ACCC offers some clarity but much obfuscation in its report on electricity price rises

The battle of the causes of Australia’s excessive electricity prices is well and truly on.  Having moved from the world’s lowest cost electricity to among the highest cost in less than a decade, finally questions are being asked.

The government commissioned the ACCC to provide advice on the elements bringing about the price increases and in a selectively released  “draft” Rod Sims has said about seven per cent ($100) is due to renewables.  A great chunk of the increase was blamed on ‘”strategic conduct” by companies to bid or not to bid to supply the National Electricity Market and manipulate the price’. This provides a foot in the door for the competition regulator to act.  But its report seriously misrepresents the issues.

The ACCC analysis of price increases and its attribution of blame is shown here.  Aside from the 40 per cent due to network prices the costs increases are put as being due to generation (17 per cent), green energy (16 per cent) and retail (26 per cent).

The numbers for retail are especially problematic since the integration of generation and retail makes the cost allocation difficult to estimate, something the AEMC (responsible for the electricity market rules) in its own work on prices has recognised.  Integration of retail and generation leads to massive uncertainties that appear, for example, to show retailers in Victoria are earning far more than in other states.  Doubtless there are differences in the costs by state because of the different regulatory impositions but these are insufficient to explain the divergence.  Such high and growing retail margins that the ACCC estimates are not plausible in a market that has the big three heavily competing with each other and something like a dozen other retailers seeking to find gaps and take share from the majors.  (Though the ACCC has, as in other cases, sought to blunt the competitive rivalry by inhibiting marketing).

The energy companies, while feeding the propaganda debate in favour of renewables, are not acting in any form of collusion.  They are simply operating in the market like any other business: looking at their costs, looking at what their competitors offer and bidding in to maximise profits.  The big three (AGL, Origin, EnergyAustralia) have 60 per cent of the market but concentration is far less than in many other markets where competition does its job: telecoms, domestic air travel, IPADs.  Outside of the big three are several independent large generation portfolios: the two state owned Queensland businesses (although reducing them from three has had deleterious competition consequences), Engie, Snowy, Tas hydro.

The fact is that aside from the 40 per cent price increase attributable to poles and wires (some of which is due to the need to service less concentrated wind supplies), the other 60 per cent cost increase is all due to renewables.  This is brought about either directly through the renewable subsidies (and not all of these are factored in by the ACCC since direct support for renewables from Commonwealth and State budgets is not included) or as a consequence of the renewable programs.

The increase in costs from generation and from retail is all due to the renewable energy program increasing costs of doing business and forcing out low cost coal generators.  It is these measures that have led to the wholesale price of electricity rising from under $40 per MWh in 2015 to $90 per MWh today.

The wholesale component of household bills is about one third.  So this cost increase has led to as much as a $400 per household increase on top of the $100 directly paid in green energy subsidies.  The wholesale price effect is far greater for business customers where the energy component can be up to 60 per cent of costs.

The only solution to the regulation-induced crisis we face in energy involves abandoning immediately all subsidies, a solution championed by Tony Abbott, One Nation, the Liberal Democrats and Cory Bernardi.

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57 Responses to ACCC offers some clarity but much obfuscation in its report on electricity price rises

  1. John Constantine

    The solution to the assault is fully intended to be industrial demand destruction on a scale not seen since the firebombings of the Ruhr Valley.

    No Marshall Plan for old, deplorable men to follow this time.

  2. herodotus

    Thanks Alan for that piece. We are still being snowed by those in power, so to speak.

  3. John Michelmore

    After the last paragraph, hopefully the people might have some idea about their future voting choices, however I’m not holding my breath. The majority will continue to believe the propaganda I suspect; for a while longer until consequences bite them firmly on the a—!

  4. Tel

    A great chunk of the increase was blamed on ‘”strategic conduct” by companies to bid or not to bid to supply the National Electricity Market and manipulate the price’.

    You mean like putting dynamite under Port Augusta, Playford B Power Station station?

    And closing down the cheap brown coal generation in Victoria’s Latrobe Valley?

    That would reduce supply now wouldn’t it… and that was around about the time wholesale prices jumped up.

  5. Tel

    I also don’t understand why retail would have gotten so much larger, when there is plenty of competition at the retail level. Something doesn’t make sense here.

  6. jupes

    Labor politician on Sky just told us that meeting the Paris targets is in the “national interest”. Of course he wasn’t asked to explain that statement.

    The bad news is that 97% of politicians would agree with him. That’s why we are rooted.

