Primed for a power surge

There will be no hiding from the power price jolt that is coming Australia's way – a rise in prices that will come with or without a carbon price.

In a paper commissioned by the Australian Energy Market Commission for its 'Power of Choice' inquiry into demand management, consultants Ernst & Young have produced some salutary data on consumption – unfortunately, hardly anyone in Canberra seems to have read it.

Ernst & Young have tracked electricity use from 1973-74 (under the Whitlam government) to 2008-09 (when power use peaked before the global economic crisis really bit).

Most of the media discussion today revolves around household use of electricity and the general unhappiness with the body politic on pricing pain, but the residential sector is only a part of the story – and, except for peak demand, not the largest part.

Ernst & Young report that:

– Total electricity supply rose from 74 terawatt hours in 1973-74 to 242 TWh in 2008-09 (and has now fallen back to 236 TWh).

– The manufacturing share has risen over 25 years from 24.3 TWh to 66.9 TWh, an annual increase of 2.8 per cent, and accounted for 28 per cent of the market in 2008-09, but is now falling.

– The commercial and public services sector’s power needs have risen even faster – from 9.4 TWh to 57.2 TWh, an annual average of 5 per cent, with demand accelerating 38 per cent in the past decade and now accounting for 24 per cent of the market.

– Household requirements have risen from 19.08 TWh to 60.1 TWh, an average rise of 3 per cent a year, including a 21 per cent increase in the past decade, accounting for 25 per cent of the market.

The balance is made up of agriculture, forestry, fishing, mining (7 per cent), construction, electricity, gas, water and waste services (14 per cent – what do you think power stations run on?), and transport, postal services and warehousing.

Ernst & Young point out that the manufacturing sector has fallen back to where it was in the late 1970s. It did reach as high as a 35 per cent share in the late 1980s and early 1990s, “reflective of a general trend towards less energy-intensive industries” in this country. The commercial and public services sector meanwhile, is heading towards doubling the share it held in the Whitlam era.

Mining, not surprisingly, is on the rise and the household share, perhaps to the surprise of many, is actually lower now than it was when Whitlam ruled the roost.

The whole network has ridden on the back of the black sheep so far as the environmental movement is concerned – black and brown coal generation and gas-fired supply. 

Cheap, abundant coal, of course, has been a key factor and coal-fired generation output has risen 54 per cent in a quarter century.

In recent years the use of gas has shot up but it still makes up only 15 per cent of actual production – compared with 8 per cent for renewable energy (mostly long-serving hydro-electric power).

Ernst & Young also contribute a telling statistic to the focus on productivity.

They find that electricity consumption as a proportion of GDP has risen in Australia from 358 megawatt hours per million dollars under Whitlam in 1973 to 487 MWh under Kevin Rudd in 2009, an average increase of 1 per cent a year.

By contrast, the consultants say, the OECD average in 2009 was 352 MWh, an average annual fall of 0.1 per cent since 1973.

The reason for the smell of burning rubber on the electricity road today, however, is not down to wholesale energy prices, nor the renewable energy target and, despite all the noise, it will not be hugely changed by Julia Gillard’s carbon price.

The issue is the need to spend huge sums on power networks. ‘Need’ being the operative word.

One can see this clearly in the breakdown of costs the AEMC has recently provided to the CoAG energy ministers.

As we are all focused on the terrible towelling Labor got in south-east Queensland (as well as a kicking in the other 97 per cent of the state), let’s look at the AEMC’s figures for Energex’s franchise area (essentially Brisbane, the Sunshine Coast and the Gold Coast).

Even without a carbon price, says the commission, the trajectory of retail prices for people living in Energex’s area is up from 19.39 cents per kilowatt hour in 2010-11 to 24.86 cents in 2013-14 (or 26.78 cents with the carbon price).

The RET, the mandatory gas scheme and other bits and bobs of state and federal environmental stuff will contribute just under one cent per kilowatt hour in 2013-14.

To this you can add 7.47 cents for wholesale energy (or 9.46 cents under a carbon price).

The big ticket item is the networks charge – a shade under 13 cents in 2013-14 for transmission plus distribution compared with 9.68 cents in 2010-11.

This may sound like pocket shrapnel until you multiply it by 8,000 to 10,000, which is the sort of kilowatt hour consumption that is not unusual in the affluent sub-tropics.

Then it adds up to $400 or so – and even Campbell Newman’s ‘thanks for your vote’ gift of $120 by freezing the standard tariff doesn’t really salve that burn.

As Robert Gottliebsen, and some of those who posted comments on his commentary, point out, the hurt is greater for small business and bigger business. Not least in an area like Energex’s franchise where commerce and public services are a substantial segment.

You can paint similar pictures for other parts of the country and the pollies, federal and state, are a long way from addressing the pain to the satisfaction of their constituents.

The really hard part is that, no matter how they twist, turn and spin, prices are going up, not down – which underscores the issue of all of us becoming a whole lot more efficient with how we use electricity.

And, because I will be yelled at if I don’t add it, the situation highlights the need for politicians to devise a sensible way to address the problems of those many thousands of households who can’t pay today’s power bill – never mind the one that’s coming in two years’ time.

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.

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