Dispelling 'dark age' energy myths

Without continuing investment in electricity infrastructure, the lights would go out – that's why regulators need to take a long-term view.

Even by its own standards, Sydney’s Sunday Telegraph outdid itself this past weekend with its "Dark Ages” – read that in 144-point type – front page story.

Whether or not the story was the proverbial 'barbecue stopper' on Sunday I can’t say – I’m not sure how many people would be holding barbecues in our current weather anyway – but a couple of million readers will have been comprehensively misled by the article and the accompanying editorial.

Five things may serve to demonstrate why this is so.

First, while New South Wales power prices have risen substantially, they are not "surging out of control” – on the contrary, they mostly flow from closely regulated increases in network expenditure over five years. This is not least because earlier regulation aimed at keeping charges down resulted in a service less efficient than it should be and was changed by federal and state policymakers because they realised it was a trap.

Second, it is complete nonsense to suggest that an ACCC proposal that current network reliability standards are too high will put the commission "at war with power companies” – the standards are set by state governments and, as described by Ross Garnaut, the politicians used "a relatively crude and deterministic approach.”

In other words, yet again the government took the populist path without understanding cost consequences. They are the ones who will have to agree to reliability changes.

Third, it is also nonsense to suggest the government-owned networks in New South Wales have upgraded their systems "to make the companies look better to potential buyers” when already privatised operators in other states, having to meet similar standards and infrastructure pressures, are investing billions of dollars as well.

Privately-owned utilities are spending big around the western world at present because they are confronted by the aged network asset problem in many countries.

Fourth, the Telegraph editorial demand that the "ridiculous rate of increases slows right down” runs up against the need to expand networks to meet ever-higher peak demands and suburban expansion, to replace aged assets (the paper also rages whenever there is a substantial blackout) and, in the case of high voltage transmission, to meet the needs of new power plants, including wind farms.

Without continuing investment in generation, the lights would go out.

The current five-year (2009-14) approved capex outlay for the four government-owned NSW network businesses is $18.4 billion – double what it was in the previous determination period where the focus was on delivering low prices to consumers.

The previous plan resulted in a situation in Sydney and the Central Coast where 108 sections of 11,000-volt cables were overloaded in 2005.

Forty-four of them still are but the recent capex outlays have seen the area’s average number of blackouts cut by 12 per cent.

Fifth, the Telegraph’s "Dark Ages” rhetoric – the paper claims the regulators’ proposal to change reliability standards is "a radical move to thrust NSW back in to the dark ages” – is the worst sort of tabloid tosh, 'shock jock' ranting that is virtually meaningless.

There are two indexes used in the power networks business (and by regulators and governments) to measure how often a customer on average loses supply and the average duration in minutes per year of interruptions.

The statistics are affected by extreme events (like big fires, floods and wind storms) and by the size of the region being covered and the length of the cables needed.

Allowing for this, the latest data show that NSW has the second-best record on the east coast mainland, a bit behind South Australia, a bit ahead of Victoria and well ahead of Queensland (which is a huge, storm-ridden area and where the heavily-populated south-eastern corner has a similar performance record to the other states).

The Electric Energy Society of Australia, the professional engineers’ body, makes several pertinent points in its latest bulletin.

EESA president Robert Barr says: "There is a fine line in balancing the risks of cutting back capital spending and maintaining adequate levels of reliability and customer service. Investing in networks is a long-term process.

"There are long time lags between the spending and customers receiving the benefits – and they are not always directly measurable but appear in the form of reduced risks of blackouts and loss of reliability visible only to network planners and systems operations staff.”

Barr and the EESA argue that the regulators need to take a long-term view of their task – five, 10 and 20 years – and to stabilise annual network infrastructure spending to avoid the "feast and famine” outcomes of the past decade.

The Sunday Telegraph could have written a really informative article on how regulators, governments and industry are wrestling with how far to go in mitigating the current large unwanted jumps in power bills – and pointing out how knee-jerk past attitudes had created the environment for present unpopular costs.

It could – correctly, Port Jackson Partners has modelled this – have highlighted that the present situation, taking in to account environmental charges, network charges and the looming increases in wholesale energy prices in the competitive east market, is leading NSW (and other states) towards a 2017 situation where end-user bills will be double what they are today.

It could have made a contribution to better public understanding of a difficult problem. It chose instead to rant, demonstrating that the "dark ages” still envelop the tabloid media, newspapers, radio and TV.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles