The Senate Select Committee on Electricity Pricing tabled its report in Parliament on November 1. The inquiry found substantial evidence of failures in the rules and operation of the electricity market, even though the electricity sector says it is taking adequate action to deal with a range of issues.
The report commented (para 3.101) that the various electricity market participants indulged in blame shifting and called for “greater collective responsibility for overall electricity prices”.
Stronger regulation needed
The inquiry recommended major revision of network regulation. The report states (para 3.100) that “… the overall electricity price increases experienced by Australians are completely inappropriate and unacceptable.” The committee (para 4.43) found that present regulations had driven unnecessary electricity price rises.
It is very clear that the committee considers the energy regulator is weak and grossly under-resourced relative to the energy businesses, and recommended stronger powers (paras 4.22 and 4.75), additional resources and more public information and analysis.
The report states clearly (para 4.2) that overarching responsibility for Australian energy policy and oversight of the National Electricity Laws and Rules “rests with the Standing Council for Energy and Resources”, a COAG body made up of energy ministers.
Energy ministers have failed over many years to ensure the electricity market serves the long-term interests of Australian electricity consumers, even though that’s what the Market Objective says they will do. Indeed, the welfare of the electricity industry and its owners seems to have been placed ahead of others, given the 67% increase in profits between 2007-08 and 2011.
Managing demand – smart meters and time-based pricing
The committee did not go as far as the Greens and some submissions proposed, to recommend including environment in the NEM Objective. But it did propose (para 4.82) that policy makers better align environmental considerations and the operation and regulation of the electricity market.
The slow response to market failures was highlighted by Dr Paul Troughton from EnerNoc (para 5.53) when he pointed out that there had been many reviews and many “vague recommendations but no actual meaningful action”. He suggested that over the past decade, $16 billion has been invested in supply side infrastructure that should not have been needed.
Evidence presented to the inquiry overwhelmingly showed that demand management measures not pursued under present market rules could save $1.6 to $4.6 billion over the next decade. The committee enthusiastically supported moves towards smart meters and a range of time-based pricing measures – balanced by protection and support for low income and vulnerable households (para 5.46).
No-one raised the point that people at home on hot afternoons miss out on being provided with subsidised cooling by their employers: so is it fair to charge high prices for households at that time of day?
Other measures were also recommended: allowing third parties to offer demand management services to consumers (para 5.60), and providing improved consumer information to support more informed decision-making (para 5.68).
Where do energy efficiency and distributed generation fit in?
Energy efficiency improvement received limited attention in the report, although there was wide agreement that it was a good thing (para 5.100).
The committee supported existing government energy efficiency programs and grants (5.100).Perhaps the committee members could have a word to the econocrats who seem keen to cut any energy efficiency program that isn’t deemed “complementary” to carbon pricing, and the state governments that have recently cut energy efficiency programs.
The Energy Supply Association of Australia (para 5.89) also supported energy efficiency, but suggested the focus should be on areas of major saving potential such as heating, cooling and hot water, rather than “symbolic” areas like lighting and TVs. Clearly the ESAA could do with some good advice on what households and businesses use electricity for, and where the savings potential lies.
The ESAA did express concern about a serious lack of end-use data in its presentation to the committee, so their comments underline the need for better data! Maybe ESAA could encourage the residential building industry associations to reverse their opposition to more stringent building energy regulations to cut heating and cooling driven peak demand and energy waste….
The complex barriers to distributed generation projects were also discussed at length (para 5.108). Connection processes need streamlining, network market power has to be controlled, we need fair pricing (para 5.110) and redesigned networks.
The inquiry recommended empowering ombudsmen or tribunals to intervene when disputes could not be resolved by the parties. It said (para 5.132) policy makers should review market rules so embedded generators are charged only for use of the section of the network they utilise, instead of full network charges: this could be a game changer.
Giving consumers a say
The committee recommended a national consumer advocacy body with sufficient resources to represent consumers in electricity market regulatory processes and provide support and information to consumers (para 6.43). It also addressed the vexed debate over introduction of a National Energy Consumer Framework. The NECF is intended to provide consistent consumer rights across all jurisdictions in the National Electricity Market.