  7. Vicki

    It seems to me that the electricity market is almost unreadable due to a combination of “smoke & mirrors” retailing procedures and the complicated grid allocation of energy between the states.

    I can’t believe that many of us understand the complex algorithms employed to shunt electricity interstate across the grid to supposedly meet consumers’ needs. I recall reading an item several years ago about a clever individual who worked for the regulator (as I recall) & left the public sector to set up a private company involved in this computer regulated mechanism & the selling of electricity. I suspect he is a millionaire by now.

    The so-called “gold-plating” of the infrastructure that occurred in NSW a few years also incurred long term public debt. Why this was allowed to occur to the extremes that followed has never been examined, but it certainly contributed to the higher consumer costs that the regulator allowed.

    There is no doubt that the subsidisation of renewables has contributed substantially to this horrific deterioration in household affordability of electricity. But there is no doubt in my mind that the mindless sale of the production & retail infrastructure without sufficient protection of this essential service is at the heart of the problem. And both major political parties are at fault.

  8. Gerry

    So 19 to 103 is a 16% rise ….am I missing something here ?

  9. amortiser

    The ACCC claims that 40% of cost increases are due to network costs – poles and wires. Transmission costs have always been a part of electricity pricing yet we still had cheap power nil renewables came along. In South Australia and Victoria, 35 wind farms have been constructed most in quite remote areas. These farms average less than 100 mwh nameplate capacity. No matter the size all require dedicated transmission lines to deliver power to the grid. These farms have an average generating capacity of around 30% so the average transmission cost of wind power must be enormous compared to the concentrated power provided by a coal fired plant. When the wind doesn’t blow all that transmission infrastructure sits idle.

    The ACCC is downplaying the significant cost of transmission of renewables which were entirely unnecessary in meeting the nations power needs.

  10. RobK

    A regime that pays the same for dispatchable and non-dispatchable power is absurd. There-in is the problem. It’s not that hard to fix in theory. Having let it go this far unrestrained makes it difficult to unwind. The sooner it’s addressed the better.

  11. Entropy

    You are probably wrong about allocating at least some of the cause to privatisation, Vicki.
    Simple test, allowing for source differences, is the price per kw retail in Qld (public) all that different to Victoria (private)? No? Then ownership isn’t a contributor to price.

    No, it Is the good old fashioned dead hand of government interference in the market for goals other than cheap and reliable energy supply, leavened with a conga line of rent seekers aiming to take up subsidy farming.

    The retail jump, could some of it be explained by companies manipulating supply in line with emissions credits and penalties?

  12. Trader Perth

    Gerry

    #2524203, posted on October 16, 2017 at 9:40 am

    So 19 to 103 is a 16% rise ….am I missing something here ?
    Good catch Gerry….renewables have risen from 2% of your bill to 5% of your bill. Something is amiss.

  13. Entropy

    I think that is 16% of current total cost, not the increase.

  14. Defender of the faith

    Moran is a dupe. To say that utility margins are not plausible because of intense competition is to swallow whole the rhetoric of oligopolists. Evidence of competitive tension? Nil. Do we see aggressive price based advertising? Nil.
    One can only assume he has utilities as clients.

  15. billie

    So my mate says, on the higher energy prices, “well we’ve got to do something, because global warming”

    That’s it, so while he whines about the prices, he’s going to pay them because it’s the right thing to do and he’s contributing and that’s all he’ll do, He won’t march int he streets or write to his local MP.

    I don’t think this is as big a deal as you all make out.

    The bigger deal is energy supply, not the cost of it and while you all harp on about the minute cost of energy, the supply is threatened and what is anyone doing about that?

    I just priced up the supply and installation of a 12.5KVA generator, diesel powered, to be installed in my basement before December. Very reasonable and will run both my air conditioners and everything else.

    When the power cuts come, because of supply, you’ll all be happy your costs will fall .. hooray!

  16. Dr Faustus

    I also don’t understand why retail would have gotten so much larger, when there is plenty of competition at the retail level. Something doesn’t make sense here.

    The ACC report suggests an answer here.

    Retail net profit margins appear to have been fairly static – based on retailer-provided information.

    Retail costs however have increased significantly as the three ‘gentailer’ oligopolists – AGL, Origin, and EnergyAustralia – battle it out to gain and hold market share. The costs here are ‘introductory offers’ for new customers, monster advertising campaigns, and bad debts, as people and businesses go tits up and can’t pay their bills.

    Australia is paying full tote for this ‘competition’ for customers on a cost recovery basis. Given the market is fully supplied and there is no substitute for electricity (and the retail sector as a whole is playing a similar hand) there is no resultant supply-side force to drive down pricing.

