Mighty Power Rangers

There are clearly better informed Cats out there, but here is something Spartacus does not understand when it comes to electricity.

The electricity value chain has essentially 3 parts; generation, transmission (poles and wires) and distribution (retailing).  And it was the thrust of the electricity reforms of the 1990s that the then state owned electricity mega-structures were broken up into these 3 parts, and then within these 3 parts to foster competition.  Competition in generation and competition in distribution that is.  Perhaps not in transmission because there is no basis to have multiple sets of poles and wires running in parallel.

Yes.  This was complicated to a degree with various State and Commonwealth renewable and emission abatement schemes, particularly the current Commonwealth Renewable Energy Scheme which is has subsumed most if not all of the other schemes.  But let’s assume this away for the moment.

Over time, at least in NSW and VIC and possibly parts of SA and QLD, the state owned generators, transmitters and retailers were sold off.

Then, by some unexpected freak of nature, these sold off entities started to recombine, like mercury, but this time in private (rather than public) hands.  Initially across states in retail and then across business lines into both generation and retailing; this giving Australia the 3 dominant Gen-tailers AGL, Origin and Energy Australia.  So far, the poles and wires don’t seem to have been sucked up into this vortex, but perhaps that is just a matter of time.

Thus it appears, at least to Spartacus, that what started as giant state based integrated electricity generation, transmission and distribution companies have become a giant national integrated electricity generation and distribution companies.  Howz that for a vision.

Spartacus can only imaging the money the lawyers, consultants, investment bankers and lobbyists extracted along the way.  In some cases possibly for putting back together what they have previously pried apart.  So who were the geniuses that came up with this plan?

The cost of electricity to the house, unit, factory wall is basically the sum of generation, transmission and retailing.  Yet when it comes to discussion of cost, all the focus seems to be on generation.  Perhaps this is because this is the area most meddled with by government.  But there is plenty of crap going on in transmission and retailing.

The recent ACCC report seems to have focused on the retailing part of the electricity value chain but where is the discussion of the poles and wires?  That can’t be an immaterial part of the cost of electricity?  It is the poles and wires bit where the “gold plating” discussions used to happen.  What happened to that?

One can only hope that the new Energy Minister, the Hon. Angus Taylor, will be able do something about the cost of energy.  Although Spartacus has no research to support this, he strongly suspects that a large factor in lack of general pay increases is due to the concomitant increase in energy costs.  But 20 years of policy folly and regulatory meddling won’t be fixed in 6 months.

Notwithstanding, Spartacus can’t leave these matters without an exclusive.  Below is a secret video of the recent Energy Security Board (ESB) meeting.  The ESB is their “official name”, but within the corridors of power, they are known as the Power Rangers.  The members were carefully selected to ensure a diversity of gender and colour.

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25 Responses to Mighty Power Rangers

  1. teddy bear

    There has and still is a large amount of money that has been spent on the transmission network to deal with the problems caused by rooftop solar and wind, they used to talk about that reasonably openly stating investment needed to happen to allow crappy power into the grid without crippling it and blowing up household appliances, but when the costs started getting out of hand they then started calling it “gold plating” to obfuscate the additional costs of ruinables.

  2. Snoopy

    I’d love to know how much is spent nationally regularly pruning trees encroaching on power lines when in most cases the bloody things should be removed permanently.

  3. It is simpler than you imagine.
    Coal generation in Victoristan without the 300% increase in royalties paid to state government and without RETs makes a profit at 4c per kwh (some say 3.5c per kwh). That’s a long way from the 30c per kwh that many pay.
    Being generous, let’s say we allow 5c for poleys and wires (mainly the cost of wiring windfarms into the grid) and then we add a retail (bill printing) margin of say 3c per kwh (retail is surely less cost than generation).
    Then we are up to 12c per kwh, still we are a looong way from the >30c per kwh retail cost.

    The other thing to consider is the total value of the electicity industry 5 years ago as compared to now. Mind blowing numbers.

  4. DaveR

    The cost of electricity to the house, unit, factory wall is basically the sum of generation, transmission and retailing.