However, most states have refused to sign up, some because its protection is inadequate and others because it is too strong! The committee recommended the NECF be implemented, without diminishing existing consumer protections in any jurisdiction. Presumably this means a basic NECF, to which individual jurisdictions could add extra elements to maintain existing local protection measures.
Other voices
The opposition, Greens and independent Nick Xenophon submitted additional comments and recommendations.
The opposition recommended removing the carbon price, and keeping environmental considerations out of the rules and operation of the electricity market. At least someone agrees with the energy sector on something.
The Greens called for formal inclusion of environment in the market objective, and no regulatory barriers to demand management, energy efficiency and distributed generation. They also proposed: a single independent energy planning agency; de-coupling regulated revenue for distribution networks from energy consumption; study of peak demand targets; options for greater demand-side participation and a fair standard connection regime for distributed generation.
Senator Xenophon wanted more research into the actual cost impacts of renewable energy programs, to resolve the very varied claims made to the inquiry. He called for more analysis of the benefits of encouraging base load renewable energy such as geothermal (South Australia has substantial resources) and expressed strong concern at the high salaries of energy business leaders.
Where to from here?
The inquiry has shown that, from consumer, environmental and emerging industry perspectives, the National Electricity Market is in chronic failure mode. Yet energy policy makers are adamant their focus should be on “economic” efficiency. They say other factors are best dealt with by other policy agencies, and that existing problems can be dealt with by the processes they already have in place.
This is a major cultural conflict. It has led to a situation where energy policy is in fundamental conflict with other policy. This conflict is undermining progress across broad economic, social and environmental areas.
If COAG does not step in to address the energy objectives, governance and operational issues, and the conflict between energy policy and other aspects of policy, we will remain in a dysfunctional and expensive mess. The content of the imminent Energy White Paper will indicate the balance of power.
Michael Mazengarb
Masters Student (Climate Change)
I feel like electricity supply is the least understood of all the essential household services. Despite complaints about rising costs, the vast majority of people only have a vague understanding of where the thousands of dollars they pay to their electricity company each year actually goes. Yet, all this information is usually publicly available, just inaccessible to the uninitiated.
The problem is too complex to identify a single source of trouble in electricity retail prices. Yes, gold-plating…
Read moreCarole Hubbard
conservationist
The world is being increasingly run by corporations - which are in business to make money. Electricity is a service to the people, like transport and health. Electricity should never have been privatised and given into the hands of corporations. Ever since privatisation prices have skyrocketed. Corporations have too much power. Certain things just shouldn't be made a profit from and should be solely for service to the community. Once we get these capitalist mentality creeping into every aspect of our lives the whole concept of humanity goes out the window and it all comes down to money. This is what has gone wrong and will continue to go wrong until the capitalist money system is pulled into line somehow.
"Revealed – the capitalist network that runs the world" - http://www.newscientist.com/article/mg21228354.500-revealed--the-capitalist-network-that-runs-the-world.html
Comment removed by moderator.
John Newlands
tree changer
Time-of-use pricing is held out as the great white hope for electricity reform. I suspect otherwise. We know the frail elderly won't use aircon in 40C temperatures if they think the power price is high. Other anomalies may yet reveal themselves. For example residential PV is popular because feed-in tariffs ensure they will pay for themselves in a decade or so. However if a cool sunny day power glut drove feed-in prices down to say 2c per kwh as in parts of the US those panels could take perhaps 30 years to pay off.
http://www.pv-magazine.com/services/feed-in-tariffs/feed-in-tariffs-for-various-countries/#axzz2BNr7zr64
Xenophon hasn't been paying attention if he thinks geothermal will provide baseload power anytime soon while hard headed operators like Origin Energy are getting out.
aligatorhardt
logged in via Twitter
The pay off for homeowner PV is not diminished by lower spot prices on the wholesale electric market. The pay off is in eliminating electric utility bills entirely. After the finance period, there is very little expense for obtaining electricity. Utility companies make less off their fossil fuel generation, because their fuel costs make it difficult for them to compete with fuel free production. It is their profits that are being reduced by low spot market prices, and so they seek to limit competition, by blaming PV owners. http://www.renewablesinternational.net/merit-order-effect-of-pv-in-germany/150/510/33011/
Michael Bolan
Systems practicioner
Once again evidence of massive failures of Australia's system of government which is constantly failing to achieve anything useful for taxpayers.
