Time to flick the switch on energy tariffs

Consumers are being ripped off by an outdated electricity tariff system that doesn’t fairly reflect the real cost of supply, and the problem is only going to get worse.

It seems to have got nowt in the way of media attention -- perhaps not surprisingly, given the national obsession with the federal budget and the political meltdown in New South Wales under the ICAC avalanche -- but the new report on electricity tariff reform published by the Energy Supply Association of Australia last week is an important contribution to a key issue in the ongoing energy debate.

The ESAA commissioned consultancy AECOM to survey the ways other countries are implementing fairer tariff structures to cope with the uptake of solar panels, air-conditioning and the like. The 58-page Power Pricing Internationally report is available on the association website and should be required reading for policymakers.

The ESAA’s take on the publication is that, firstly, many economies similar to Australia have already developed better ways to charge for power based on actual household capacity and network demand; and secondly, we are still pricing electricity in this country as we did in the 1970s and urgently need to change this.

ESAA was targeting the Energy Council meeting in Brisbane (the nation’s energy ministers have changed their committee title from the clunky Standing Council on Energy & Resources, or SCER). The ministers, who meet under the Council of Australian Governments umbrella, indeed had smart metering and related policies on the agenda, monitoring work the Australian Energy Market Commission has had in train since 2011, but the communique issued after the meeting suggested no sense of urgency on their part.

Last June the Productivity Commission published a report on power network regulation in which it tartly chided the SCER process and its related bureaucracy. Ministers, said the commission, “need to add some urgency to the tardy reform process -- SCER needs to accelerate reform which has been bogged down by successive reviews; delays are costing consumers in the National Electricity Market hundreds of millions of dollars”.

Queen Elizabeth the First famously told her parliament that it would have to “take in good part her answer answerless” and there is an echo of this in the SCER/Energy Council public reaction to the commission criticism: i.e. none.

Which brings us back round to the ESAA media statement this week.

Paraphrased, the association says we need to move ASAP to electricity prices that reflect the real cost of supply, send better signals to customers to take control of usage and kill off cross-subsidies.

The AECOM summing up is that “it is important to develop a holistic Australian (i.e. NEM) tariff design with solution appropriate for local market distortions and the interactions between domestic usage and large-scale energy users.”

Translated by ESAA, the message is that “Australian consumers mostly pay for the network service via a simple charge for each unit of electricity they consume, not for how much strain they actually put on the grid.”

The association argues: “This isn’t right. This approach undercharges households with high use at peak times -- mostly driven by their use of air-conditioning -- and is also distorted by solar panels. This means that households without these technologies end up paying more and more. We need to ensure that everyone is paying their fair share and no one is getting ripped off.”

This theme was taken up also by the Energy Networks Association via its biennial conference, held in Melbourne, this week.  ENA comments that “most Australians would be surprised to learn that the way they pay for the electricity network bears little relationship to how much it costs to supply them”.

I’d suggest many of the one million households that have taken up solar PV rooftop systems are only too well aware that part of the game is not only getting feed-in tariffs but having a lend of their neighbours to retain the insurance of also being connected to the grid. What the last federal Labor governments and state governments around the country have succeeded in doing, with solar policies which rival Battgate for ineptitude, is to create a quite large vested interest that politicians are now skittish about upsetting.

ENA argues that unless there is a shift towards tariffs that are based on the network cost to serve, cross-subsidies favouring solar households and big users of air-conditioning and other energy-intensive appliances over the rest of the community will continue to create an unfair environment.

The lobbyists have not yet seized on what is to me the obvious punchline: this offends against the deeply held Australian ethic of the fair go. The cross-subsidies involved seem to be of the order of $350 a year to the disadvantage of consumers not using new technologies (very frequently those who are renters, a large chunk of householders, or low income earners) -- if this isn’t fodder for the tabloid media, please tell me what is?

As ENA puts it, “unless network tariffs reflect the cost to supply the service, some customers will pay less than their fair share while others will pay more. These cross-subsidies are hidden when customers pay the same rate under a flat or block tariff regardless of what time of day they use the energy.”

The other aspect of this undesirable situation is that, when you look down the track towards the mass uptake of electric vehicles and the advent of battery storage (which the green commentariat insist is just around the corner), this subsidy problem will just become bigger and harder to remedy as time goes by.

Essentially, we are past due for some straight talk about this situation, not long-winded dissertations by government agencies, engineering speak by suppliers and obfuscation by the green lobby (which screams at every suggestion the solar trough needs emptying) -- and most of all discussion by politicians behind closed doors where the dominating ethos is the alleged prayer of a young St Augustine: “Please God, make me good, but not just yet.”

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