The “gold-plating” of Australia’s power grid is exacting a far heavier toll on electricity customers in rural areas than in the cities.
Since 2005, the average bill for a customer in regional NSW has risen by 154 per cent to $2520. This compares with an average city customer’s bill of around $1800.
Despite the human and economic cost of rising power bills however, a BusinessDay investigation has found the power companies are spending hundreds of millions of dollars without need.
As widely reported, the factor most responsible for the rising price of electricity is the blow-out in network spending on “poles and wires”, a good deal of which arises from “gold-plating” or unnecessary spending to drive higher returns for the industry.
Indeed the starkest evidence of this excessive spending, partly driven by over-inflated forecasts of energy consumption, can be seen at the local level.
A major element in spiralling prices has been this faulty forecasting. That is, the power companies have made their spending decisions based on their own forecasts of future consumption of electricity.
Bear in mind, the higher their spending, the higher their financial returns, and the higher the dividends to state governments in turn.
These forecasts, however, have been way off the mark. Actual demand for electricity has been falling and yet spending on networks has still been made according to these presumptions of strongly rising demand.
Looking past the tattered credibility of both the national and state forecasts for electricity demand, the industry estimates for local and regional demand have been even further from reality.
Peak summer demand has fallen faster on the mid-north coast of NSW, for instance, than elsewhere in the state yet the transmission operator Transgrid and distributor Essential Energy are forecasting demand to rise faster.
Incredibly, the growth rate for the mid-north coast is forecast at three times the growth rate for NSW. And that is despite the overwhelming evidence that demand in the area is falling faster than elsewhere.
Wrong assumptions
Analyst turned farmer Bruce Robertson, who is part of a local action group opposing plans for network upgrades in the area, says the proposed Stroud to Lansdowne line – a Transgrid initiative – has been based on a set of assumptions which have been proven wrong.
Nevertheless, it is proceeding anyway, recently announcing its preferred corridor and acquiring the land for easements.
“People in the Manning and Gloucester valleys are having their properties acquired and having to put up with high voltage power-lines imposed on a beautiful landscape for a demand that simply doesn’t exist,” says Robertson.
“The people of all of NSW are paying for a piece of infrastructure that is neither wanted nor needed.”
Transgrid says the spending is needed to meet future network demand. We are talking a 330,000 high-voltage transmission line. The projected spend is $126 million for a 125 per cent increase in capacity.
This forms one part of the much larger project from Tomago to Coffs Harbour, or Armidale, with an estimated project cost of $750 million.
But the numbers tell a startling story, a deep divide between wildly exaggerated forecasts and the stark reality of a depressed region with no need for extra capacity for years.
BusinessDay has only looked in detail at this region but if the numbers for the mid-north coast of NSW are any indication of what is happening nationally, this is a scandal of multi-billion dollar dimensions.
Annual energy demand in the area for 2011–2012 is 4.1 per cent lower than in 2010–11, and 5.6 per cent lower than forecast in the 2011 Electricity Statement of Opportunities (ESOO) which contains the industry’s forecasts.
Even one year out, industry has the trend wrong. Forecast annual energy for 2012–13 is expected to fall another 2 per cent, which represents a 9.7 per cent reduction from the 2011 ESOO forecasts, says Robertson.
“Average growth in annual energy for the 10-year outlook period is now forecast to be 1.2 per cent, down from the 1.6 per cent forecast in the 2011 ESOO.
“This is a massive 25 per cent reduction in the long-term growth rate in annual energy for NSW in just one forecasting period.”
In just two years the 2020 forecasts by the Australian Energy Markets Operator (AEMO) and the network provider Transgrid have been revised down by 16 per cent.
According to Robertson, the key differences between the 2012 forecasts and the TransGrid 2011 summer maximum demand forecasts include:
- The 2011–12 actual summer maximum demand was 1690 MW or 12 per cent below TransGrid’s forecast.
- The 2012–13 forecast summer maximum demand is 2060 MW or 13 per cent lower than the TransGrid’s 2011 forecast.
- Average growth in summer maximum demand for the 10-year outlook period is now forecast to be 1.2 per cent, down from the 2 per cent forecast in the 2011 ESOO.
- The 2020-21 forecast for peak summer demand has been dropped by 18 per cent in just 12 months.
- In the February 2012 Options Selection Report, the Stroud to Lansdowne Project was based on a 19 per cent rise in peak summer demand by 2021.
- The fall in peak demand forecasts in the National Electricity Forecasting report 2012 virtually wipe out the Stroud to Lansdowne Project justification.
- The mid north coast is a lower income area. The effects of price are being felt more keenly and demand is falling dramatically.
