The price of power
With Australian electricity prices amongst the highest in the
world, more and more households are going solar. The big power companies
say the Renewable Energy Target is undermining their businesses and
they want it wound back. The federal government agrees, so who is to
blame for the high price of power? Jess Hill investigates.
Never
has it been more expensive to turn on our appliances. In the last few
years, our power bills have doubled, making Australia's electricity
prices some of the highest in the developed world.
Prime Minister
Tony Abbott blames two things: the carbon tax and the renewable energy
target. He says the government's review of the target will look at its
impact on bills, because 'renewable energy targets are significantly
driving up power prices right now'.
But Mr Abbott's claim that the renewable energy target
is expensive is not supported by the data. The Australian Energy Markets
Commission says the renewable energy target adds four per cent to the
average electricity bill. For an average household, that's about a
dollar a week.
'For all of the attention that carbon price has
got, from the increasing attention the renewable energy target's got,
the main reason that electricity has been getting dearer is the
overinvestment in poles and wires, and the fundamental inefficiency in
the way that the national electricity market's working,' says Richard
Denniss, executive director of the Australia Institute.
Federal
Treasury estimates that 51 per cent of an average household bill is
spent on network costs. Most of that is going towards paying off the $45
billion network companies have spent on updating our poles and wires
over the last five years.
This investment was justified by the
network companies' own data, which showed that Australia's energy demand
was going to increase dramatically. But in 2009, just as they were
beginning to spend, something unprecedented happened. Energy demand in
Australia didn't go up—it went down. And it's continued to go down every
year since.
Despite the clear reality of falling demand, the
network companies insisted that demand was rising, and they carried on
investing billions of dollars into the grid. Every dollar of that
investment is now being recovered from consumers, via our power bills.
Every dollar, plus ten per cent—a guaranteed return granted to them by
the regulator.
In 2012, three years after the spending began, the
Senate held an inquiry into electricity prices. It was chaired by Labor
MP, Matt Thistlethwaite.
'What we found was those network businesses—that
earned the most profits were the ones that invested the most,' he says.
'So there was a perverse incentive in the system for an overinvestment
in the poles and wires, and that led to dramatic profits for those
businesses, but of course it was the consumer that paid for that cost of
that additional capital.'
Mr Thistlethwaite says that the inquiry
was presented with many examples of infrastructure being built where it
wasn't needed. 'We discovered a network business that had invested $30
million in a substation in Newcastle, and I actually visited the
substation. It wasn't connected to the grid. The reason why it wasn't
connected to the grid; when the decision was made a couple of years ago
to invest in this particular piece of infrastructure, it was projected
that the demand would be there. But the demand didn't eventuate.'
Energy
analyst Bruce Mountain from Carbon Market Economics says that although
some old infrastructure needed updating, the amount of money wasted on
the poles and wires was substantial. 'I would estimate as an aggregate
across the national electricity market, perhaps at least a half of that
total spend was not actually necessary, but it does vary by state.'
The
staggering rise in electricity prices brought on by this investment has
had a rather unintended consequence. 'Because the price got so high, it
made solar even more competitive from the customer's point of view,'
says David Leitch, a utilities analyst with UBS. 'Because when you use
the solar in your house, you don't use the wires and poles in the
system, so you're eliminating half the final price.'
The fact
that households with solar can save more than half on their power bills
has made solar panels an economic choice, not just an ethical one. There
are now 1.2 million households getting their daytime power from solar
panels.
'It's essentially turning households into competitors of
the electricity companies, because all of a sudden households are
producing electricity, and they're deciding what to do with it,' says Mr
Leitch. 'As opposed to just having a choice of take it or leave it from
your friendly electricity retailer.'
rooftops are wreaking havoc on the traditional power industry, says Mr
Denniss, because they produce the most amount of energy at the time of
day when the power industry makes the most money.
'Solar panels
have got this great trick, they make lots of electricity when the sun is
shining; that's when we like to turn our air conditioners on,' he says.
'When everybody turns their electricity on at four o'clock on a hot
Thursday afternoon, we have enormous demand for electricity for these
short periods of peak demand. And that's when solar panels are at their
best.'
'Solar panels are actually pumping quite a large amount of
energy in during these periods of peak demand, and that's pushing down
the peak price. Now that's great for everybody, except the so-called
baseload power stations. Because the baseload power stations used to be
able to sell their electricity for a much higher price at four o'clock
on that hot Thursday afternoon. From the coal-fired power station point
of view, you couldn't have a worse competitor, because solar is at its
best when the market is at its most profitable.'