  17. Pete of Perth

    The ACCC will not bite the hand that feeds it.

  18. Vicki

    Simple test, allowing for source differences, is the price per kw retail in Qld (public) all that different to Victoria (private)?

    Entropy, I am not sure about the current retail prices (as we know, they vary between retailers), but the spot price between States certainly varies:

    Currently, the Aust. Energy Market Operator quotes spot prices MWh as follows:
    NSW ($86.97) Vic ($88.06) QLD ($67.08) SA ($81.81)

  19. Snoopy

    Has Rod Sims ever been right about anything?

  20. zyconoclast

    Has Rod Sims ever been right about anything?

    He convinced the Libs to renew his contract.

  21. former PP finance person

    In 1995 the NSW average electricity price was $12.50 per MWh, of that, $6.50 was due to generation and high voltage transmission with $6 accounted for by the county council distribution organisations. Not only that, the Pacific Power charges allowed the NSW Government to receive some $700 million in dividends. I was involved in long range business forecasting at Pacific Power and our estimate was that we could continue to pay at least that amount of dividends over the next ten years without an increase in generation prices. This was mainly due to continuing to benefit from huge efficiency gains which we had achieved in the previous 8 years following the election of the Greiner government which allowed us to reduce staff from around 11,000 to 5,500. Staff reductions were expected to continue and plant utilisation was expected to become increasing optimal, i.e. excess capacity was being used to meet increasing load levels.

    Of course, “industry reform”,”competition policy” and privatisation changed all that.

    It should be remembered that the Electricity Commission of NSW was established because of the failure of the free market to meet electricity demand in the early 1950’s when rolling blackouts were a feature of the system. The Commission then took over the private electricity businesses which were mostly small companies. The problem now as then is that to build an efficient generating business requires a huge amount of capital which just won’t be risked unless the certainty of a government guarantee is available. My guess is that when we reach the third world level of unreliability we had in the early 1950’s the voters will eventually have had enough of the green boondoggles and money gouging and will insist that the government in whatever form gets involved again.

  22. Up The Workers!

    You’d get better value-for-money with half a dozen steamed Dim Sims, than you ever will with one half-baked Leftard Rod Sims.

  23. AH

    Good work Alan, go get ’em.

  24. AH

    Here is an insightful quote from Mr Sims:

    “And what’s caused electricity to become expensive is, higher network prices, higher retail prices, higher generation prices.”

    So it turns out that, if the price of something is raised higher, it becomes more expensive.

    How many multiples of the average salary is this guy on and how many legions of public servant peons does he have at his disposal?

  25. Roger

    Watch the propaganda arm of the Green-Left, the ABC, repeat the 7% figure without question.

  26. Alex Davidson

    former PP finance person:

    …the government in whatever form gets involved again.

    In case you hadn’t noticed, our present woes are entirely due to government meddling, as has been very well explained for some years by Alan Moran and others.

    It is government failure we should be concerned about, not the mythical red herring of ‘market failure’ that socialists talk about when things aren’t going their way.

  27. New Chum

    Alan Tony Abbott is only singing from the song sheet of the others you mention but here is article from American Thinker you may like to factor in to calculations.
    http://www.americanthinker.com/blog/2017/10/tilting_at_windmills.html

  28. duncanm

    So 19 to 103 is a 16% rise ….am I missing something here ?

    yes – but the proportion of cost increase is (103-19)/(1691-1177) = 0.16

  29. duncanm

    It is a slight of hand to look at it that way.

    A better way:
    * Green cost has gone up 440%
    * Retail up 60%
    * Generation up 20%
    * Network up 42%

    of course green cost has gone up from $0 a few years back.

  30. Entropy

    Vicki you need to account for different energy sources, eg Qld is all black coal and gas, the others are not.

  31. yackman

    p.117 of the ACCC report states that for home solar PV customers $200 pa is saved in their bill due to network charge reduction of which $120 must be recovered from other customers. This suggests that part of the variable charge is also attributable to a semi variable/fixed charge as one would expect. If so the case for a line charge for those exporting using the Grid is definitely justified.

  32. yackman

    Any comparison of home solar PV “saving” should include an amortisation cost in the annual bill. I have not found any such info so far.

  33. old bloke

    Regarding the 40% increase in network costs over the past ~10 years, a large percentage of that cost increase should be attributed to the “green” costs. I don’t know about other states, but in W.A. there was a major network infrastructure upgrade made to cater for the household solar panels.

    The transformers around the suburbs which were designed to cater for power supply coming from one direction, and flowing to the householder in the other direction had to be replaced with transformers which accepted supply from both directions.