“That 18 per cent fall in AEMO’s peak summer demand for NSW in 2020-21 wipes out the entire need for this project,” says Robertson. “The project was based on a 19 per cent rise in demand. There goes your project, bingo, in one hit”.
Still, despite the incontrovertible evidence of receding demand and a project whose justification had hinged on far higher estimates of consumption, Transgrid remains wedded to its big capital expenditure plans for the region.
Social impact
The social impact of rising prices is a serious matter. On figures from IPART (the Independent Pricing and Regulatory Tribunal) for the Country Energy supply area, more than 11 per cent of customers live in “Energy Poverty” (which is defined as those who spend more than 10 per cent of their disposable income on energy bills).
Once you get to 10 per cent of your disposable income, you are faced with an “eat or heat” dilemma. The decision to spend money on, for instance, heating becomes a more difficult one.
And it’s showing up in the figures, says Robertson. “It is for this reason that consumption of electricity on the mid-north coast has fallen further than in the rest of the state.”
The graph above does not include spending on gas, whose consumption pushes some consumers into the Energy Poverty demographic.
Excluding Sydney, regional NSW has a median weekly household income of $961. The towns of the mid-north coast however are well below this; their median weekly household incomes range from Port Macquarie at $855 to Kempsey at $581.
If gas expenditure were included, says Robertson, it may be that almost one third of the population of the mid-north coast may soon be classified as living in Energy Poverty.
Looking to the rationale for the Stroud to Lansdowne line then, the project was based on peak summer demand rising by 19-35 per cent over a 10 year period.
There has been a clear and unequivocal change in the trend in peak summer demand. The trend in demand is down.
Peak summer demand on the mid north coast dropped by 21 per cent in 2011/12, a larger fall than the NSW average of 18 per cent (and it came in a year when the average electricity bill rose 17 per cent).
Peak summer demand has been falling faster on the mid north coast than in the rest of NSW over the last five years (it is down 9.6 per cent compared with the state average of just 5.8 per cent).
Notwithstanding actual demand retreating, AEMO forecasts peak summer demand for NSW to rise by 1.2 per cent per annum over the next 10 years. Even more strangely, demand on the mid-north coast it is somehow expected to rise by 3.6 per cent a year.
Mystery forecasting
There are no major new industries or significant population movements underpinning this fanciful surge in demand. It is simply a mystery of power industry forecasting.
From 2005 to 2011, the area’s population grew by 12,500 but peak demand still fell. Now, Transgrid is predicting growth of 30,000 people over the next ten years. This equates to population growth of 1.5 per cent per annum.
“Over the last three years we have only grown at 1.1 per cent,” says Robertson. “It’s slowing all the time. We are not going to get there. But even if we did, peak demand is still falling”.
The growth rate that is forecast for the mid north coast is 300 per cent higher than the NSW state average, and that’s despite the evidence which shows demand is falling faster on the mid north coast than elsewhere.
The figures to justify the Stroud to Lansdowne line have no credibility, says Bruce Robertson.
In May 2010, in a Transgrid “Tomago Stroud Community Update” it was noted that “The Tomago to Stroud Project will help address peak demand in the Lower Mid North Coast, which is forecast to increase by up to 35 per cent over the next 10 years.”
In the options selection report, seven months later, Transgrid and Essential revised down their forecasts to 19 per cent.
Presently, on its website, Transgrid quotes a growth in peak demand for the mid north coast of 25 per cent over the next ten years.
But – and this is the killer – in the annual planning report published in June this year, the graph for Taree to Kempsey area shows growth for the next ten years in peak summer demand of 42 per cent.
Here we have four different figures in one forecast. “It’s no wonder this is a difficult industry to understand with this kind of nonsense going on,” says Bruce Robertson.
So what has happened here? What is going on?
Robertson says he can only surmise that back in 2010, the industry was forecasting 35 per cent growth. And that was the reason they proposed to bring on the new supply.
They figured they needed 244 megawatts of new capacity.
“If we use the NSW growth rate of 1.2 per cent in peak summer demand, as forecast by the AEMO (even though we reject it as way too high), Transgrid would have to build this project in 2052.
Yet, suddenly we see these exaggerated numbers. Why? Transgrid builds transmission lines. That’s what they do. The industry distributors build and maintain capacity. That’s what they do. That’s how they get paid. Inconveniently, demand has gone down. But they still wanted to keep building.
Michael West established Michael West Media in 2016 to focus on journalism of high public interest, particularly the rising power of corporations over democracy. West was formerly a journalist and editor with Fairfax newspapers, a columnist for News Corp and even, once, a stockbroker.