    Not in this day and age.

    Its generation, transmission and retailing, plus mssively distorting levies and taxes, used for cross subsidising renewables etc..

    The magnitude of the levies and taxes totally destroys the intent of the 1990s structural reforms.

  5. Rohan

    teddy bear
    #2811282, posted on September 7, 2018 at 12:30 pm
    There has and still is a large amount of money that has been spent on the transmission network to deal with the problems caused by rooftop solar and wind, they used to talk about that reasonably openly stating investment needed to happen to allow crappy power into the grid without crippling it and blowing up household appliances, but when the costs started getting out of hand they then started calling it “gold plating” to obfuscate the additional costs of ruinables.

    And lets not forget that almost a decade ago in NSW and QLD, they had state government mandated SLA’s applied to their networks due to reliability issues in regional areas. The resultant works drastically increased the network costs passed onto consumers. Gillard then banged on about it breathlessly despite it being Labor state governments insisting on it.

    Nor should we forget the cost of not maintaining poles and wires. Because even when you do so, they still fail from time to time as you occasionally miss something. It cost SP Ausnet and UAM a cool $494 million as a result of the class action on the Black Saturday that cost 117 people their lives. All this because a UAM pole inspector missed a badly corroded insulator tie when looking at it with image stabilised binoculars from 10m away on the ground.

    At the moment, the network engineers that I deal with are tearing out there hair as the bean counters are attempting to cut back on maintenance costs. They are all well aware of who will shoulder the blame should such a similar disaster occur on their watch.

  6. There are FOUR distinct facts of the industry: Generation, HV transmission, distribution, and retailing.
    Since it would obviously be very expensive to DUPICATE the infrastructure necessary for high voltage transmission and low(er) voltage distribution, these are generally considered natural monopolies and return on investment is regulated on a “rate base” by the energy regulator.
    The generation and retailing businesses naturally consist of many companies. Generators are allowed to be retailers, and generators are smart to be retailers as well.
    Generators operate in the wholesale market, and retailers in the retail market. While prices in the wholesale market can and do fluctuate wildly, the retailer finds it difficult to change prices quickly to compensate. Thus the smart generator will have sufficient retail customers to balance his generating capacity. If wholesale prices escalate, the generation business makes money while the retail business loses, and visa versa.
    That was before the ruinables were allowed to generate without bidding into the wholesale market, and to be paid even when they are not generating, not to mention receiving a subsidy from the certificates equal to or greater than the price of the energy. Such distortion would destroy any market.
    In addition, the windfarms necessitate, the construction of thousands of miles of additional HV transmission facilities, the solar panels disrupt the orderly dispatch of energy requiring more capacitors and synchronous condensers, and it is this extra infrastructure which Gillard fraudulently blamed on “poles and wires”. And if you don’t like frequent power outages, then don’t complain about “gold plating” the system which provides reliability.
    The sad truth is that the system is such a mess now that it will take ages to sort it out, and only if the RET is shredded and discarded.

  7. Leo G

    It is the poles and wires bit where the “gold plating” discussions used to happen. What happened to that?

    It was largely used to build underutilized transmission lines connecting windfarms to the grid and interconnectors to allow wind generators more widely to displace cost effective generation.

  8. Rohan

    From the latest work bill the per kWh charges are Peak usage $0.082800, off peak $0.060000, poles and wires $0.15159, LRET $0.014913, SRET $0.006832, VEET $0.004055, AEMO Pool $0.000436, AEMO Ancillary charges $0.000600.

    Not including the fixed daily charges, metering charges, anytime charge which are all fixed.

  9. Rohan

    Whoops, the Anytime charge is a network charge and its $0.067860

  10. teddy bear

    Rohan do you have or know where I can find data on what the stability of the grid is like now compared to before all the rooftop solar and what affects it has on appliances, as I find it very difficult to find reliable information anywhere as some say it has no affect, others say it does affect things.

