The Prime Minister said the other day he wanted to make Australia the ”affordable energy capital” of the world.
It is a good intention. Let’s hope it doesn’t go the way of the Great Northern Economic Zone, a vision which was popular for three days before the election, then never heard of again.
If Tony Abbott truly wants to achieve lower power prices, he will need to be better advised. He could start by recognising for instance that it is not the carbon tax and renewable energy costs that are primarily responsible for energy price hikes. The culprit is network costs; and it is his own state governments that are making the killing.
Until now, nobody has been quite able to figure out how costs were set. The National Electricity Market is a shemozzle. Finally though, someone has taken the trouble to pick through the stacks of data from the Australian Energy Regulator, the Australian Energy Market Commission, the Queensland Competition Authority, the NSW Independent Pricing and Regulatory Tribunal and the Victorian Essential Services Commission to find the real story.
That person is a researcher from the University of Queensland, Lynette Molyneaux. What she found was that regulation has failed consumers. At the heart of this failure is lack of transparency.
Of the states, Victoria is the worst when it comes to transparency. Thanks to privatisation, this state is a useful-information-free zone. ”There is no guidance on how prices have been set,” says Molyneaux.
”For a state with the lowest cost of generating power and the smallest distribution network, the indicative prices established by the Australian Energy Market Commission indicate that Victorian electricity prices are higher than the average.”
Her work shows that Victorians are being fleeced, especially by their retailers, who charged 8¢ per kilowatt hour versus 6¢ for NSW and 2¢ for Queensland.
As for the coalition’s persistent myth – the coalition of the Liberals and News Ltd, that is – that the carbon tax is the root of all evil, Molyneaux found that in both Queensland and NSW, about 7¢/kWh of the price rise between 2007 and 2013 had been from increases in network costs. Over the six-year period to 2013 network costs have doubled.
Retail costs have also doubled in the past six years to between 2¢ and 3¢/kWh.
Total ”green” schemes (RET, carbon price etc) have contributed well under 3¢/kWh.
No doubt the government and half the media will continue to assiduously ignore these bland truths – as they did last year as analyst turned farmer Bruce Robertson exposed the networks’ ”gold-plating” fandangle – the more they spend, the more they get paid under their regulated return – and almost single-handedly forced the industry to admit electricity demand was actually falling, not rising.
There are other political headwinds, besides the flat-earth brigade, which conspire against a fall in network costs. Molyneaux demonstrates that, as electricity prices have doggedly marched higher since 2009, so have dividends to the states. Last year the NSW government booked $1.36 billion in profit from electricity distribution and transmission. That was up from $771 million the year before. The Queensland government’s take meanwhile has risen from $602 million to $795 million.
The irony is that during this time, less energy was actually delivered in NSW. In Queensland consumption was flat. Consumers paid more for less (in Victoria, thanks to the information blackout, we don’t know).
An even richer irony is that in NSW the heavyweights of the electricity industry have been rewarding themselves for their plundering of energy consumers. That’s right, the TransGrid executive, having presided over a gold-plating debacle that culminated in the canning of two major projects (that never should have had the green light in the first place), actually helped themselves to fat wads of taxpayer cash by way of bonuses. And they are not even subject to competitive forces.
To sum up: demand has fallen, prices have risen, consumers and business are copping it, electricity executives are raking in big bonuses and the goulash of regulatory bodies is so thick and impenetrable that few have been the wiser. And they’ve managed to scapegoat the carbon tax and some renewable energy schemes that appear, by and large, to have worked.
Funny thing is, the gas industry may just be about to pull off the same heist as their electricity confreres. The east-coast gas shortage, as well as the green stuff, are the demons. IPART has just been petitioned to whack through a 20 per cent hike. But what is demand actually doing? Hmm.