    This would have required a lot of capital expenditure so that those folks with PV cells on their roofs could feed miniscule amounts of energy into the grid. These costs should be taken out of network costs and placed under the green costs heading.

  34. yackman

    Billie at 10.25 am; that’s quite a big unit at 12.5 kVa. I use a 7.5 kVa unit for fire backup on house pumps (roughly neutral head) including deep (22 metre) bore pump at 2.4 kW. The 7.5 kVa covers the starting current. The appliances are directly connected not via the switchboard. Came in very useful last week when there was a 2 hour outage and with visitors in the house, water supply could be maintained.
    Enquiries I have made indicate that VIC authorities are reluctant to allow connection to a main switchboard.
    At some point having power at all becomes the bigger issue.

  35. yackman

    old bloke @ 3.16 pm; it would be great if there was a way of breaking that info. out but I suspect it will be kept merged with all other data.

  36. Myrddin Seren

    My guess is that when we reach the third world level of unreliability we had in the early 1950’s the voters will eventually have had enough of the green boondoggles and money gouging and will insist that the government in whatever form gets involved again.

    The Good Lady Wife called me in to catch the end of a panel discussion on Nine’s Morning programme, involving the usual hosts, business reporter Ross Greenwood and the lady running the Nine subsidiary that advises on consumer issues and cost savings.

    The latter lady admitted that she could not make any headway with negotiating with the electricity retailers nor even understand how things had go to where they are. She must be on a third tier Nine salary, because I actually thought she was going to cry on air talking about her family’s budget stress.

    It may not be an openly declared Labor election policy, but I doubt we will have to wait for Veneztralia before Shorten ‘nationalises’ the East Coast power grid to ‘save the wukkas’.

    Expect the ETU to be the big beneficiary.

    Everyday Aussies will cheer the further Leninisation of the Australian economy.

  37. buckshot

    Could the relatively higher Victorian retail increases be due to the “accelerated roll out of smart meters”? Last time I looked, the $400 million budget for this had blown out to $2.4 billion, and counting.

  38. BoyfromTottenham

    Good article, Alan. However I would like to know how Mr Sims took account (if at all) of the LRET in his ‘analysis’. Did he say how the ~ $85.00 per MWh paid by retailers to ‘renewables’ generators via the ‘market’ for LRET certificates was accounted for, and what distortions it might have created? Did he say what the effect of the baseload generators losing 30,000 MWh of their market to non-dispatchable ‘renewables’ was on their financial viability? Did he say what percentage of ‘renewables’ generators would be solvent if not for the ~$85.00/MWh LRET subsidy? I could go on, but you get the idea.

  39. EvilElvis

    You just need to read a little Facebook commentary on this report to realise that as a country we are straight up, fucking retarded. People don’t get it, don’t want to and never will.

    Great piece as usual Alan, you’re a champion for the cause no matter what your intentions.

  40. Alan, worthwhile piece but subsidies are no a part of the problem. The biggest problem is the RET and the acceptance of unreliable feed-in with no guarantee of supply.
    Much of the supply problem would disappear if every supplier (including domestic solar suppliers) to the grid had to bid to supply power in 15 minute blocks (or maybe 30 minute blocks) and had to guarantee that supply under penalty for the full time of their contract. Solar would have the most difficulty of guarantee. The maximum production only occurs for about two hours on a clear day when the sun is overhead. The average output over a year in a sunny dry place of a solar plant is only something like 16-17% of capacity. They probably could only guarantee half of that. Wind farms do not produce power when the wind speed is low (about 10 km/hr) or high (about 60 km/hr) In fact they actually use power to turn the turbines to even loads on bearings. Even now wind farms tend to operate more at peak times to maximise their revenue. Some data shows eg a recent report form Origin shows the actual operating output of wind farms is less than 40% of capacity. If they had to guarantee output that could well drop to 20%. With much of wind and solar removed coal power stations could supply more and be profitable.
    The Origin data shows that Eraring was the cheapest producer but that it was only run at about 55% of available hours and in those periods it was run it had an availability of over 90%. Past data on Queensland Coal power stations showed that they could run close to 100% of capacity for the year at a runtime availability of around 90%
    RET and the lack of input guarantees have put the cheapest power producers out of business. I would suggest right now that Liddell in NSW is operating at less than 50% capacity and that is the major reason AGL want to not spend money on maintenance and to close it down. (Note Eraring is a newer, more efficient and reliable power station than Liddell, yet it is not operating at full capacity)

  41. yackman

    cementafriend @ 5.58 – great idea. What’s the current buzzword “dispatchability” ?