    One thing I want to know in particular is with computers and whether a good PSU can avoid any problems problems as we have more solar installations going up around here regularly and I am noticing more power fluctuations, though I don’t know whether that is simply me being more aware of these things now that I am reading up on this stuff. I have had a few electrical things go bust lately which is really and I don’t want my computer to be the next, I replaced my computer PSU with a gold+ rated one a couple years back hoping to help protect it.

  11. v_maet

    Its only going to get worse as we have to pay for battery/storage and interconnectors that were never needed before.

    Wind energy capacity in Australia is currently 5,300MW.
    Current output at 1pm on Friday 7 September 2018 is just 400MW (http://anero.id/energy/wind-energy)
    We are at just 7% of nameplate capacity.

    Just imagine the cost of all of those wind farms and they can’t even put out half of what Vales Point can do and it was sold by the NSW Gov for $1 million just 3 years ago.

  12. H B Bear

    Transmission and distribution pricing is controlled by the regulator and employs hundreds of lawyers as the companies try to maximize the rate of return and the additional assets they can earn that return on. The regulator tries to second guess the capex required on the network and the day-to-day opex spend.

    There is no incentive for a generator or a retailer to own any element of the network but there are considerable advantages for a generator to also be a dominant retailer. Arguably the major advantage was ridding the generators of massive over-staffing of union labour under State government ownership. Practically everything else has turned to mud and now the NEM has completely failed to provide market signals (plus prohibitive regulatory risk) for addition investment in generation.

  13. Sofa King Mad

    So how much a year do they sting us for the Energy Security Board?
    How much extra per year do politicians make, on top of there base pay, for sitting on these boards and councils?

  14. brennan

    It is the poles and wires bit where the “gold plating” discussions used to happen. What happened to that?

    Repeating a Juliarism lie only makes you look stupid. There never has been any ‘gold plating’. If there were how come there are sometimes concerns for network reliability on extreme demand days where load shedding may have to occur to protect some network infrastructure from catastrophic failure? On the last couple lots of resources were put on standby just in case and work on network resources cancelled to make sure peak demand was not an issue.
    I’m not at liberty to talk in detail but have considerable experience in the area.

  15. Sydney Boy

    Brennan is correct. “Gold-plating” is a myth. Much of the money spent on the transmission network in recent years was post 9-11 and designed to add redundancy to the transmission network which had many, many single-point-of-failures should natural disaster strike or there be a terrorist strike against infrastructure. Having seen the brief on the vulnerabilities in the East Coast transmission system post 9-11 – it was truely scarey.

  16. IainC

    “these sold off entities started to recombine, like mercury…” What a great image, recalling the antics of the liquid metal shapeshifting terminator in T2. Smash it, slice it, smithereen it, it soon rolls back together to stab you with a hand turned into a sword. Just like renewables.
    This is not my area, but shouldn’t the state, recognising the natural monopoly state of shared transmission apparatus for dispersed generators, kept financial control of this bit? All costs would be amortised back to any generator who wants to send electrons to Melbourne, and the government retains responsibility for upkeep, bushfire proofing, repairs and so on, passing costs back to the generators and retailers. That way, the government, if it had a mind to (I know, there’s the flaw), could decide what type of power generators could join the grid and, say, stipulate to wind/solar electronauts that they would need to demonstrate 99.9% reliability at a stated MW delivered every 24h before jacking in. That way, generators could still compete all they liked, but with a fixed minimum entry standard (as good or better than coal electron supply).

  17. Jock

    Ok as a retired utility exec, let me go through this for you all.

