Some of the most motivated large investors should now be the Power Generators and Distributors because of the Carbon Credits they could on-sell.
• If the ROI was attractive, there could be unit trusts for small investors.

Modified tariffs scheme:

• Bulk payments from Power Generators to Investors. Based on a formula related to benefits realised.
• No change to "off-peak" tariffs, want to encourage load-levelling.
• Increased peak tariffs based on houses "energy star rating", to encourage swapping into the scheme.
• A lower peak tariff for "high star" ratings houses.
• during the loan repayment period, a surcharge on the rate, or in the bill, to repay the investors.

Smart Meters and the Smart Grid improve the ability of the retail customers to both manage their consumption by balancing rate and subjective benefit, and for Energy providers to charge variable rates to consumers based on aggregate demand. The act of allowing consumers to assign a monetary value to the benefits they receive considerably improves marketplace efficiency. If it costs more, peak demand will decrease allowing Power Generators to better match capacity with demand and reduce the proportion of idle assets.

While these current approaches allow consumers to assign a monetary value to the benefits they receive, they do not provide incentives to either power consumers or producers to save power, not a means for Owners of Capital to invest in this market.

The whole negawatt notion is intimately tied to providing investors a good Return, but that seems difficult.
The central problem is: How do you charge for the absence of something, a watt not supplied?
There is no meter that can do this, but you can charge a higher peak-demand tariff to encourage changes in behaviour.

For Power Generators, the problem is much simpler: the average number of consumers, the peak-demand and aggregate use can be compared day-on-day. Changes can be calculated and a contractual formula used to calculate negawatts provided and their economic benefit to the Power Generator.

There is a real problem: if the Power Generator hasn't realised any benefits, then why would they pay?
All the fixed-plant investments are sunk costs, It is only when an extra investment is avoided, or some gain can be made from underutilising plant, that the Power Generator has a tangible and quantifiable benefit.

The Carbon Trading market now provides part of the answer: Owners of coal-fired power stations can sell Carbon Credits if they can reduce demand.

The other side of the equation is somehow crystallising the benefits to consumers and Power Generators of improving power-use efficiency. Both would enjoy the long-term benefits, but neither is incented to make the full investment when the other beneficiary gets a free-ride.

There is a well-known counter-intuitive Economic effect of improving energy efficiency:

It often leads to an increase in total energy demand/consumption. This is suggested as an outcome of using efficient L.E.D. lighting, with lighting estimated at 6.5% of global demand.

Without looking hard, the best economic modelling of the benefits of negawatts I can find, is a lecture given in 1989 by Amory Lovins.

His back-of-envelope calculations look promising, but seem to omit one of the major costs of retro-fitting: labour. For a large investor, retro-fitting low-value items like light-bulbs to houses will be dominated by the labour costs. For small and medium enterprises, a simple saving like swapping from v-belts to toothed-belts would mean significant down-time, complex adaption of old equipment and possible consequential breakdowns. With the investor picking up the tab for "time and materials", it doesn't on the face of it, look like retro-fitting and in-place upgrades would be economic.

The adoption of, or upgrade to, modern energy efficient technologies for a viable negawatt scheme has to be:

• DIY for low-value items,
• upgrade of high-cost appliances/systems, like Air Conditioning/HVAC, or
• green-field sites or large-scale upgrades/renovations such as high-rise office conversion to apartments.

Whatever the answer is, if it was obvious, because of the potential size of the market, you'd think people would be doing it now. Perhaps the Smart Grid will make the difference.

Smart Internet+Smart-Grid: making money and reducing carbon footprint

Two technology/commercial trends are coming our way in Australia:

• the Internet everywhere (3G wireless or NBN), means "smart controllers" will be cheap, simple and everywhere. They will be able to trivially hook into 3-7 day local forecasts, especially useful for air-conditioning units.
• "Smart Power" metering will start to charge power at different prices during the day, rather than the disconnected traditional pricing of "a single price whenever you use it".
  You can see real-time wholesale electricity prices on-line and a Pretty graph in 30-min periods.
  Yesterday (12/12/11), the 30-min price varied from $52/MWhr @ 4PM to $16/MWhr @ 2AM. In 5-min periods, the price ranged from $95 to $16.

