Home efficiency and renewables trading could solve Tasmania's energy bill problem

IEEFA research shows the most cost-effective ways to reduce energy costs for Tasmanians is to invest in energy efficiency upgrades, such as high-efficiency home appliances.

The need to reduce household energy bills was a key issue in the Tasmanian elections on March 23. One proposal to achieve cost reductions involved refocusing Tasmania’s hydroelectricity generation towards local use rather than energy exports to Australia’s mainland.

However, recent IEEFA research suggests that imports and exports to the mainland can deliver a financial benefit for Tasmania, and that some of the most cost-effective ways to reduce energy costs for Tasmanians would be to invest in energy efficiency upgrades instead, such as high-efficiency home appliances.

Energy efficiency improvements could help free up hydroelectricity for profitable exports. Most importantly, it can deliver a range of benefits for Tasmanians, including reduced and less variable energy costs, and improved comfort, health and wellbeing.

Despite having cheaper electricity than most other states, Tasmanians have higher electricity bills. This is in large part driven by high energy requirements for heating buildings.

Tasmanian homes are often old and have poor thermal efficiency. Alongside wood heating, Tasmanians mostly rely on inefficient resistive electric appliances for household and water heating.

A small proportion of households also use gas or liquefied petroleum gas (LPG) for heating, which is much more expensive than efficient electric appliances.

Inefficient electric and gas appliances cost less to purchase, but incur much higher energy costs over their lifetime – 15 years on average – than efficient electric appliances. By contrast, efficient heat-pump based appliances consume less than a third of the energy used by resistive electric or gas appliances.

About 43,000 inefficient electric or gas appliances are sold each year in Tasmania. IEEFA calculates that these appliances cost Tasmanians an unnecessary $146 million in lifetime costs. This is the cost of each year of delay in mandating efficient electric appliances in Tasmania.

Significant savings could also be achieved by improving buildings’ thermal efficiency. Detached homes with timber framing, the most common homes in Tasmania, present the most cost-effective opportunity to improve insulation and draft proofing. Large opportunities also likely exist to improve energy productivity in commercial buildings.

efficient eletric appliances and the savings over a year
Total lifetime savings per year for Tasmanians from efficient electric appliances

Increasing electricity imports and exports offers profitable opportunities

Tasmania is already benefiting from electricity trading with the mainland through its existing Basslink interconnector, which allows it to generate more value from its hydrogeneration assets.

Government-owned corporation Hydro Tasmania can import electricity when prices are negative or low instead of using hydroelectricity, leaving more water stored in dams.

When prices are high, this stored water can be used to generate electricity for export as well as local use. Basically, this uses stored water as a battery – like “pumped hydro” but without the energy and cost of pumping water uphill – generating returns that can be passed back to Tasmanian taxpayers.

These benefits would increase as the renewable transition progresses. Indeed, Tasmania is well placed to provide seasonal electricity storage for Victoria at a profit – by importing excess solar generation in summer at negative prices, and exporting high-priced electricity in winter when the mainland is experiencing higher demand and lower renewable generation.

This would also benefit Tasmania’s energy system. In summer, lower rainfall limits the generation capacity of the smaller dams and weirs, which can be compensated by cheap electricity imports from the mainland.

In the last quarter of 2023, Victorian wholesale prices were negative or at zero 29% of the time, largely due to excess solar generation in the middle of the day. It typically rains nearly twice as much in winter than in summer in Tasmania, and smaller hydrogeneration systems may have to allow spillage when there is insufficient local demand for hydroelectricity. Instead, exports to the mainland provide a high-value use for the excess electricity generated.

IEEFA’s report found that these benefits could be increased though a range of strategies to make the most of existing assets. These include:

  • Improving the energy efficiency of Tasmanian buildings and appliances: this cuts energy bills, improves health, and frees up hydrogeneration by leaving more water and transmission capacity available for profitable exports.
  • Building mainland batteries as “virtual transmission” to optimise the utilisation of Basslink.
  • Working with energy agencies and governments to ensure the energy market rules appropriately reward the services provided to the mainland by Tasmania.

Batteries installed in Victoria could store negative- or low-priced mainland electricity, and transmit it when Basslink is not in use to increase cheap imports to Tasmania. They could also store electricity from Tasmania to be sold at times of higher prices on the mainland.

They could also help to increase the profitable utilisation of the Basslink cable. If Basslink were used at full capacity, half for imports and half for exports, high-value exports could be doubled. Imports would only increase marginally, but their average cost could be reduced.

Financial incentives already exist to drive imports from, and exports to, the mainland. However, it is not clear whether they are sufficient to optimise the opportunity. For example, recent analysis suggests the incentives are insufficient to support longer-duration storage. In addition, coordination by key stakeholders would be required to deliver those opportunities, which might require new arrangements.

Beyond existing assets, the Tasmanian government and Hydro Tasmania have developed an ambitious “Battery of a Nation” project. This involves expansion of wind energy, enhanced flexibility for management of some water storage and generation, and the proposed Marinus Link interconnector to Victoria.

IEEFA recognises that aspects of this project are under debate and may have significant environmental, social and economic implications.

We note that expanded wind generation and interconnection with the mainland could increase the net Tasmanian financial returns from interaction with the mainland electricity system while helping to maintain reliable local electricity supply. We have not explored the overall economics and impacts of this expansion but this is an area worthy of further investigation.

Tasmania has large opportunities to reduce household energy costs by improving the efficiency of its appliances and buildings. It also has a unique opportunity to gain material financial benefits from trading electricity with the mainland while supporting Australia’s renewable electricity transition and reducing carbon emissions.

Increasing energy efficiency of Tasmanian buildings can free up more hydroelectricity for export to the mainland, generating profits for the shareholders of Hydro Tasmania – the Tasmanian public.

The Tasmanian government could consider using these profits to provide financial incentives to households and businesses for energy efficiency upgrades. This would provide a win-win for the Tasmanian government and energy consumers.

Amandine Denis-Ryan, Alan Pears & Jay Gordon
CEO, Institute for Energy Economics and Financial Analysis (IEEFA) Australia | IEEFA guest contributor | Energy Finance Analyst, Australian electricity, IEEFA
April 10, 2024
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