  42. H B Bear

    Spark Infrastructure which owns 49% of Victorian electricity distribution businesses Powercor and CitiPower, as well as 49% of South Australian electricity distributor ETSA sees a great future in the roll-out of ‘renewables’

    Of course he does. More poles and wires to earn a regulated return on with the cost passed through to retailers and consumers.

  43. 2dogs

    Let’s have a look at the big ticket item in this analysis, network costs +40%.

    The electricity county councils in NSW before the 1990’s changes were actually efficient at distributing electricity.

    Centralisation was done of the promise of economies of scale, but we have actually received diseconomies of scale – administrative bloat.

    An FOCJ style reorganisation of the network may get some savings.

  44. RobK

    In order to accommodate increasing amounts of randomly intermittent supply even more needs to be spent on the distribution grid. This is outlined in the Finkel review. Largely, gold plating of the grid is an indirect cost of renewballs as they interrupt the grid in a disorderly manner. They are far more expensive as their relative proportion increases.

  45. billie

    “yackman

    At some point having power at all becomes the bigger issue.”

    Exactly my point .. quibbling over trivial amounts is pointless.

    It’s the bicycle rider’s argument with the truck, you can be in the right but still crippled when it runs over you.

    The bigger concern, the main game, is whether the lights are on at all, not how much it costs to have them on.

  46. OldOzzie

    NO, JOURNALISTS ARE WRONG. GREEN SCHEMES DON’T ADD “JUST” 7% TO POWER BILLS

    Andrew Bolt

    You are being misled again about the horrific and totally unnecessary cost of global warming policies. Warmist journalists are misreporting the findings of the Australian Competition and Consumer Commission’s report on electricity prices to claim that global warming schemes to cut emissions have added “only” 7 per cent to your electricity bills.

    Typical is the Guardian Australia on the ACCC’s report:

    It said 48% of that bill was network costs, 22% wholesale costs, 16% retail and other costs, and 8% retail margins. Green schemes, which have been the focus of most public attention in recent times, made up only 7%.

    Fran Kelly, another climate crusader, twice on ABC Radio National Breakfast today confronted Finance Minister Mathias Cormann with the same assertion.

    But they are wrong – completely wrong – in suggesting that this 7 per cent of the bill is all that the green schemes are costing us.

    Look deeper in the ACCC report and you’ll find what common sense should have told you already: the push to get rid of coal-fired power costs us far more than that, but the ACCC has for some bizarre reason not added the extra generation costs from switching to wind and gas to its calculations of the costs of “green schemes”.

    On top of that 7 per cent are increases in the wholesale prices caused not only by switching to more expensive generation by gas plants and wind farms, but by the shortages caused by killing off cheap coal-fired generations.

    Check the ACCC report.

    True, from a casual reading of the report you might be excused for believing those green schemes indeed added “just” 7 per cent to your bills:

    Our preliminary findings are that, on average across the NEM, a 2015–16 residential bill was$1524 (excluding GST), and was made up of:

    – network costs (48 per cent)

    – wholesale costs (22 per cent)

    – environmental costs (7 per cent)

    – retail and other costs (16 per cent)

    – retail margins (8 per cent).

    But the ACCC in totalling the costs of green schemes includes only these:

    Environmental schemes have also caused a significant component of the increase in overall customer bills. These are driven by the take-up of jurisdictional premium feed-in tariff schemes [for solar panels] and an increasing federal Renewable Energy Target (RET)…

    To meet the [Large-scale Renewable Energy Target] energy retailers are obliged to acquire large-scale generation certificates (LGC), created for electricity generated by accredited power stations… Retailers are also obliged to acquire small-scale technology certificates (STC) created fromt he installation of eligible solar hot water or small generation units such as solar PV panels. Retailers can purchase STCs… LGC prices have increased sharply from a low of $22 in June 2014 to almost $90 in January 2017 on the spot market. STC prices have steadied around $40 since 2013.

    But just one page after that breakdown of your bill that the journalists have seized on, the ACCC adds that the extra generation costs that come from the switch away from coal-fired power – a switch largely forced by such green schemes – are in fact included under “wholesale costs”:

    Large, baseload coal-fired generation has exited the market in recent times, for example Hazelwood in Victoria and Northern in South Australia… This has resulted in gas powered generation becoming the marginal source of generation more frequently, particularly in Victoria and South Australia. The increased prominence of gas powered generation has coincided with shortages in domestic gas supply which have driven up prices.