We need a system that's designed for the 20th century, not a quill pen leftover from the 19th. We need a government system that is responsive to 21st century realities, inclusive of a massively diverse population, and that delivers power to the people rather than political parties.
Mark O'Connor
Author
An interesting perspective, yet it fails to mention the largest single cause of increased electricity costs, the connection costs for poles and wiring and substations to accommodate new houses and suburbs. I'm not surprised the Senate enquiry found (para 3.100) that “… the overall electricity price increases experienced by Australians are completely inappropriate and unacceptable”; or that energy providers had taken advantage of favorable financial rules to invest heavily now in providing increased…
Read moreSTABLE POPULATION PARTY
Written & authorised by William Bourke, Sydney
Mark, your comments ring true.
Let's look at Qld as one example: In 2011, the outgoing Bligh government commissioned a review. All up, around $12 billion was spent on poles and wires in just seven years.
Guess what. Energy prices went up and up and up!
Across our states, reports are showing that poles and wires are accounting for a conservative 50% of price hikes.
...and Qld is not alone in selling off the people's assets in a vain attempt to pay for all of the infrastructure (like poles and wires, roads, PT, hospitals, schools, etc) needed to cater for population growth.
That $770b national infrastructure backlog (Source: Infrastructure Australia) is stubbornly refusing to dissolve.
Terry Mills
lawyer retired
There seems to be a huge dichotomy here as the generators and distributors want us to use more electricity and their state government masters (in Queensland at least) are encouraging us to use less and install subsidised PV panels to reduce our reliance on fossil fuels: and then there is the carbon tax !
I think the average punter (which includes moi ) is confused particularly when the LNP state governments come into power and rush to curb feed-In tariffs (Queensland 44 cents per mg hour to 8 cents ) presumably to make solar a less attractive option.
Bruce Tabor
Research Scientist at CSIRO
Smart meters are fine, but in fairness to those with solar panels, their input to the grid should have the option of smart meter prices too. Solar panels generate power in the hottest part of the day, a time when market rates are the highest - often many dollars per kWh. That's is one reason why solar panels - even subsidised ones - can actually reduce overall electricity prices - by placing downward pressure on peak prices.
John Newlands
tree changer
I'd challenge several of these assertions. PV output is highest around midday when it sunny but cool enough (<30C) not to need air conditioning. I believe the Germans propose to curtail PV feed-in under such conditions. PV output drops off as the sun dips in in the late afternoon but if the heat lingers on air conditioning is still needed. Therefore PV is not ideally correlated with summer demand but even less so in low light cold weather.
Secondly the claimed reduction in power prices from renewables is an artefact of subsidies. An artefact of coal baseload is off-peak pricing. The next step is negative pricing to keep the renewables subsidies rolling in. Remove the subsidies and there will be no discounting.
Kenneth Macaulay
Student/Designer
Australia's population growth rate is currently 1.5%, up from 1.4% last year, so that is not the driving factor. It reached a 20 year high point at slightly over 2% between 2008-2009, then dropped - otherwise it has been between 1% to 1.7% since 1973.
http://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/3101.0Media%20Release1Mar%202012?opendocument&tabname=Summary&prodno=3101.0&issue=Mar%202012&num=&view=
http://www.google.com.au/publicdata/explore?ds=d5bncppjof8f9_&met_y=sp_pop_grow&idim=country:AUS&dl=en&hl=en&q=australia+population+growth+rate
---
Privatization & short-term planning outlooks coming from when neo-liberalism became the dominant ruling party ideology in the 90's (both major parties) is the obvious cause.
Mark O'Connor
Author
Replying to Kenneth Macaulay:
On the contrary, Australia’s annual population growth rates are more than three times the average of advanced countries, as demographer Graeme Hugo points out. And such rates, repeated year after year, are enough to put us on the path to the population of 36 million in 2050 that the Inter-generational Report predicted.
