The Prime Minister’s plan to spend $252 million on rebates for residential solar hot water installations, as announced earlier this week, has been widely seen as a populist policy response.
But it also happens to be good policy in terms of its overall aim if not its specific approach. The main defect is that it does not go far enough. The funds provided will be enough for about 225,000 solar systems to replace off-peak electric water heaters, but this is only 8% of the existing stock of these heaters.
As the fact sheet accompanying the announcement states, each solar system will save between three and five tonnes of greenhouse emissions annually. They will also save at least 3,000 kWh per year of electrical energy each, more than halving the quantity of electricity used to heat water in households that make the switch to solar.
The electricity saved is, by definition, supplied off-peak; that is, for about six hours per day. It therefore equates to about 300 MW of base load generating capacity. Based on the cost of the new Kogan Creek power station, now nearing completion in Queensland, the capital cost of this amount of generating capacity would be at least $450 million, and more likely well over $500 million. If the baseload power were (notionally) supplied by a nuclear or “clean coal” power station, the capital investment required would be 50% to 100% higher again.
These comparisons make the Prime Minister’s plan look like very good value for money. But let’s take it a step further. A policy that was more carefully designed, aimed at realising economies of scale in the roll-out of solar water heaters, could almost certainly achieve the same outcome at much lower cost to government.
So why not have a better designed and greatly expanded program, aimed at gradually replacing the entire stock of off-peak electric water heaters with solar? This could save up to eight million tonnes of emissions per year and reduce the need for baseload generating capacity by over 3,000 MW. Nearly half of this saving would be in NSW, and most of the rest in Queensland and South Australia (these three States have much higher shares of electric water heating than Victoria and Western Australia).
These figures also throw new light on the supposed need for a new baseload, (that is, coal-fired) power station in NSW. They suggest that a combination of aggressive solar water heater roll-out combined with new intermediate load (probably gas-fired) generation could achieve the same level of supply security at lower cost and with much lower emissions.
Unfortunately, the other populist component of the Prime Minister’s package, called “Green vouchers of Schools” has few redeeming features.
Solar water heaters in schools will do very little either to reduce emissions or to reduce the costs of energy purchases by schools. The largest use of energy in most schools is lighting, followed by heating and cooling. Water heating is trivial by comparison. There are abundant, very low cost options to reduce school electricity consumption by upgrading lighting systems and improving the performance of (or, depending on location, avoiding the need for) active heating and cooling systems.
What schools need is a subsidised energy management program specifically directed to their particular requirements. But of course, that does not have the same superficial electoral appeal as pictures of government cheques being handed to grateful school communities.