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8 May 2024, by Amy Sarcevic
Energy finance think tank, The Institute for Energy Economics and Financial Analysis (IEEFA), has quantified the role energy-efficient appliances could play in our net zero future, and is encouraging suppliers and investors to seize the opportunities on offer.
According to its recent analysis, inefficient appliances are incurring more than $3 billion in upfront and lifetime running costs for Australian power consumers – or around $280 million for South Australians – when compared with energy efficient alternatives.
As consumers begin to realise the full cost savings of switching to these appliances, IEEFA Analyst Jay Gordon says demand for these products and their underlying power sources will likely sky-rocket, and should not be taken at face value.
“The scope for energy efficient appliances to support our transition to renewables is huge, and likely underestimated. We could see a big uptick in demand for efficient electrical products as consumer awareness grows – either as a result of simple financial decision making from households, government incentive schemes, or both,” said Mr Gordon.
IEEFA also explored some proposed alternatives to residential electrification, including gases like hydrogen and biomethane.
They found using these gases in the home would be substantially more expensive than efficient electrical appliances, and said bringing them into gas networks and houses would be technically challenging.
“It is clear that efficient electric appliances are the most sensible and cost effective way forward,” Mr Gordon said.
Risks involved
While a mass shift towards energy efficient products would be a positive step forward for consumers and the environment, it carries risks for some parts of the energy system.
IEEFA’s modelling has explored the possibility that a mass exodus from gas distribution networks could leave them financially unviable.
“If a lot of consumers start to leave the gas distribution network, the very high fixed cost associated with that network could end up being passed onto a smaller and smaller consumer base,” Mr Gordon said.
“This opens up a lot of important regulatory questions, because the aim of our regulatory frameworks are to ensure gas networks charge a rate that’s fair to consumers who are trying to access those services. So, there will be some really critical decisions coming up for regulators and governments decision makers around how we deal with that.”
Mr Gordon also warns that a surge in demand for residential electrification – and the resulting financial strain for gas distribution networks – may incur stranded assets or unrecovered costs – but says the benefits to consumers would likely outweigh these costs.
“What our research really highlights is that there is a strong need for governments to work together to develop a managed plan for gas distribution networks. We need to find an equitable way forward and act in anticipation of household electrification taking off – which it likely will – and plan for who will pay for networks’ sunken costs once large numbers of consumers get off gas.”
Residential electrification has emerged as a hot topic in states with particularly high gas usage like Victoria, which has been the subject of IEEFA’s modelling. However, it’s still a pertinent issue for South Australian consumers, he adds, given the large number of households connected to the gas network.
“Any state which is yet to unlock the potential of residential electrification needs to consider these challenges,” Mr Gordon said.
Recognising opportunity
Despite the challenges, Mr Gordon says suppliers and investors – including consumers – should be optimistic about the outlook for residential electrification.
“We need to evolve our current thinking, which is that demand is this fixed input we have to respond to with supply side investments and instead keep in mind that our future energy system will likely be an ongoing balancing act between supply- and demand-side opportunities.
“We also need to recognise the role consumer demand plays in our energy transition more broadly. Ultimately this may mean optimising energy efficient investments at the household level and fewer, or different types of, investments at the large scale supply level.”
Join the debate
Sharing more thoughts on the future energy system, Jay Gordon will present at the upcoming South Australian Energy Developments Conference.
This year’s event will be held 18-19 June at the Adelaide Convention Centre.
Learn more and register your place here.
About Jay Gordon
Jay Gordon is an Energy Finance Analyst with the Institute for Energy Economics and Financial Analysis (IEEFA), focusing on the Australian electricity sector. His work focuses on demand-side opportunities, including energy efficiency and electrification, and interactions with other parts of the energy system including the gas network.
Jay has experience in modelling Australia’s energy system transition, including investigating the role of the electricity sector in helping the broader economy transition towards a net-zero future.
Jay previously worked at Climateworks Centre, where he led the organisation’s energy system modelling capabilities. This included the development of Australian decarbonisation scenarios to inform the Australian Energy Market Operator’s Integrated System Plan.
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