    Poles and Wires: The Regulator provides a return based on an established WACC. It is placed over an established and agreed RAB (Reg Asset Base) . The reason for the argument over WACC is simple. The Utilities want a reasponable rate of return. The regulators want efficiency, low cost, and near 100% up time. This is another triangle that cant be connected. There are arguments over beta, Risk free rate, debt rates., alpha, Everything in the WACC. The Reg Wacc is supposed to last 4-5 years. But inflation and interest rates change. Equity expectations change. But it is a monopoly asset and so regulation for what is a fairly low rate of return is a heated debate. The Op costs are calibrated and compared to Best Practice. Capex is always a big argument. The reulators want to keep it down as a way of reducing prices. but at the same time they want 100% reliability (a reliability requirement not applied to any other part of the supply chain.) NOW that has all been changed. To date there were rules in place that all worked with but now the Coalition changed them to empower the regulator to simply announce a rate of return that they swa as reasonable. Added to this the LIMITED review allowed previously has been taken away via a slight of hand. The right of review was based on the existing rules. But if their are no rules then there is no basis for a limited judicial review. Good way to screw them all. Not helped because the ACCC used Generation submissions saying they had no time. The reality is that the regulators have masses of info on every….EVERY aspect of Distribution company metrics and returns. Just recently the cretins in the ACCC said they would look at some tax aspects of the Utilities. These have been well and truly known to them for over 15 years. They have worked through them with the Companies and the ATO. The hide. However on the other side, the State owned distributors simply ignored the regulators ruling and did what they wanted.

    Generators: In the first iteration of privatisation retailers did not have generation capacity or not enough. They were forced to deal with a price variation of $10000, yes ten thousand dollars a MW ,that is the price range. After being properly burnt by not being able to obtain hedge contracts for NGC in NZ, AGL realised it needed generation. They got burnt a few times in SA. You can lose all your profit in one afternoon if demand from your customers greatly exceeds hedged supply. Unhedged the loss for a retailer is gigantic. Hence all retailers went for vertical integration. This saved them being screwed on the hedges and gave them control over despatch. Then came renewables. They get first dibs on despatch if they are generating. This causes mayhem for the gas and coal generators. How do you not despatch a coal fired generator? I should add that coal and base gas gens always despatch. Renewables were a rent seekers dream. Yoy got subsidies, certificates and first dibs in despatch and the retailers had to take green energy. AND up until now you didnt have to create backup supply!!! Normally a wind generator will produce on average 30% of nominal. But this can range from 0 to 100%. When its under 100% then another plant is needed to supply electricity, bacause them customers out there want power when they turn on the switch (they dont realise its a free option) . A Wind farm SHOULd consist of a cost pie as follows: Capex winf Farm+ subsidies and RET certs+ Cost of gas Back up plant or other “firming” contract + cost of fuel for backup. + OP costs..
    As you can see for 100mw of power the capital cost alone is over double straight fossil fuel cost. What a mess. Solar is even worse with idiot politicians allowing ridiculous rates for retailers to buy excess power. All generated when no one needs it. And that is besides the ridiculous subsidies.

    Retail. Have to backend all of the above into a retail price. Of course the regulators want start ups and small retailers to be given same deal as majors. But this doesnt take account of credit risk. Or who assumes their customers if they go bust. Im not saying retailers have not seen the plum and done a Jack Horner. But A Gentailer cannot by itself manipulate the market.
    I should add that like mortgage rates , retail electricity prices will always congregate around a small price area.

    OK thats enough. Sorry its general but it gives a gist of a market and policies that even a bunch of pond scum could have better devised.

  18. Charles

    Costs of poles and wires have blown out because of lack of competition, especially in Victoriastan. There are 5 poles and wires providers in VIC and they each occupy a region which no other can work in, so effectively creating 5 monopoly divisions in the one state.

    Costs vary quite widely, with some regions getting their poles and wires for 150-200% cheaper than another region even though the actual hardware, access, terrain, etc, are roughly equal.

    It helps if you put up a fight, but you have to go through multiple agencies and most of them swear it isn’t their problem, and then you get a circular reference back to the same ones. So, they have all the tricks in the book to evade accountability

  19. yarpos

    The comments about the extent of rent seeking, ticket clipping, lawyers and consulting fees is interesting.

    Most green/intermittent power initiatives are gold mines for this. A tiny example in my little town outside Melbourne. Some locals (a clique consultants and an academic) want to establish a “Micro Grid” adding layers of complexity to something that isnt broken, to deliver a nebulous undefined benefit. Along the way government grants are being requested to be spent on studies and establishment work by , surprise surprise some academics and consultants. Seems to be a nice little cottage industry. I wonder if they will send invoices to themselves or at least have a committee of some kind in the middle? I’m sure they will work it out.