There's a bit of background you may or may not know about Power Generators: they over-build capacity to meet any and all demands placed on them. There aren't just no incentives for Power Generators or their customers to reduce either aggregate or instantaneous demand, but the reverse: significant economic disincentives to reducing demand, and hence to lowered income and profit. This is a perverse economic outcome costing us a lot of money and burning carbon unnecessarily.

From "An EnergySmart Plan. Positioning Queensland for a Diversified Energy Future 2010 - 2050" (Nov 2010 report for Queensland Government):

Ergon and ENERGEX will each spend $6 billion (that is $12B combined) in capital expenditure over the next five years to cope with extraordinary consumption during a fraction of the year, rather than the average consumption over the course of the year.

To put this into perspective, ENERGEX has over $900M in assets that are only used for approximately 3.5 days per year. (Mark Paterson, ENERGEX, The SPRA Standard).

That's not good business, but how can a solution be converted into useful products that make a profit?


1. "Trigeneration" (being implemented in Sydney, and already very big in UK/Europe)
results in some Zero-carbon footprint services.

• Burn methane/natural-gas in "gas turbines" (really jet engines).
• they are very high efficiency, start quickly and are responsive to load, unlike big coal-fired units which take days to start and cannot easily adjust to extra demand.
• extra money is saved by locating at point-of-use.
  There are no "network" losses, avoiding very expensive network upgrades because of the separation of generator and load: the current cause of huge price rises in NSW over the last few years.
• Around 66% (yes more than half!) the energy released in burning coal/gas is wasted: just thrown away as heat into the local environment. "Tri-gen" captures a bunch of this in hot-water.
• The "Tri" in "Tri-gen" is
• electricity,
• heating and
• cooling.
• Hot water can be used to drive "chillers" in the same way that old Kero Fridges and modern caravan LPG fridges work.
• For cities, avoiding using grid-electricity to drive skyscraper air-conditioning is a massive win. The heating and air-conditioning is "carbon free" - created free from the gas turbine waste heat, with the power running lighting etc.

This is the sort of thing that could be retrofitted to high-end apartments, where the owners collectively have capital to invest, the willingness to "spend money to make money" and possibly a concern for the environment. There is no additional gas or electricity distribution network to be built: they will already have gas connected for hot-water heating.

There must be ways to down-scale this technology to suburban residential, [or small shopping centres who all need refrigeration, air-conditioning and power] In time, Governments might allow such power to be sold back to the grid by individuals. Right now, if current large generators owned and controlled the equipment, they could use it for highly profitable peak-load generation.

These systems could be built under "lease-back" arrangements. The property owners raise the money for the installation, then the asset is leased back to the power generation company under a standard commercial contract. The power generators get to save carbon offsets and can sell those on the open market, over time a useful revenue source.

This approach would be especially useful for regional country towns (Cairns, Mt Isa) that could locally source methane/natural gas. "Methane Digesters", running on agricultural waste are cheap and well known.

2. Large shopping centres/malls in hot climates save BIG slabs of money (both Capital and Operating costs) by making ice overnight, storing it in tanks, then using that ice to provide cooling, especially in the hottest part of the day (late afternoon). It saves money and energy in many ways:

• the ice-plant is maybe 25% capacity of the "chillers" normally needed. Much cheaper to build and service.
• the power to drive the ice-plant is bought at the cheapest rates possible, as against the guaranteed most expensive rate when you buy-when-you-use.
• the work required to make 1 tonne of ice is the least possible: being done at the coolest time of day, working against the "least resistance" of the air temperature.
• The ice making plant always works at optimum efficiency. It is run just long enough each day to make whatever is needed, then stops.
• Controlling large electric motors on heavy machinery, like the compressors in "chillers", is difficult and expensive. Mostly the are run like domestic refrigerators, in "stop-start" mode. This causes a lot of extra wear-and-tear on the mechanical parts as well as massive spikes in load: electric motors take a big whack of current to get them going. (more than 10 times operating current). This is why modern domestic split-systems are mostly "inverters" - the compressor can be adjusted to run continuously at a fraction of full-power.
• the plant to chill the air is simpler, smaller and cheaper because 2-5,000 times (by volume) less cold water is needed:
  A small pump brings very cold water from a tank through a "radiator" (heat-exchanger) that cools the air. To cool more/less just change the speed of the pump, versus starting/stopping the large compressors. Much simpler/easier/cheaper than running massive chillers in "make-when-you-use" mode.
• the tanks to store ice are cheap and robust. Easy to build extra storage (if you know you've got a heat-wave coming). When big enough, you don't even have to insulate them.
• One cubic meter of ice, around one tonne, stores approx. 3.5kWatt-hours of input energy, around three hours use of a small domestic unit. Not sure of "large plant" sizes, but I think 200-400 tonnes of ice in a day would be "large". Olympic swimming pools are 2,500 cubic meters in comparison
• plant breakdown under very high loads are more unlikely. If there isn't enough ice, the A/C air just gets a little warmer.

Can this be applied to suburban residential (houses or town-houses) - individually or in groups?
It certainly can be applied to high-end apartment complexes: saving a bunch of money, being more reliable and "being green".

There's a simple A/C technique used in large buildings that I've never seen in houses.

• evaporative cooling for the "chiller". (Those water cooling towers you see).
  In normally hot-dry areas (inland) this is a really big win for domestic A/C plant.
  In coastal areas (Cairns, Brisbane), it provides some benefit, even on humid days.
  BUT, would really only become economic/cheap when serving multiple dwellings.

3. Instead of building large, expensive generators out in the country-side that get used 3-4 days a year, store power in batteries (buy overnight, sell at peak, for approx 3:1 difference).

If such a simple/obvious idea was "economic", then the big generators would already be doing it, aside from the perverse economic incentives to build and sell more power...

• such a system, like Mobile Phone networks, only works when run by one big "provider", but ideally you'd have thousands of small-scale units (homes etc) embedded in the network, which by definition is all those householders who've put up Solar Panels.
• They already done 80% of the investment and pre-qualified themselves as having an interest in "thinking differently" and shown they have the necessary financial resources.
• Problem:
  currently domestic solar power installations selling electricity back to the grid are banned from having batteries.
• The large generators could lobby for this additional function for individuals, but as long as they own and control in-network power storage, there should be no regulatory problems.
  It's a really good investment compared to $900M sitting idle for 360 days/year.
• The CSIRO have developed a hybrid "ultra battery", suitable for many applications and already in testing for power storage.
  Some questions and options:
• How to make money in small scale, when the big players are owning/running it all?
• Scouting for sites, signing them up and organising installation. [cf. people who buy rights to "air space" for mobile phone antennas]
• Householders already with Solar PV could add power-storage under a "lease-back" deal. But who gets to keep the gear at the end? The householder or lessee (power company)?
• Installation/upgrade is:
  controller/power-meter, charger, batteries.
• Does a reseller/installer need to become an Electricity Provider to do this?
• Who is responsible for installation and site maintenance and on-going replacements? (the batteries especially).

  The idea of addressing the perverse economic incentives of Power Generators isn't new.
Amory Lovins, author and co-creator of the Rocky Mountain Institute, created the "negawatt" concept in 1989:

increase efficient power use by consumers and claim-back the avoided consumption as power generated.

The "mere technical difficulty" is measuring (and accounting for) product/service not used. [Update: April-2012. Potential Economic Solutions]

The underlying economic drivers are simple:

• There is no nett difference between a watt avoided and a watt generated, there is exactly the same nett economic benefit derived from the consumption of the derived service.
• the capital cost of avoiding generating a watt is many times lower than building plant to generate a watt.
• the on-going operational costs of an avoided-watt are precisely zero, and it is available "24x7", unlike some popular renewal resources (solar PV, wind, waves).
• For completeness, additional costs, like the replacement of lead-acid batteries after 5-7 years and the recycling/recovery of the lead and sulphuric acid, need to be borne.

There can be hidden costs like additional maintenance, but often new technologies, such as compact fluorescent bulbs, reduce maintenance/replacement costs by extending component useful life by 2-10 times.