Australia's power price myth

Claims that Australians are paying above OECD rates for electricity seem misguided judging by recent findings. Using the PPP measure, Australia's prices are actually well below the average.

Media coverage of power prices has helped make it a "white hot” issue (to quote Barry O’Farrell when electioneering last year), not least recently by running with claims by energy-intensive industry, seeking traction with voters, that household prices are among the highest in the world.

However, the media don’t leap to report the other side when it emerges: the inconvenient truth that we still have some of the developed world’s cheapest electricity in a country where geography makes its delivery relatively expensive.

The latest example is to be found in the papers of the Senate select committee on power prices, an exercise one would expect the media to be following closely.

But an official federal government rejection of the "high in the world” claim in answer to a committee question has just been ignored.

Senator Nick Xenophon, no slouch at spotting populist pegs, took himself to a committee hearing – he is not a committee member, but all senators can dip in and out of these exercises – and posed what he clearly thought was a loaded question to Department of Resources & Energy officers: "Are we now paying above OECD rates for electricity?”

His query is fuelled by Adelaide’s News Ltd branch in particular running strongly on claims (by big energy users) that South Australian residential bills will soon be through the OECD roof.

You don’t need a high IQ to appreciate that a "Yes” answer to Xenophon’s question would have been the stuff of even bigger headlines.

The bureaucrats went away and consulted the federal government’s Bureau of Resources & Energy Economics and the written response – which is a firm "No” – has received no coverage at all.

Not one word.

BREE has calculated the answer to Xenephon et al in terms of purchasing power parity – using what can actually be bought with local money in different countries, thus ironing out the distortions created by exchange rate fluctuations.

Using the PPP measure, the agency finds that residential power prices in Australia averaged 12.66 US cents per kilowatt hour in 2010 and 14.2c in 2011, well below the 34-nation OECD average of 20c.

Australia, in fact, continues to share the lowest-price tranche with Canada, America, Switzerland, Norway, South Korea and Israel.

For some reason, BREE haven’t got the Canadian numbers for 2011 – but the Canadians still have a lock on cheapest prices because they mainly use hydro-electric energy and their provincial governments have kept the lid on retail bills for quite a while.

As well, Canadian utilities do rather nicely out of selling their power down in to the US – about 53,000 gigawatt hours is exported every year (roughly the output of Queensland) – which helps to support a lower local cost.

It will be interesting to see how things change over this decade because the Canadians have yet to face up to what we are grappling with right now: the need to spend a motza on refurbishing and expanding power delivery networks as well as, in their case, investing in new, and more expensive, generation.

The Canadian power industry claims that $C100 billion needs to be outlayed on networks alone, much of it in the next 10-12 years.

Be that as it may, the important local point is that the Senate select committee has now been told by the federal government that a major plank in the "whackamole” power game isn’t true – but the community at large doesn’t know this because, until now, no-one has passed on the news.

Nor has the energy-intensive lobby come out to beat its collective breast and acknowledge it got the comparative numbers a bit wrong.

And Senator Xenophon is very, very quiet.

By the way, even though Australian prices continue to rise, with the 2012-13 increases still to be taken in to account, part of the answer to Xenophon is that our household bills also sit way below the top OECD charges, not up there with them and closing fast.

Right up the peak of the list are the German and Spanish households, wearing charges of the order of 30 US cents per kWh because of renewable energy subsidies and environmental charges – yes, double our tariffs on the PPP scale.

The Italians shell out about 25c and the Brits just under 20c.

The jolly Norwegians, by the way, sit smugly in prices cellar, paying barely 10c per kWh.

Why can’t we be like them? Well, 98 per cent of their generation is hydro-electric, you see; it’s all that snow they have lying around.

(Their wind-loving but coal-burning Danish neighbours fork out about 26c – and they sell a lot of their wind power to the Norwegians and buy back hydro-power.)

And hydro, of course, is the form of renewables that the Greens hate almost as much as coal and nuclear.

Bottom line?

There’s no hiding from the fact that the sort of price rises we are experiencing here are hurtful to those on low incomes, unhelpful to struggling small and medium businesses and an added burden for energy-intensive, trade-exposed factories in a very tough global environment – but pretending that the comparative situation is hell-on-a-stick is not going to solve a thing.

And the media reporting only what suits the populist line they are running is hardly serving the public interest.

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