    Further in the report comes more acknowledgement that green policies are also driving up the wholesale costs that make up 22 per cent of your bills:

    Other factors in South Australia make the wholesale market more prone to volatile prices, including relatively larger shares of gas powered and renewable generation… South Australian wholesale prices are the highest in the [national energy market]…

    The wholesale cost of electricity makes up a significant proportion of total electricity costs…

    These increased wholesale costs are already being passed on to consumers. Major retailers announced retail price rises of up to 20 per cent from 1 July 2017 in some NEM regions. In announcing its price increases, Energy Australia attributed the increases to “higher wholesale costs (the cost of buying electricity on behalf of customers) following the closure of large coal-fired power stations, increased demand for gas by liquefied natural gas projects in Queensland and reliability issues with some big generators.”…

    The Australian Energy Market Operator’s (AEMO) 2017 Electricity Statement of Opportunities identified a high risk of instances of insufficient supply requiring load shedding over the next ten years, noting extremely high risks over the peak summer months.

    The reduction in capacity is due largely to the decommissioning of a number of older, coalfired generators. Over the past five years, 2,350 MW of generation capacity has been decommissioned in Victoria (with 1,600 MW of that occurring in early 2017 with the closure of Hazelwood). In NSW, 1,744 MW of generation has been closed. In South Australia, the Northern Power Station (540 MW) and Playford B (200 MW) were permanently retired in 2015–16. These closures represent around 10 per cent of NSW’s capacity, and around 20 per cent of each of Victoria and South Australia’s generation capacity. Critically, the substantial exit of baseload capacity from the market has not been matched by new investment or entry in replacement capacity.

    If the trend of insufficient investment continues, the NEM will face further challenges as additional baseload coal plants are retired. For example, NSW is currently forecast to be in a generation deficit from 2022 when the Liddell power station (2000 MW) is currently scheduled to close.

    A clear example of the potential price impact of a tightening in the demand-supply balance is the recent closure of the Hazelwood coal-fired power station in Victoria. The decommissioning of Hazelwood is significant for the Victorian market as it contributed a large proportion of Victoria’s baseload generation. Wholesale prices in Victoria increased by 40 per cent between 2015–16 and 2016–17, and prices for 2017–18 are tracking to be significantly higher again—the average price so far this financial year is 65 per cent higher than the 2016–17 average, and almost double the average price over 2015–16…

    In the past five years, over 5000 MW of generation capacity has been withdrawn from the NEM, almost all of which is old coal-fired assets being retired. Over the same period, around 2000 MW of new capacity has been installed, leaving a net decline in capacity of more than 3000 MW. Of the 2000 MW that has been added in the past five years, 92 per cent is renewables,161 which are unable to replicate the constant baseload supply that has been lost as coal-fired generators have been decommissioned…

    And this will get worse:

    High gas prices are also impacting on investment decisions in the NEM. With coal being phased out by most generation businesses, dispatchable generation capacity will increasingly be reliant on gas powered plants… The full impact of gas price increases may not be felt for some time as a number of generators would still be sourcing gas under existing contracts struck before price increases.

    Part of the increase in network costs is also due to green schemes to encourage customers to use less electricity at peak times:

    In Victoria, the rollout of mandatory smart meters as part of the Victorian Government’s advanced metering initiative, which commenced in 2009, was a main driver of Victorian network cost increases.

    The cost of this madness is horrific, especially when you bear in mind that none of these emissions cuts are big enough to have any measurable effect on the temperature or the climate:

    Based on CPI, retail electricity prices have increased by 80 to 90 per cent (in real terms) in the past decade when taking into account estimated price rises in July 2017.

    These large increases in electricity prices have not been matched by price increases in other areas of the economy, nor in wage growth.

    Those on low incomes are finding it increasingly difficult to absorb electricity price increases and are often limited in what they can do to reduce their energy costs.

    Electricity prices for businesses are also increasing rapidly and recent increases in wholesale prices are driving small and large business to reduce costs through investments in energy efficiency or distributed generation (solar PV), or reducing other costs across their business including wages.

    The international competitiveness of Australian manufacturers has been diminished over the past decade due to electricity price increases…

    Choice’s Pulse Surveys have found that electricity prices are the number one household cost concern for Australians for nine straight quarters…

    In 2017 households on standing offers faced further price increases. For low income or vulnerable households, meeting increases in electricity costs can mean reducing expenditure on other basics like food, children’s educational needs or healthcare, or deferring household repairs or basic transport costs…

    Taking NSW as an example, in 2006–07, the bill (which reflected the regulated price at that time) as a proportion of household income was between 3 and 4.1 per cent for low income earners… In 2016, the median market offer as a proportion of household income was 4.8 per cent..

