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power industry profiteering « Previous | |Next »
August 7, 2012

Gillard's Electricity prices: the facts speech to the Energy Policy Institute of Australia finally acknowledges that state government-owned electricity network companies in NSW, Queensland and WA, have been gouging households since 2007.This is not new---Ross Garnaut said that the country’s energy giants were gold plating their networks in March 2011, as part of the detailed updates of his climate change review.


The states have used the pricing of carbon as a cover and continue to do so. So does Abbott--electricity price rises were largely caused by the carbon tax. The reality is that energy price rises are well above the cost of the introduction of the carbon price and taking action on climate change. 9c of every dollar in an electricity bill (the retail price) is for the carbon price – and that’s fully compensated – while 51c is for the poles and wires.

The government regulators signed-off on monopoly networks spending more than $40 billion within five years doing upgrades of poles and wires to serve peak demand for a few days a year. The industry's rhetoric is that peak demand is going through the roof--from 38,000 megawatts today to more than 50,000 MW by around 2020 and climbing like a hockey stick.

Approved network spending will keep driving prices up over the next two years at least – and much of it is questionable. It turns out that we won’t need this, since the low wholesale prices over the last few years reflect the general state of oversupply on the National Electricity Market (NEM), due to falling demand.

The state governments were able to pocket a huge windfall of additional revenue from their network businesses. They use their networks to siphoning off millions per year in dividends. The states have abused their dual roles as owners and regulators of power assets by over-investing to maximise dividends. Even in the face of a clear downwards trend in actual demand, the industry continues to project hockey stick rises in consumption. The money spent on upgrading the networks is determined by these demonstrably wrong forecasts of demand and so, in turn, is their regulated return and the payola for the states.

Gillard is going to have to act on electricity prices as increased energy prices are political dynamite. Will that reform be through CoAG? The Australian Energy Market Commission has been captured by the industry it seeks to govern, whilst the regulator, Australian Energy Regulator, has said that the regulations which govern its decision-making process were overhauled, network operators, including state governments, will continue to overinvest in infrastructure, forcing consumers to cover the costs which the operators receive back as dividends.

The NEM has been set up to increase profits for the industry and it has little to do with social (the interests of the community in which the market operates,) or environmental objectives (climate change and energy efficiency). So why not make network revenue increasingly based increasingly on the success of energy conservation and efficiency initiatives, on the assumption of continued falling peak and total demand, with incentives for achieving even lower demand and penalties for overshooting forecasts?

| Posted by Gary Sauer-Thompson at 11:36 PM | | Comments (20)


Now I get it.
A friend told me this was all about "gold plated poles"- now I see what they meant..
Heaven forbid the rake-in will be used for anything constructive, either.

In her speech Gillard repeats the old view that solar PV is the plaything of the rich.

“As a recent AGL Energy review noted, while wealthier households can cut power costs through more efficient devices and solar panels, the poorest customers are exposed to the full cost of the increases.
As a Labor Prime Minister, I feel very deeply concerned about the plight of pensioners and poorer families who spend a greater proportion of their income on power.
The less disposable income you have, the harder it is to manage large lumpy bills, like power bills. And buying clean energy appliances – everything from new and more efficient whitegoods to rooftop solar panels – is plainly easier if you earn more.
Solving these kinds of problems in people’s real lives is exactly the kind of thing Labor Governments are elected to do.

AGL runs the demonise solar PV as a rich person’s indulgence that penalises the poor, because having great swathes of panels installed across the roofs of Australia, as envisaged by recent AEMO forecasts, does not fit easily into its business model.

Nor does it fit easily with other generators and network operators, which is why many are trying to push back against its deployment with tariff changes and other regulation.

Over-investing is known as ''gold-plating'' and it causes power prices to spiral to fund increased dividends to the owners. In the case of NSW, it is the state government.

The NSW Govt says that Gillard istrying to distract from the impact on power bills of the carbon price

However, power prices in NSW over the past four years had risen by 69 per cent, which had nothing to do with the carbon price. This year, the increase in NSW is 18 per cent, half of which is due to the carbon price.

There is a fatal flaw in the national electricity market. It has been gamed.

The power companies earn a regulated return on their asset base. Their revenue is calculated based on the value of their poles and wires. So the more money they spend, the more money they make. And the more money they make, the higher their dividend to state governments.

The Australian Energy Regulator needs greater powers to police the powerful industry which is gouging consumers.

For years, the power companies have rationalised their high spending on their networks as critical to meeting ''peak demand'', but peak demand, too, has been falling.

