Power pain without political gain

The price of electricity is climbing sharply and household time-of-use charging schemes are one way to curb the problem, but they're a problematic solution.

In the words of British commentator Theodore Dalrymple, politicians want a painless solution to every problem. And in the Australian electricity sector, there is a grand example of this principle on display now.

The Gillard government's National Energy Savings Initiative working group is currently calling for feedback on its recently-released issues paper, with submissions open until February 27.

It sounds like a Kevin Rudd invention, and it is. He made a commitment in 2009 to look at creating a national energy efficiency scheme. It's taken the government until now to set up the working group under the joint aegis of Greg Combet and Martin Ferguson, and to push out an issues paper.

The bottom line is that the government wants a scheme to "complement the carbon pricing mechanism and renewable energy certificate scheme”.

Rudd may have set out to add to his palette of emissions abatement schemes, but it is clear from the issues paper that what is weighing most heavily on the minds of the Gillard government is the ever-rising community unhappiness about electricity prices.

The paper points out that household energy costs (excluding transport fuels and dominated by electricity charges) shot up 38 per cent between 2003-04 and 2009-10, and the latest Australian Energy Market Commission review for CoAG energy ministers – delivered last month – forecasts that power bills will rise another 19 per cent (in inflation-adjusted terms) between this financial year and 2013-14.

Of course, anything bad with 2013 in the equation is knee-trembling stuff for the government, as they hope to hang on for a federal election next year.

The problem, channelling Theodore Dalrymple, is that when it comes to the cost of electricity, there is no simple solution. Politicians being politicians, what we are getting is more and more committees, working groups and reports.

The energy efficiency working group’s issues paper highlights the dilemma. First, it includes the AEMC estimates of what is likely to happen to power costs. East coast end-user charges were $224 per megawatt hour last financial year. They are now around $247.40.

Next financial year, according to the AEMC, they can be expected to crack the $300 barrier and reach about $308 – and in 2013-14 they are forecast to reach almost $325.

What does that mean? It's not hard to work out.

East coast households on average consume about eight megawatt hours of electricity a year. Because of the take-up of air-conditioning and energy-intensive appliances (eg. plasma TV), there are many homes consuming 10MWh annually.

For the average household, the power bill is going from around $1,800 now to $2,600 – including the impact of the carbon price on which Gillard claims to offer 90 per cent of families some form of compensation.

Even if this is true, and I wonder about that, it means that around 900,000 homes will miss out on compo. That’s pushing towards two million not-happy voters.

Be this as it may, the National Energy Savings Initiative working group points towards two main approaches.

The first will involve consumers "improving the efficiency of their appliances, equipment, processes and building fabrics” to reduce their consumption and "cushion them from rising energy prices.” Good luck with that between now and 2013-14.

The second comes with teeth (of the political kind). It involves "targeting the factors that are presently driving up energy prices, particularly costs associated with network infrastructure upgrades.” Translated, we want to introduce interval meters and time-of-use charges.

The political canary down the mine on this issue is Victoria, courtesy of Steve Bracks.

The Baillieu government has just opted to press on with the "smart meter” roll-out because there is no way back, even though the capital cost is not $800 million, as Labor estimated in a planning process after being excoriated by the state auditor-general, but north of $2 billion.

The current Victorian energy minister only has to look at the faces of his counterparts around the CoAG committee table to know how keen they are to follow his state down this path.

The energy efficiency working paper puts its finger on the political hot button: energy bills for low-income households and those experiencing other forms of financial stress (eg. mortgage holders) tend to be higher than the national average of two to three per cent of disposable income.

"One issue particularly relevant to households,” says the paper, "is that many small-scale efficiency opportunities do not provide substantial savings; consumers perceive the benefits to be not worth the time or effort of researching, acquiring and implementing.”

Of course, the other point, as the Victorians are now finding with "smart meters”, is that forcing these changes comes with added costs.

A mandatory national energy efficiency scheme’s costs will be smeared across consumers’ bills – just as happens with the mandatory renewable energy scheme.

The Energy Networks Association, whose members operate more than 40,000 kilometres of high voltage lines and 800,000km of distribution lines – plus a multi-billion asset base of transformers, switchgear and the like – in a recent submission to the AEMC sums the situation up like this: "There will continue to be upward pressures on electricity prices. Some are network-related. Others include government schemes to promote renewable energy, energy efficiency and a reduction in carbon emissions and general economic conditions, which can impact on input costs such as fuel and wages.”

Sorry, painless solutions to the power price problem are not available.

Keith Orchison, director of consultancy Coolibah Pty Ltd and editor of Powering Australia yearbook, was chief executive of two national energy associations from 1980 to 2003. He was made a Member of the Order of Australia for services to the energy industry in 2004.