Shaking up a political energy drink

The government's draft energy white paper has come at a time when power usage is changing and rising peak demand, along with greenhouse gas reduction, means more pain for households and for politicians.

As the year ends, the federal government’s message to electricity users is becoming more clear.

The community has to recognise that there is a tension between power bill increases, which it dislikes, and greenhouse gas reductions, which it desires.

Martin Ferguson, the federal resources and energy minister, has been using speeches, mostly little reported, about the publication of his draft energy white paper to highlight this "unproductive stalemate”.

The government’s agenda, he says, has two energy priorities: to address the problem of peak demand and to accelerate 'clean energy' development.

It finds itself doing so when consumers’ use of energy is changing.

"There are a greater number and range of energy-hungry devices available to households,” Ferguson says, "and their use is seeing peak demand rising faster than average demand.”

This trend, he argues, is set to continue with the result that significant capital is being spent to build and maintain supply capacity used only for a handful of times each year.

What he hasn’t so far said, but is widely recognised in the power business, is that the next five-year cycle of network capital expenditure, beginning in 2014, is likely to see about $25 billion added to the $35 billion outlays of the current (2009-14) cycle.

The political dilemma for the government – and for State governments as voters spread about the blame for the situation – is that the continuing rise of network charges (the big cause of power price pain in the past four years) is going to coincide in the rest of the decade with the carbon price and the full impact of such abatement measures as the renewable energy target.

The immediate outlook is for significant further increases.

For the largest east coast market, New South Wales, consultants Port Jackson Partners predict that the average household bill, now about $1,700 a year, will be pushing towards $3,000 by 2017.

Almost the only way of partly easing the pain is to curb network charges.

One prong of this approach is to leave it to the Australian Energy Regulator to reduce the amounts the network businesses can spend and to cut the compensation they receive for the cost of borrowing funds.

The former requires regulatory changes which can’t be made quickly.

The second prong is still more controversial. It requires changing the way power is priced.

The political line on this, now being used by Ferguson and frequently trotted out by suppliers and consultants, is to "empower consumers to manage their use of energy”.

This, as Ferguson says, requires the introduction of market-based pricing. "More equitable and efficient pricing means customers who use substantially more electricity at peak times pay the true cost of producing and delivering it at that time.”

In other words, time of use pricing – where electricity costs very little late at night and a great deal at times of peak demand.

As Ferguson points out, ToU pricing can only be introduced with the deployment of so-called 'smart meters', a national project that has been pursued in his home state, Victoria, for the past four years.

Describing the Victorian experience as controversial would be considerable under-statement.

Governments elsewhere, says Ferguson, must learn from the Victorian experience. "Ensuring consumers are able to realise the benefits of smart meters is essential if, over time, the tide of public opinion towards them is to change.”

Along with its view that electricity supply should shift from government hands – State and Territory governments still control more than 60 per cent of power businesses – the federal government is pushing for the full deregulation of retail energy prices across Australia.

Victoria has been the vanguard state in this respect, too, and, says Ferguson, "we can see there deregulation does not mean stripping away consumer safeguards.”

The fact is that all of this could have been said in 2009-10 or 2010-11.

There has been slow progress on these fronts in the past two financial years and we are half-way through 2011-12 without any real advancement.

In this period, electricity prices have risen by some 40 per cent across the country.

Meanwhile, as Ferguson acknowledges, investors have been – and still are – reluctant to fund the early stages of renewable energy development using new technologies.

At the same time they have been slow to build wind farms because of the politically-created glut in renewable energy certificates and the roll-out of rooftop solar schemes has been mainly an expensive fiasco.

(As Climate Spectator reported earlier this month (Flagships stumble: solar funding stalls on the grid, December 16), the much-publicised large-scale solar developments in NSW and Queensland, borne up by a billion dollars in taxpayers’ support, are also floundering because they have so far been unable to find anyone to buy their proposed product.)

Ferguson has launched a $200 million "renewable energy venture capital fund” to help push along new green technologies. It includes $100 million of taxpayer support.

It is an add-on to the $10 billion Clean Energy Finance Corporation the Gillard government launched as part of its 'clean energy future' legislation deal with the Greens.

The main game, however, is to start making some progress on the "unproductive stalemate” of peak power demand management.

Just how big this task is – and how much it will be cost if the current trend continues – can be found in the Energy Supply Association’s annual load forecasts.

In the biggest demand area – Victoria, NSW (and the ACT) and Queensland, accounting for 80 per cent of national power generation – ESAA predicts that system peak load in 2019-20, a decade after the problem was being identified as a major concern, will exceed 44,000 megawatts.

It was 34,700MW in 2010-11.

Even with the regulator trying to force down network demand predictions – it has just insisted that it knows better than Powerlink Queensland and slashed its proposed outlays by more than a billion dollars – a huge sum will need to be spent to cope with the higher peaks.

This will translate into end-user bills that will pain households – and the pollies know what that means.