The rise in power bills has been unnecessary and due in great part to the industry's overspending.

Now that Gillard has lifted the lid it does look as if electricity networks are run as super-profit-making operations with few environmental responsibilities.

Simon Cowan, a Research Fellow at The Centre for Independent Studies, says that increased electricity prices are primarily driven by the need to replace ageing assets, increase capacity to meet maximum demand, and improve reliability.

He makes no mention of peak demand falling.

Cowan's solution for increased prices?He says more deregulation and competition is a better answer than more regulation. Deregulation means doing away with the imposition of expensive green energy schemes by both the state and Commonwealth governments.

The carbon tax, for instance, is designed to make cheap coal-generated electricity expensive.

How does a further dose of market deregulation encourage the shift to a low carbon economy?

"How does a further dose of market deregulation encourage the shift to a low carbon economy? "

The Centre for Independent Studies position is that that there should be no subsidies for alternative energies with an ETS in which total emissions are capped, and carbon prices result from trading rights to pollute.

Subsidies for alternative energies in this context makes some basic mistakes of economic logic.

The argument is that there is no point trying to subsidise reductions in carbon emissions if the total amount of emissions is capped with an emissions trading scheme.

The CIS's postion is that moving away from conventional energy generation cannot be done with renewable energy. It can only be done through nuclear power for their baseload electricity needs.

Far from creating green industries, eco-subsidies lead to industrial decline. The reason is that high energy costs caused by renewable energy leave energy-intensive industries such as aluminium smelting, steel and cement uncompetitive. Instead of creating extra jobs, renewable energies are destroying jobs.

Gillard made two key points in her speech on Tuesday.

One was about the introduction of smart technologies, and the other was about the power of choice. “People should be able to use what they want when they want it, and cut out expensive services they don’t need.

Why do we need a centralised model ---large centralised generation facilities located far away from where the power is needed. Why cannot it be more local?

AGL Energy is attempting to restrain the deployment of solar PV by successfully lobbying for the feed in tariffs to be cut.

They face a situation where the cost of renewable systems is trending downward and the electric rates go up. Those who can leave the grid, will leave the grid, by building or installing on-site generation. The fixed costs associated with energy production, transmission and distribution will then have to be absorbed by the remaining (smaller) rate base.

Those who remain will see their rates go up even more, causing more people to opt out of a centralized grid, driving the rates for those who remain even higher.

AGL Energy will ensure that there is no national feed-in tariff system in Australia in its fight back against the incursion of solar PV. It looks likely that smart’ metering will be used by big energy providers to charge a premium for the evening period when electricity is drawn from the grid, whilst paying bare minimum for the daytime PV power produced by the premises.

The more rooftop solar PV that is installed due to the downward trend in PV cost, then the less demand for electricity from coal fired power stations.

The continued increase in rooftop solar PV means that many people are not buying the attempts by some media outlets to mislead the public and blame the carbon price and green schemes for most of the electricity price increases.

They see the rising coal-fired energy prices and hear that more are on the way. So they are switching to solar and don't listen to the bullshit that solar is not working, not ready or is unreliable.

declining demand means that there is no need to build new baseload generators --ie., new coal or gas-fired generator--for the next decade.

So the only only significant new build in energy capacity over the next decade will come from meeting the Renewable Energy Target.

Rising peak demand, the demand on a couple of hot days a year, gives networks the cover that they need to keep building their infrastructure

Isn't it generally much, much cheaper to address peak demand for a few hours a year with solar PV on rooftops than to build very expensive infrastructure to meet that peak demand?

Electricity price rises matter because they are one of the key issues scaring consumers about a carbon price.

Abbott is still saying that the carbon tax is to blame for rising electricity costs. It is was a fabrication for the Prime Minister to suggest power prices are rising because the states are over-investing in power infrastructure

The fears of rising electricity prices have been irresponsibly stoked by the Opposition. The irresponsible stoking of fear is pretty much Tony Abbott’s stock in trade.

Abbott's strength has been his “stop the tax, stop the boats” attack. Its been very effective. His weakness shows up when moves onto new terrain, such as the big rise in electricity prices due to over-investment in electricity infrastructure.

The Australian media are notoriously incapable of differentiating fact from fiction, especially when it comes to the price on carbon. The conservative political discourse on this issue is one in which facts have become irrelevant --everything is being blamed on the carbon tax.

Contemporary political “debate” has entered a largely fact-free zone.