What that means
is that the big coal-fired power plants are earning less for the energy
they produce. That's because Australia has more electricity than it can
use.
That's a big problem, says the federal industry minister,
Ian Macfarlane. 'We're facing an enormous challenge in terms of an
excess generating capacity in electricity in Australia. To be adding
large quantities of generation into that situation has to be questioned.
The review process will go through those things.'
With energy
demand going down, and renewable energy supply going up, Australia
simply doesn't need as much power from fossil fuels anymore. In the last
few years, several large coal-fired power stations have been shut down
or mothballed.
'Australia doesn't need more generation; if we
have more wind at the moment, it will displace some other form of
generation,' says Mr Leitch. 'So no-one wants to be displaced in this
world, and we can all understand that.'
That's one of the reasons
why the conventional power industry is lobbying the government to wind
back the renewable energy target—known as the RET. The Energy Supply
Association of Australia, which speaks on behalf of the conventional
power industry, says that now demand has gone odwn, 41,000 gigawatt
hours will represent around 30 per cent of Australia's energy supply,
rather than 20 per cent.
'The conditions under which the RET was
designed no longer exist, and we think the RET is broken and can't work
in an oversupplied market,' says Matthew Warren, the ESAA's CEO.
But
there has already been a review. At the end of 2012, the Climate Change
Authority reviewed the target and recommended that it be maintained.
Their review was supposed to provide certainty to the renewable energy
industry.
The chair of the Climate Change Authority is Bernie
Fraser, a former Reserve Bank governor. He says that just by holding
another review, the government has ensured that the 41,000
gigawatt-target won't be met. 'Investment is actually being cut back and
delayed, and I think because of that, I think it's apparent now that
the 41,000 gigawatts for large renewable energy power plants, is not
going to happen. It's going to be a lesser figure and I think that's
what the opponents, the critics of renewable energy want to see.'
'Policymakers
need to look beyond short-term economic considerations in the interests
of some of the big companies to longer-term community interests. And
that's what governments are supposed to do, but unfortunately it's not
happening at the present time,' he says.
So it's a bit… well, it's
more than a bit, it's very disappointing that we're falling behind, and
we are falling behind what many other countries are doing.'
world, more and more households are going solar. The big power companies
say the Renewable Energy Target is undermining their businesses and
they want it wound back. The federal government agrees, so who is to
blame for the high price of power? Jess Hill investigates.
Never
has it been more expensive to turn on our appliances. In the last few
years, our power bills have doubled, making Australia's electricity
prices some of the highest in the developed world.
Prime Minister
Tony Abbott blames two things: the carbon tax and the renewable energy
target. He says the government's review of the target will look at its
impact on bills, because 'renewable energy targets are significantly
driving up power prices right now'.
From the coal-fired power station point of view, you couldn't
have a worse competitor, because solar is at its best when the market is
at its most profitable.
Richard Denniss, executive director of the Australia Institute
is expensive is not supported by the data. The Australian Energy Markets
Commission says the renewable energy target adds four per cent to the
average electricity bill. For an average household, that's about a
dollar a week.
'For all of the attention that carbon price has
got, from the increasing attention the renewable energy target's got,
the main reason that electricity has been getting dearer is the
overinvestment in poles and wires, and the fundamental inefficiency in
the way that the national electricity market's working,' says Richard
Denniss, executive director of the Australia Institute.
Federal
Treasury estimates that 51 per cent of an average household bill is
spent on network costs. Most of that is going towards paying off the $45
billion network companies have spent on updating our poles and wires
over the last five years.
This investment was justified by the
network companies' own data, which showed that Australia's energy demand
was going to increase dramatically. But in 2009, just as they were
beginning to spend, something unprecedented happened. Energy demand in
Australia didn't go up—it went down. And it's continued to go down every
year since.
Despite the clear reality of falling demand, the
network companies insisted that demand was rising, and they carried on
investing billions of dollars into the grid. Every dollar of that
investment is now being recovered from consumers, via our power bills.
Every dollar, plus ten per cent—a guaranteed return granted to them by
the regulator.
In 2012, three years after the spending began, the
Senate held an inquiry into electricity prices. It was chaired by Labor
MP, Matt Thistlethwaite.
'What we found was those network businesses—that
earned the most profits were the ones that invested the most,' he says.
'So there was a perverse incentive in the system for an overinvestment
in the poles and wires, and that led to dramatic profits for those
businesses, but of course it was the consumer that paid for that cost of
that additional capital.'
