Soaring power prices for retail and wholesale customers have become a national issue, but aside from the Prime Minister’s threat of market intervention to curb gas exports, no switch has been flicked to help hurting hip pockets.
The significant risks of shirking the challenge of reform are highlighted by a taskforce of farmer representative groups in a submission to the federal government inquiry into the electricity network.
Most electricity users’ power bills have doubled, or more in some cases, in the past seven years, driven largely by the cost of network operators’ investment and upkeep of their transmission infrastructure.
The submission to the House of Representatives inquiry into modernising Australia’s electricity grid ponders the the question many have grappled with in recent times.
How did we get here?
“It is unacceptable that in an energy rich country like Australia, weak energy policy is compromising Australia’s capacity to be a competitive global food producer,” the taskforce said.
It pointed out that high electricity prices have put Australian agriculture in an uncompetitive position across several fronts.
On the domestic front, most Australian industries have achieved significant gains in energy productivity in the past decade, except for agriculture, which has declined 21 per cent since 2008.
Analysis by NSW Farmers, a taskforce member, showed the main factor in productivity decline was rising electricity costs, which had turned farmers away from the grid and back onto diesel generation.
On the international front, Australians pay about twice as much for network charges as consumers in the U.K and, two-and-half times the charges in the U.S.
Regulation of the costs network operators can extract from customers are a key concern throughout the taskforce’s detailed submission.
Network operators run the ‘poles and wires’ across the country in state-based corporations. The costs of building and maintaining the poles and wires flows through as a cost to consumers and ultimately a profit driver for networks.
The Australian Energy Regulator approved investment in vast infrastructure upgrades, which were often predicated on questionable forecast of growing electricity demands, which has since failed to materialise.
The taskforce found the network’s asset base had grown 400pc in the past 15 years.
Australian network assets were “artificially inflated and inefficiently grown to excessive levels”, so that the asset value for each connection in Australia is nine times that of the U.K, the taskforce said.
The consumer watchdog, the Productivity Commission, has previously all but accused transmission networks, of gaming regulations to maximise profits and advised government “the system is broken”.
An unfortunate quirk of regulation let the network operators borrow cheaply from government, typically at 4pc to 5pc interest, and claim capital costs of up to 10pc. The cost was passed through electricity retailers and onto consumers’ bills.
The difference between the interest payment and capital costs was pocketed as profit. Industry profits rose 67pc between 2007 and 2011 and as Jess Hill reported in The Monthly, bills rose 40pc over the same period.
The price to consumers of network charges has proved to be a stubborn problem, but the taskforce did proffer one idea which it said could make a “ a small step towards real cost reflective pricing”.
The taskforce wants a rule change, so networks can only charge for “useful and used” assets.
It also advocated for reform to put consumers at the heart of future policy making.
A focus on grid transformation, utilising new technologies, could deliver smarter grid solutions where industry and farms can co-generate and store energy to limit reliance on the grid and drive down costs.
“It would appear that (network operators) have a dominant voice in driving the policies adopted by the regulatory bodies and take every opportunity to undermine the prospects for energy efficiency and distributed generation,” the taskforce said.
“(T)he evidence of industry profit and soaring prices supports our own observations that shareholders are benefiting at the expense of electricity consumers.”
Farmers fear network costs continue to bite, energy may become unaffordable and effectively hollow-out the grid.
A dwindling pool of ratepayers will exacerbate the challenge of maintaining the grid infrastructure as fewer and fewer customers are called on to foot the bill.
The taskforce said the drive to renewable energy had progressed, but in spite of a lack of state and federal government policy.
“The agriculture sector would embrace renewable technology providing the right mix of solutions was available at an affordable cost.”
National Irrigators chief executive Steve Whan said the taskforce wants the inquiry to deliver ideas to modernise the grid, but not at the expense of consumers.
“We don’t want exorbitant prices, or super costs and profits built into the regulations for those people who are supplying and operating the grid,” Mr Whan said.
“I hope the inquiry looks at ways of catering for the future of the grid with reduced costs. We need to enable people to generate their own power for a fair rate and not to penalise those who remain on the grid, while others leave.”
The taskforce comprised National Irrigators’ Council, NSW Irrigators’ Council, NSW Farmers, Cotton Australia, National Farmers’ Federation, Bundaberg Regional Irrigators Group, Central Irrigation Trust (of South Australia), Canegrowers, Winemakers’ Federation,, Queensland Farmers Federation and Australian Pork Limited.