Remember that as recently as 1999, the Howard Government was promising our population would peak naturally at 23.5 million. (Government response…
Read moreFirozali A.Mulla
PhD
06/11/2012More on sales? Retail sales have grown at their slowest pace for almost a year as shoppers stick to buying only essential items, according to new research. Like-for-like sales were down 0.1% in October, compared with the same period last year, a study by the British Retail Consortium (BRC) and professional services group KPMG showed. While total sales were up 1.1%, against a 1.5% rise the year before - the slowest growth in total sales, excluding Easter, since November 2011. It follows…
Read moreNgaire McGaw
logged in via Facebook
The electricity market is certainly a mess. Let's hope policy makers do achieve better alignment between environmental considerations and the operation and regulation of the electricity market. Will be interesting to see if a national white certificate scheme gets legs, a smart meter roll-out and better incentives for large scale renewables. I can also think of any number of other policy areas outside of the electricity market that could help, like more working from home (to allow those with renewable energy to put on a load of washing while the sun shines).
Chris Black
logged in via Facebook
A very simple example of where the current regulatory framework is failing consumers. Residents in the North Fitzroy/Brunswick East area strongly oppose the building of a large new terminal station facility (66kV to supplement the existing 22kV facility) in a residential area. For two years we fought this at the local government (planning) level where it was twice rejected as inappropriate for a residential area in an environmentally sensitive location (directly adjacent to the Merri Creek). However…
Read moreFirozali A.Mulla
PhD
The European Central Bank is set to leave interest rates unchanged on Thursday, deferring a cut in borrowing costs that would risk undermining the impact of Mario Draghi's signature policy a year into his ECB presidency. A raft of weak economic data support the case for cutting rates but to do so could stir up debate in Germany about the ECB going soft under Draghi and blunt the impact of his new bond-purchase plan, dubbed Outright Monetary Transactions (OMT). As strike in Greece proceeds USA seems to have more problems as the EU is too an important part of the economy I thank you Firozali A.Mulla DBA
Comment removed by moderator.
Firozali A.Mulla
PhD
For more no jobs we have Suzuki filing for the bankruptcy in USA More bad news for President Obama as the October unemployment report was announced on Friday. The economy added just 171,000 jobs in October, a rate that economists say just keeps pace with the growing working-age population. The unemployment rate inched up from 7.8 percent to 7.9 percent, which is where unemployment was when President Obama took office. President Obama faces voters on Tuesday with the highest unemployment rate of any incumbent since President Franklin Roosevelt. The rate ticked up because more people without jobs started looking for work, and the government only counts people as unemployed if they are actively searching. When those who have given up the job search are included, the unemployment rate is much higher. I thank you Firozali A.Mulla DBA
gary hudson
retired engineer
Firozali A Mulia. You have been commenting on issues which have little or nothing to do with electricity pricing in Australia or the issue of smart meters. This despite the PhD.
gary hudson
retired engineer
Responding to Kenneth Macaulay. To claim that since population growth rates are circa 2% is substantially less than the cost increases in electricity, and therefore population growth rate is not a key driver in the cost of electricity is strange logic indeed. We have recently had power brought to our country property. The capital cost was $30K approx. Our estimated consumption will be about $1600 per annum. After deducting generation costs and retailer profit take (an unnecessary/redundant business structure introduced by politicians), the return on investment for the power company will substantially less than 5%. Looks like Kenneth works for the government!
Robbie Adams
logged in via email @hotmail.com
Can someone please outline the benefits of smart meters? They seem to be more of a recording tool for providers as opposed to saving an power usage. Utilising smart meter readers then gives the consumer the ability to take action themselves but how many people (think your mother, grandmother) will actually use the functions of the smart meter reader and take necessary action to diminish usage?
Having the additional benefit of being able to control smart appliances may be an advantage for relatively few but may not be a cost-effective solution if the Government is realistically looking at a national roll-out, the only way we get to benefit out smart meters if there is widespread action from the consumer.
There have certainly been some state's/provinces throughout the US and Canada that have been responsible for a massive backlash against these devices, I'm hoping that we learn from those scenarios before we react too hastily in a massive and extremely costly roll-out.
Firozali A.Mulla
PhD
NO MALICE No PUN INTENDED. Was this a win is the question many ask? Wall Street reacted strongly to Tuesday’s election results with a broad selloff. As the deadline looms over the fiscal cliff, worries of possible debt downgrades remain in focus. After the election, small-businesses know the Affordable Care Act will stand, and tax increases for those making above $250,000 are likely. Now that the 2012 race for the White House is in the books, the spotlight on Wall Street is shifting from a major…
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