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Why buy electricity when you can make your own?
Despite transmission losses and the costs of transmission, domestic mains electricity is considerably cheaper than making your own. Even with the latest increases due to the carbon tax and MRET it is still quite cheap (written in 2012); at around $0.26 cents per kWh; and less for off-peak.
You can’t easily match this by making your own electricity.
Transporting energy from large efficient point sources is generally cleaner as well as cheaper than generating electricity locally on a small scale.
The average Australian household consumes about six megawatt hours (MWh) per year but peak demand can easily exceed ten kilowatts (kW). For example with: the clothes washer and dryer; dishwasher; kettle; toaster; oven; cook-top; instantaneous hot water; and a room heater running; plus the more continuous loads like refrigeration, lighting, TVs, computers, pool pumps etc. peak power might be double this number. If air-conditioning is also running ten kilowatts is totally inadequate.
If you install your own diesel generator capable of supplying peak power of say 10 kW and running continuously 24/7 you will have a big bill for the capital (opportunity cost); maintenance; and depreciation.
Your fuel alone will cost you more than simply buying the same energy from the grid. This is why the proponents of electric cars say they are cheaper to run than cars run on petrol.
You might argue, as some do, that solar energy is plentiful and free. Proponents of this theory could test it by cutting themselves off from the grid and attempting to get their six MWh, plus their morning and evening peak electricity demand of 10kW, from solar panels. They will need around 30 panels (these would totally cover a typical suburban frontage) and because domestic peak demand is when the sun is not yet up and in the evening, they will need some very big and expensive batteries as well to flatten out day to day peaks and troughs and to provide energy when the sun doesn't shine at all..
My back of envelope estimate puts the cost of such a system, using prices presently quoted on-line, at well over five times that of buying the same energy from the grid.
Since I first wrote this article batteries have become cheaper and Electricity consumption has dropped as cost increased. By 2016 Li-ion batteries had surpassed lead acid as the cheapest 'whole of life' option. The cost of batteries to car companies like Tesla dropped below the US$200 per kWh barrier for the first time (< $200,000 per MWh).
Yet based on these lower prices, to continue to behave as if they were still grid connected an average household would still need several hundred thousand dollars worth of batteries.
So off-grid country properties (that do rely on solar power for electricity) have to manage peak demand to well under 10kW; and use alternative energy sources like gas or wood for cooking and heating; in addition to oil and/or petrol for backup generation, farm machinery and some power tools.
But as electricity prices rise gas is beginning to be a local generation option; either as a complement or as an alternative to the grid. Worldwide, this is increasing the market's demand for gas and thus the export and domestic price.
Nevertheless market equilibrium has resulted in gas co-generation in some large commercial buildings and industry becoming a real option.
Gas powered fuel cells are being trialled as a means of local grid demand/supply matching in several locations. These units are very energy efficient with much better fuel utilisation than large scale thermal generation.
When using natural gas the hydrogen goes to making electricity and water at around 60% electrical efficiency; while the carbon component is oxidised producing heat and carbon dioxide. For every kWh of electricity they generate, around 1.2 kWh (4,000 BTU) of heat is produced. This needs to do something useful, like heating water; to bring the total efficiency to around 85%
Like solar or wind the capital cost per kWh generated is still considerably higher than conventional coal generated electricity. But with falling prices, as the technology is refined and as grid electricity prices rise, fuel cells may well become a competitive generation option for local peak smoothing within an integrated local distribution grid.