Gavin Gilchrist of Big Switch Projects

14 September 2010 – In a speech delivered to the Committee for Economic Development of Australia on 31 August in Sydney, director of energy efficiency consultancy Big Switch Projects, Gavin Gilchrist, argued that the energy industry, not taxpayers, should pay for the Federal Government’s smart grid project, and that more must be done to tackle regulations hostile to cogeneration and energy efficiency. Here follows a transcript of his speech.

Good afternoon.

I’m delighted to tell you that this is not another lunchtime session where all the speakers are in amicable, total agreement. I’m not such a fan of the Smart Grid project. Here’s why. On the surface, Smart Grid is a terrific research project. On the surface, it seems like a really good idea.

But in fact I’m concerned about it for two reasons: most importantly because it’s a distraction from what I believe should be the main game. It gives the impression we’re serious about changing the way our energy system works, when in fact the evidence suggests we’re not.

Second, I’m concerned at who’s paying for it. Here’s where I’m coming from. I’ve spent the last 14 years of my professional life in the energy efficiency, low-carbon solutions sector, first as a government employee and for the past ten years running my own company helping companies, councils and government agencies save energy and travel down that lower carbon pathway. And before that, as a journalist, I spent a lot of time researching and writing on energy and climate change issues.

I accept the science of climate change. Have done for years. I don’t claim to know better than the combined intellects, say, of NASA, the CSIRO, all the world’s academies of science, and the IPCC.

[Incidentally, the Australian Academy of Science put out an excellent update on this issue a fortnight ago. It’s called The science of climate change: questions and answers. It’s 16 pages followed by seven pages of references. It’s well worth reading.]

So my work is geared towards helping deliver an energy system – both electricity supply and demand – that cuts the overall cost of energy services for business users. I can’t do much about the price of a unit of energy, but I can help my clients cut the amount of units they use.
I’m working for an energy system that’s reliable, that encourages the growth of the clean energy sector both in manufacturing and services, and that delivers much lower carbon pollution. That’s what I’m looking for.

My two arguments against the Smart Grid project. First, as I said, it’s a distraction. I’m concerned this is just a token gesture towards a more energy efficient, cleaner energy system. At a time when Australia’s electricity networks are spending something like $42 billion dollars on upgrading and expanding the supply, spending $100 million on a Smart Grid represents just a few R&D crumbs from a very big cake – crumbs, I worry, to make it look like governments are serious about integrating national carbon reduction goals with the design and operation of the electricity market when there’s little evidence they are.

It’s interesting, isn’t it, that we’ve had quite a bit of debate of late about spending $42 billion on the national broadband network, yet regrettably we’ve had nothing like that level of debate about the investment that’s going into the electricity network over the next five years – an investment your businesses began paying for in a very large way from the start of July, through significantly increased network charges.

Point two…I’m troubled that that this project is being paid for by the Australian taxpayer. Why? The electricity industry is one of the largest sectors in Australia, with revenue of around $20 billion a year. It’s a big industry – does it really need taxpayer funding for R&D?

The Australian electricity industry has a history of chronic under-investment in R&D. I think the Smart Grid project should have been funded by the industry itself – that is, of course, ultimately by electricity consumers ourselves, because it’s the consumer who should ultimately benefit from these projects, in theory.

I don’t see why the taxpayer should be funding companies the size of GE, IBM and Energy Australia. I don’t blame them for bidding for the pot of money. I would too. Indeed, Big Switch Projects is involved in two national Solar Cities projects. But I do question government offering this funding in the first place. That’s not to argue there is no place for public investment in science and innovation. Of course there are strong public interest and economic arguments. But in this case, I do think the industry could have largely funded this itself. That’s my second point then.

Australia is now at the start of the single biggest investment surge in the history of the Australian electricity industry. $42 billion dollars, or thereabouts. Part of that is replacing equipment that’s at the end of its life, but around half of it is to cater for expected growth in electricity demand. Yes, growth. Even if this additional demand is provided by gas-fired generation and cogeneration, it will increase carbon emissions at a time when we need to cut them.

So even though both our political parties are committed to cutting Australia’s carbon emissions by 5 per cent within just over nine years, by 2020, we are investing in new networks at an unprecedented rate. And, once they are built, it seems to me that the regulatory framework encourages their maximum use to supply more electricity. It’s doesn’t make sense. That is not smart. Not at all.

The electricity market we have today was designed on behalf of the large coal-fired generators and the monopoly network companies. The regulatory framework discourages small, low-carbon generators such as cogeneration, and it is hostile to encouraging energy efficiency. It’s far more profitable for networks to build more supply, because they earn a guaranteed return on every additional dollar’s worth of assets. This is a great shame, because study after study here and around the world has shown that the quickest, cheapest way to cut carbon emissions is by cutting energy waste.

What do I mean by “cutting energy waste”. Take a look at the CBD skyline tonight at 9pm. Perhaps over half the offices will still have most of their lights on. Because most of those offices will be empty. That’s what I mean by energy waste. Cutting energy waste doesn’t mean we have to sit there in the dark, and turn down the heating in winter, or turn up the thermostat in summer. It means being more efficient in how we use what we should consider to be a most precious resource: energy.

It means pulling out old-fashioned lamps and light fittings and replacing them with high efficiency ones. It means installing lighting controls that work, that sense when the lighting needs to go on, and when it can go off. I’d like you to think about this for a moment. Think about your offices, back at work. How many of you are confident that while you’re sitting here enjoying my talk, the lights in your office are off?

Turning lights off at the end of the day is one thing, but it’s often forgotten that we all spend a lot of the working day away from our desks – perhaps a third of the day in meetings, more meetings, in training, off sick, or on leave.

It means controlling our buildings better, so that the heating system is not fighting the cooling system at the same time, as it sadly so often does. It means using outside air whenever possible to cool our buildings, and recovering waste heat rather than dumping it to the atmosphere. And in industrial processes, it means redesigning those processes through research and innovation, so they need less energy.

Cutting energy waste means using the new pressure for greater corporate sustainability to drive innovation right across our businesses. The potential’s there to cut our business energy use by somewhere between 20 and 50 per cent, depending on the financial frameworks you apply, and save yourself money in the long-term.

We all know it, yet the electricity market we have today in fact discourages investment in energy efficiency. Smart Grid gives people the impression that the government is doing something about this whole issue. So I fear this project might just be $100 million dollars worth of spin.

So rather than supporting one modest Smart Grid project funded by the taxpayer, I support a national Smart Grid. I welcome Energy Australia, GE, IBM and the rest getting involved in delivering a Smart Grid. But I’d rather they paid for this themselves.

If the government had a hundred million dollars spare, I’d rather that money was spent on our side of the electricity meter, in our businesses and our homes, researching and implementing how to make us all much more energy efficient – and gathering the data rigorously to measure what worked and what didn’t.

So let’s by all means have a Smart Grid – but let’s make it a national Smart Grid. Let’s regulate our electricity networks so that it’s in their interests to deliver these kinds of interests.

Let’s recognise that the paradigm has changed; so we need to change the regulatory framework across Australia so we start to see Smart Grids popping up everywhere.