    According to market research, 20 per cent of residential customers are considered a high risk of experiencing some difficulty in meeting their energy costs.

    The NSW Energy and Water Ombudsman noted increases in average levels of electricity related debt, enrolment in payment plans, and disconnection for non-payment. Additionally, the Victorian Energy and Water Ombudsman has recently raised concerns in the media about the rising number of instances of high levels of debt for combined energy services with common debt levels amounting to $5000 for households in arears…

    Nationally, the average electricity bill for [small to medium enterprises] using 40,000 kWh per year and paying the same rate all day (a single rate) has increased by 16 per cent since April 2016…

    Submissions from [medium and large] businesses confirm that in the past 12-24 months they have seen increases, in some cases a doubling or tripling, against their most recent electricity offer…

    Members of the grocery sector have reported that there is limited ability to increase retail prices to recoup increased electricity costs and that wage costs are the only variable cost that can be reduced. Master Grocers Australia has estimated that they will need to shed approximately 2,200 jobs in response to electricity price increases…

    While BlueScope Steel has achieved over $300 million in cost savings across its Australian steel operations, it has also seen a near doubling of its electricity costs in Australia since 2016…

    By world standards, Australia’s position in terms of electricity prices has deteriorated substantially. According to the Organisation for Economic Co-operation and Development (OECD) data, Australia has dropped from the 4th cheapest and below the OECD average in 2004 to the 10th cheapest and above the OECD average in 2016…

    Other measures have Australia in a much worse position. Analysis undertaken by Carbon +Energy Markets (CME) found that Australia’s prices were close to the most expensive in the world. The difference between these estimates reflects some differences in methodology and also reflects different time periods.

    And remember: all these green schemes actually don’t cut the temperature. We are just too small. All this pain is for zero gain.

    So here is the political background, as reported in The Australian:

    Malcolm Turnbull faces a crucial cabinet debate today with a new warning from voters against schemes that pass hidden power costs on to households, with ­almost 60 per cent of Australians saying they will not pay a cent more for clean energy policies.

    The warning, in a special Newspoll survey, comes as the consumer watchdog prepares to release extraordinary research today showing households are paying $103 every year on average for environmental schemes.

    The Australian Competition & Consumer Commission will warn today of “unacceptable pressure” on households from the spike in energy prices, which have soared 43.7 per cent in a decade — an average increase of more than $500 per bill — as a result of network costs, retail margins and climate-change targets.

  47. cohenite

    cementafriend

    #2524594, posted on October 16, 2017 at 5:58 pm

    Correct. If you want electricity an hour, day or week in the future solar and wind can’t guarantee it. Make that the yardstick and wind and solar disappear.

  48. John Constantine

    The Crisis allows the State to ration electricity to progressive and deserving uses.

    Smartmeter robots, linked to social media, linked to stasi informers.

    Wouldn’t want people that were literally Nazis to have electricity when imported voteherds don’t.

    Electric locks on gun safes will not release during blackouts either, wouldn’t want disadvantaged Apex predators to become shot as they investigate the possibilities of curfewed deplorables.

  49. Tel

    Retail costs however have increased significantly as the three ‘gentailer’ oligopolists – AGL, Origin, and EnergyAustralia – battle it out to gain and hold market share. The costs here are ‘introductory offers’ for new customers, monster advertising campaigns, and bad debts, as people and businesses go tits up and can’t pay their bills.

    At least in the case of the “introductory offers” those are not higher costs, they are lower revenue and you will never convince me that retail prices are up because there’s too much aggressive discounting in the market.

    Advertising, OK that’s a cost to every business but it’s hardly new this year. I don’t watch a whole lot of TV but I think I’ve seen roughly the same level of energy company advertising for the past decade or so. Dunno where this increased advertising money is going, because it doesn’t seem to be having much effect.

    Now bad debts, that is a problem, but how much can it be driving retail prices? You would think that at least one company is smart enough not to extend too much credit, and quickly cut off the trouble makers. It would only have a long term effect on retail prices if those energy providers had continual bad debts and effectively the good customers cross-subsidizing the bad. Is that really possible? Why doesn’t it happen in other industry? Could food prices be driven up by people refusing to pay at the supermarket?

    Maybe there’s an opening here for pre-pay electricity accounts. I bagsie that idea. You can’t have it!

  50. Tel

    former PP finance person #2524243

    In 1995 the NSW average electricity price was $12.50 per MWh, of that, $6.50 was due to generation and high voltage transmission with $6 accounted for by the county council distribution organisations. Not only that, the Pacific Power charges allowed the NSW Government to receive some $700 million in dividends.

