Australia has a gold plated electricity grid - value equal to USA despite our size
Summary: Australia has a gold plated electricity grid almost the same value of USA despite the obvious differences in size between the two countries .........
The Australian energy system stands as a monument to vested interests.
It is a system controlled by owners who are protected from market forces and state governments content to milk consumers for all they're worth and more — because the rules allow it.
"The operators have spent a lot of money on building their networks to potentially provide excessive reliability," Craig Memery from the Public Interest Advocacy Centre says.
"That system has been bigger and more costly and, on top of that, the interest rate that is applied over the long term to that investment which consumers pay has been particularly high."
Two-thirds of the grid operators' income comes from earnings guaranteed by the regulator linked to the value of their networks.
In short, the higher the value of the network, the more income they earn.When earnings fall, prices can go up to cover the shortfall.
It has been a boon for owners, whether they are private investors or state governments, and it has encouraged state governments to embark on massive, unnecessary spending programs to boost the regulatory value of their networks.
"That was one part of the argument, but the bigger part of the argument was it was essentially a short way to raise income for the states," Bruce Mountain, director of CME Australia, says.
The system causes blackouts despite excess capacity
The international comparisons are staggering.
The total value of the entire electricity network in the US, a country of 320 million people, is $US100 billion, while the value of Australia's network is not far short — $100 billion or $US75 billion.
"There have been deterministic reliability standards which set a level of reliability over and above what consumers want and, arguably, over and above what they can pay for," said Mr Memery.
Power prices 'off the chart'
Wholesale power prices have jumped up to 240 per cent in just two years, with further price rises looming.
Households have also been short-changed by the well-documented war in Canberra over renewable energy and coal.
The complete lack of long-term policy certainty for investors has led to a shortage of excess energy generation and, therefore, blackouts.
It has also been responsible for surging electricity prices which have encouraged disillusioned consumers to search for alternatives, including the push towards solar energy, batteries and self sufficiency.
These damaging trends for the power industry establishment are accelerating, and they're in deep trouble.
"The term death spiral has often been used and it's been thought of as quite emotive, but I think the rate of technology change, the rate of cost-decline that we are seeing means that that term may well be quite accurate," Mr Mountain said.
"The only way to mitigate it and to manage it is to revalue down the network assets to recognise their economic value is much lower than it was before these alternatives existed."
Without this action, there is a risk many consumers will disconnect from the grid, leaving fewer households — namely those who can't afford to disconnect — footing the bill for Australia's gold-plated, high-cost network.
Write-down driven lower prices could take 15 years
Mr Memery believes it is not a lost cause just yet.
"If we have cost-reflective pricing and if we have the right incentives on networks and consumers and retailers to invest in energy systems that are efficient and where the benefits are shared where they can be and the costs aren't just socialised willy-nilly, then, yes, we can achieve a future energy system that acts in all consumers interests," he concluded.
But the power establishment will not surrender their privileges easily and Mr Mountain does not see any utopian solutions around the corner.
"I think they will do a lot of damage to themselves before they take this action. They will seek protection by governments and by regulators," he said.
"It will take up to 15 years for the established players to respond by writing-down the value of their assets, which should deliver lower prices."
Consumers will not be waiting around for that long if they can escape. Spare a thought for those low-income households who will be left behind, trapped into supporting a Rolls Royce network.