Household decarbonisation’s role in the energy transition

Electrification and renewable gas advocates often hold opposing views on gas use decarbonisation in the home.
The Australian Pipeliner sat down with Jordan McCollum, National Policy Manager, APGA, to discuss a new study showing that this difference in opinion may come down to a simple difference in how household decarbonisation costs are calculated.

The renewable energy transition has always meant that how we do things today will need to change. Early in the transition, this meant that all energy use would need to eventually more to electricity. This brought with it some harsh realities – one of which being the electrification of gas use in the home.

The harshness of this reality came on two fronts – people who genuinely enjoy using gas in the home could no longer make this choice, and electrifying all gas use in all homes is more difficult and costly than leaving things the way they are. Now, most aspects of the gas supply chain and gas appliances could remain the same, but households could instead pay a premium to receive gas which produces net zero emissions.

With two options available to decarbonise homes, electrification and renewable gas advocates turned to consider cost. Both sides could see they had the better option. But how can both groups of well-meaning experts be right and wrong at the same time? The devil is in the data.

Cost comparison for electricity, green hydrogen, and biomethane for residential users in 2040.
Cost comparison for electricity, green hydrogen, and biomethane for residential users in 2040.

A recent study by Boston Consulting Group (BCG) takes two revolutionary new approaches to analysing the costs of gas use decarbonization in the home. First, they combine net present value (NPV) analysis of both energy bill costs and energy appliance costs together. Second, they consider that households with similar energy needs will experience a range of different energy bill costs and energy appliance costs.

The importance of considering the range of bill and appliance costs becomes clear when viewing the results of BCG analysis.

The bars in Exhibit 1 of the report shows average NPV of gas decarbonisation options for three household circumstances. More important than the average is the range displayed overtop. These ranges indicate the span of possible cost outcomes from maximum and minimum for each combination of home and decarbonisation choice.

Comparing the minimum end of new build and end of life (EOL) appliance household cost ranges shows that the all-electric option will be lowest cost for some households. This aligns with the electrification advocates view of the world. Comparing the minimum end of early replacement households shows that the renewable gas options will be lowest cost for some households. This aligns with renewable gas advocate view of the world.

From these results we can also imagine that if BCG performed this analysis considering minimum bill and appliance cost data alone, their result would only produce minimum combined cost results from which it would be reasonable to conclude that electrification is the cheaper option unless requiring early replacement of appliances.

By performing the analysis using bill and appliance cost ranges, BCG produced combined cost range results. Importantly, the ranges produced by BCG analysis overlap – and overlap significantly.

Where ranges overlap, it is possible that customers could achieve equal, better or worse cost outcomes using either all-electric or renewable gas options. While in some cases, households can achieve better results with one option, this is not the case for all households.

This conclusion completely changes the household gas decarbonisation debate. There is no one size fits all solution for all households. Rather, both renewable gases and electrification are needed to support all households accessing their individual least cost gas use decarbonisation pathways.

More than that, this conclusion means that the Australian public no longer has to accept the consequences of 100 per cent electrification to decarbonise.

No longer do we have to accept the upfront cost of all-electric appliances or possible connection upgrades; that apartments and high density homes will have to undergo costly renovations to supply all electric appliances via constrained services corridors; or that renters won’t have a choice to decarbonise if their landlords fail to install all electric appliances, increasing rental costs in the process.

If renewable gas is cost competitive with renewable electricity in the home, then household gas customers have greater choice, greater opportunity, and greater capacity to choose from a wider range of gas use decarbonisation options. Surely even electrification advocates can agree with that.

This article featured in the November edition of The Australian Pipeliner. 

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