  20. Rohan

    Charles
    #2811469, posted on September 7, 2018 at 5:30 pm
    Costs of poles and wires have blown out because of lack of competition, especially in Victoriastan. There are 5 poles and wires providers in VIC and they each occupy a region which no other can work in, so effectively creating 5 monopoly divisions in the one state.

    Rubbish. One of our biggest customers havent ordered since November last year. They’ve just come back online through subbies to try and cut costs.

    Other key customers have discussed with me how the bean counters are cutting their budget. Reread my other posts.

    The whole of the country has no competition in ANY region for transmission and distribution. Zero competition for poles and wires.

    And lastly, do you expect a startup or existing transmission/distribution company to roll out a duplicate network and successfully compete head to head? Have you any idea on the capital costs?

    To replace a timber pole youre up for $10k a pop. Higher if it has a transformer. Add $4-5k if its concrete or “stobie” concrete-steel hybrid like in SA and the NT. There are over 8 million timber poles in service alone. Thats >$80 billion in capital costs before you factor in HV towers, concrete, steel and stobie poles, substations etc.

    If you add competition then you are effectively halving the revenue stream or worse for the existing player. There is zero business case for that premise.

  21. Rohan

    teddy bear
    #2811333, posted on September 7, 2018 at 1:07 pm
    Rohan do you have or know where I can find data on what the stability of the grid is like now compared to before all the rooftop solar and what affects it has on appliances, as I find it very difficult to find reliable information anywhere as some say it has no affect, others say it does affect things.

    We can’t get data from our customers on how our products perform. They are highly conservative enterprises by nature. I’m not surprised that you can’t find any.

    If youre worried about your PCs, get a line interactive UPS. Spend a minimum of $200.

    Yes, rooftop solar has caused significant headaches to network engineers. Old transformers act as a diode or one way valve to prevent noise flowing backstream in the network. So the engineers have to adjust the transformer taps to lower voltage to compensate. If you get a sudden surge in demand coinciding with the sun going behind the clouds, you get a significant drop in voltage. Hot days when people arrive home will be interesting from now on.

  22. Remember the good old days when it took an enormous amount of very pissed off wukkas to call a General Strike?
    Now it will only take about ten wukkas to sabotage our entire electrical system.

  23. CameronH

    All of the above comments with all of the discussion on the complexities of the system miss the major issue. Electricity supply is indeed a natural monopoly and even free market economists like Frederick Hayek recognised this.
    Back before the Hawke/Keating centralisers started the whole Commonwealth takeover of the electricity system the supply was totally managed by state governments. I was employed by the electricity commission in Queensland from 1979 to 2009 in the technical and engineering fields as well as in senior management positions.

    The goal of the Queensland Electricity Commission back then was simply the production of cheap reliably electricity for the citizens of Queensland and nothing more. This worked well up until the early to mid 90s where Queensland had the cheapest electricity on mainland Australia and almost the cheapest and most reliable electricity supply system in the world.

    When the national energy market and the entry into the system of the Canberra bureaucrats everything began to turn to sh#t. The total ignorance of the bureaucrats assigned to this that I taught to was only matched by their arrogance and a “I know best” attitude. I clearly saw from the late 90s where this train wreck was heading but had no idea how it could be derailed. I also do not believe that the current crop of clowns in government can accept that their plans will lead to economic destruction and so they will continue on their idiocy.

  24. teddy bear

    Thanks for the info Rohan.

  25. Barry Bones

    There are four components to the supply chain – distribution (which is regulated) is separate to retailing.

    A couple of points:

    a) T&D – the regulated components (pokes and wires) have been the biggest driver of price increases, largely reflecting big capital expenditure plans from (formerly) state owned companies that used capex like a form of hidden tax. Redundancy (n minus 1) was just the excuse.

    b) it is natural for generators / retailers to combine: “gentailers” as this gives then a natural supply-demand hedge. Nothing new here.

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