Mr Thistlethwaite says that the inquiry
was presented with many examples of infrastructure being built where it
wasn't needed. 'We discovered a network business that had invested $30
million in a substation in Newcastle, and I actually visited the
substation. It wasn't connected to the grid. The reason why it wasn't
connected to the grid; when the decision was made a couple of years ago
to invest in this particular piece of infrastructure, it was projected
that the demand would be there. But the demand didn't eventuate.'
Energy
analyst Bruce Mountain from Carbon Market Economics says that although
some old infrastructure needed updating, the amount of money wasted on
the poles and wires was substantial. 'I would estimate as an aggregate
across the national electricity market, perhaps at least a half of that
total spend was not actually necessary, but it does vary by state.'
The
staggering rise in electricity prices brought on by this investment has
had a rather unintended consequence. 'Because the price got so high, it
made solar even more competitive from the customer's point of view,'
says David Leitch, a utilities analyst with UBS. 'Because when you use
the solar in your house, you don't use the wires and poles in the
system, so you're eliminating half the final price.'
The fact
that households with solar can save more than half on their power bills
has made solar panels an economic choice, not just an ethical one. There
are now 1.2 million households getting their daytime power from solar
panels.
'It's essentially turning households into competitors of
the electricity companies, because all of a sudden households are
producing electricity, and they're deciding what to do with it,' says Mr
Leitch. 'As opposed to just having a choice of take it or leave it from
your friendly electricity retailer.'
This article represents part of a larger Background Briefing investigation. Listen to Jess Hill's full report on Sunday at 8.05 am or use the podcast links above after broadcast.Solar
rooftops are wreaking havoc on the traditional power industry, says Mr
Denniss, because they produce the most amount of energy at the time of
day when the power industry makes the most money.
'Solar panels
have got this great trick, they make lots of electricity when the sun is
shining; that's when we like to turn our air conditioners on,' he says.
'When everybody turns their electricity on at four o'clock on a hot
Thursday afternoon, we have enormous demand for electricity for these
short periods of peak demand. And that's when solar panels are at their
best.'
'Solar panels are actually pumping quite a large amount of
energy in during these periods of peak demand, and that's pushing down
the peak price. Now that's great for everybody, except the so-called
baseload power stations. Because the baseload power stations used to be
able to sell their electricity for a much higher price at four o'clock
on that hot Thursday afternoon. From the coal-fired power station point
of view, you couldn't have a worse competitor, because solar is at its
best when the market is at its most profitable.'
What that means
is that the big coal-fired power plants are earning less for the energy
they produce. That's because Australia has more electricity than it can
use.
That's a big problem, says the federal industry minister,
Ian Macfarlane. 'We're facing an enormous challenge in terms of an
excess generating capacity in electricity in Australia. To be adding
large quantities of generation into that situation has to be questioned.
The review process will go through those things.'
With energy
demand going down, and renewable energy supply going up, Australia
simply doesn't need as much power from fossil fuels anymore. In the last
few years, several large coal-fired power stations have been shut down
or mothballed.
'Australia doesn't need more generation; if we
have more wind at the moment, it will displace some other form of
generation,' says Mr Leitch. 'So no-one wants to be displaced in this
world, and we can all understand that.'
That's one of the reasons
why the conventional power industry is lobbying the government to wind
back the renewable energy target—known as the RET. The Energy Supply
Association of Australia, which speaks on behalf of the conventional
power industry, says that now demand has gone odwn, 41,000 gigawatt
hours will represent around 30 per cent of Australia's energy supply,
rather than 20 per cent.
'The conditions under which the RET was
designed no longer exist, and we think the RET is broken and can't work
in an oversupplied market,' says Matthew Warren, the ESAA's CEO.
But
there has already been a review. At the end of 2012, the Climate Change
Authority reviewed the target and recommended that it be maintained.
Their review was supposed to provide certainty to the renewable energy
industry.
The chair of the Climate Change Authority is Bernie
Fraser, a former Reserve Bank governor. He says that just by holding
another review, the government has ensured that the 41,000
gigawatt-target won't be met. 'Investment is actually being cut back and
delayed, and I think because of that, I think it's apparent now that
the 41,000 gigawatts for large renewable energy power plants, is not
going to happen. It's going to be a lesser figure and I think that's
what the opponents, the critics of renewable energy want to see.'
'Policymakers
need to look beyond short-term economic considerations in the interests
of some of the big companies to longer-term community interests. And
that's what governments are supposed to do, but unfortunately it's not
happening at the present time,' he says.
So it's a bit… well, it's
more than a bit, it's very disappointing that we're falling behind, and
we are falling behind what many other countries are doing.'
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