    But at the time the retail customers were paying 10c per kWh plus a day rate of 17c per day to cover the connection. So if your generation costs are accurate that would be a markup of 800% so it’s hardly surprising that they could make a profit. At any rate, the generation and transmission costs (1.25c per kWh using your numbers) were a tiny fraction of the end-user retail price. Where the money went I’m not sure, and I doubt anyone else knows either. Not sure if you are including only operational costs there, or if that includes the cost of capital as well.

    It was the generation side that was privatized and the retail side but NOT the poles and wires which remained fully government owned until recently, and even now is majority government owned. AEMO has the NSW wholesale prices showing that generation went up to 2.8c per kWh by year 2000, and then 4.4c per kWh by 2010 (in comparison at 2% steady price inflation we would expect a natural 22% price increase every 10 years although I think inflation of most things was officially higher than 2% back around 2000).

    Even after that, wholesale generation was only a small fraction of what the end user paid… by 2010 the rate had gone up to around 15c per kWh so the markup as a percentage over wholesale would be approx 350% by 2010. The majority of the cost is still ending up going into the poles and wires, or some place in the middle that we cannot see, but not generation. Somehow the private generators get blamed for that, no matter how many times you show the huge markup by middlemen in the process.

    Then the generation costs really started cranking up in just the last few years. Just the same time those coal stations are shutting down and no new ones are even planned. Yes these were private owners shutting down the plant, but only because of pressure from government to do so. Besides that, the management of these big companies are now beholden to government in such a way that most of their decisions are political decisions… not market decisions.

  51. Dr Faustus

    It would only have a long term effect on retail prices if those energy providers had continual bad debts and effectively the good customers cross-subsidizing the bad. Is that really possible?

    Tel: It clearly is possible. The ACCC report points directly to this cross-subsidy in each of the three ‘cost’ areas I pointed out – oddly, without criticism.

    The ‘gentailers’ are aggressively trying to build their market share to support further (subsidised and highly profitable) investment in renewables. Being oligopolists in a saturated market they are in the fortunate position of being able to recover from the captive market business costs that would ordinarily be charges to their bottom line. Sims’ reports this practice and these ‘cost items’ exactly.

    The net result is risk-free, effectively cost-free, non-price competition for share of a fixed market and, of course, no competitive pressure on price.

    This has been a particular feature of the Australian electricity market since 2007, when it became blindingly clear that the future was subsidised renewables – and each of AGL, Origin and EnergyAustralia hopped on the rent-seeking band-wagon.

  52. martin Newell

    It is time for all Governments in Australia to build power stations and Nationalize any privately owned .
    When the SEC in Victoria was disbanded every Victorian noticed that the power poles in streets started to bend due to poor maintenance.
    The corrupt Australian politicians who accepted directorships (bribes )from local and overseas (con artists)
    corporations should hold their heads in shame. Today 50% of the Aged Pension is needed to pay for Gas Electricity ,Water,and rates .
    So much for the “Australian dream of owning a home.”
    That went with negative gearing .
    Angry No.
    Just frustrated by the lack of serious thought that the average Australian displays by voting for the Lib /Lab coalition of Shorten and Turnbull.

  53. Tel

    The net result is risk-free, effectively cost-free, non-price competition for share of a fixed market and, of course, no competitive pressure on price.

    There is no captive market, churning is easy and pretty normal. I’ve been changing or threatening to change about every 2 years… so far reliably shakes a bit of a discount out of them.

    I have great suspicion about the story of oligopoly that discounts it’s way to high prices. I hear it often, but I really want to see those numbers in detail.

  54. Dr Faustus

    I’ve been changing or threatening to change about every 2 years… so far reliably shakes a bit of a discount out of them.

    I have great suspicion about the story of oligopoly that discounts it’s way to high prices.

    Probably best you read the ACCC report, where you will see the cost of your discount is passed onto the majority of customers who do not shop the retailers and that discounting itself is designed to have limited/no impact on average price.
    Pages 72 – 76 and 120 to 132 may help.

  55. Neil

    It is time for all Governments in Australia to build power stations and Nationalize any privately owned .

    They are actually blowing them up. The SA ALP govt blew up Playford coal fired power station with great joy causing the loss of hundreds of jobs at the power station and the coal mine supplying coal

    https://cdn.newsapi.com.au/image/v1/db70a2ba61a5a35d5f4b840a8685ec96?width=650

  56. Pingback: Charts of the week: Busting electricity market myths

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