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https://reneweconomy.com.au/death-spiral-of-gas-networks-is-the-500lb-gorilla-standing-in-way-of-energy-transition-heres-a-solution/>
"It must be nearly two decades now since we first heard talk about the “death
spiral” of energy networks. It first came to be used for the electricity grid,
but it seems that the industry has sorted itself out, accepted rooftop solar
and consumer energy as a thing, and found a way to move forward.
Now it’s the turn of gas pipeline networks. And given that state and territory
governments, and green energy advocates, have decided that the use of fossil
gas is no longer acceptable in homes and many businesses, its death spiral
looks inevitable. But, unless something is done about managing it properly, it
could be costly and ugly.
Ron Ben-David, a long time regulator, former chair of Victoria’s Essential
Services Commission, and now at Monash University, has decided to go where
current regulators fear to tread, and has come up with a radical proposal that
could – underline could – offer a solution to the problem.
So what is the problem? Basically, it is that gas networks are regulated
assets, built by transmission companies on a regulatory promise that they will
get a guaranteed return over the many decade life of the asset. That cost is
shared among all gas customers.
But as households and businesses choose or are encouraged to quit gas, and
electrify their homes and businesses, that leaves fewer customers to pay the
bill. Prices go up, and more customers want to leave. The issue and costs
snowball, developing what is commonly referred to as the “death spiral.”
The only solutions put forward so far are nothing more than bandaids. And, as
Ben-David points out in the latest episode of
Renew Economy’s weekly
Energy
Insiders podcast, the regulators admit it.
Requests to allow “faster depreciation” – effectively gas network operators
asking for permission to charge higher fees earlier – will likely accelerate
that death spiral. But Ben-David says it needs to be solved, or the whole
energy transition may be stopped in its tracks.
“I can’t say if that point of failure is 10, 20, or 30 years away, and I can’t
even tell you exactly what it will be, but it is inevitable that we will reach
a point of failure,” Ben-David says.
“And if the gas networks begin to fail, or even if the community and
governments just start fearing this failure, support for the gas transition,
and therefore the entire energy transition will falter and potentially
evaporate.
“We need to resolve the RAB (regulatory assets base) problem, the death spiral,
accelerated depreciation, accelerating prices. But no one is confronting this
problem. We’re living in a state of denial. No one is dealing with it, not the
AER, not the AEMC, not the ministerial council, no one.”
Ben-David refuses, unlike others, to accept that accelerated depreciation is
inevitable, and has produced a unique solution that basically involves
re-assessing the value of the reticulated gas networks every five years, for
example, and putting the difference into a new asset, that would then be
auctioned.
It solves two problems. It compensates the gas networks for their investment,
and protects the integrity of the regulated asset base, and regulated
investments in general. But who bears the cost?"
Cheers,
*** Xanni ***
--
mailto:xanni@xanadu.net Andrew Pam
http://xanadu.com.au/ Chief Scientist, Xanadu
https://glasswings.com.au/ Partner, Glass Wings
https://sericyb.com.au/ Manager, Serious Cybernetics
