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Network operators up the ante on fixed tariffs for consumers

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State government-owned network operators – particularly those in Queensland and Western Australia – appear to be planning a new assault on retail electricity tariff to increase the amount of fixed charges paid by consumers.

The move is designed to protect the networks from declining revenues caused by lower demand – particularly that from energy efficiency initiatives and the dramatic and growing proliferation of rooftop solar.

Despite the removal of generous feed-in-tariffs in nearly all state jurisdictions over the last two years, rooftop solar continues to grow because it offers households the best means of reducing their electricity prices. As this CSIRO study found, Australians love solar because it lowers their energy costs.

Solar can be installed for around 12c/kWh, less than half what most pay for retail bills. Given that electricity retailers now pay little for exports back into the grid, the trick is to try and consume as much of the solar output on the premises.

But the utilities are looking to make this as unattractive as they can, because under current tariff structures, less consumption from the grid means less revenue. And having spent billions on network upgrades on the assumption of demand being about 20 per cent higher than it is, getting a return on that investment is now proving a challenge.

Mike Nahan, the new energy minister in WA admitted last week that demand for rooftop solar panels is growing at 20 per cent a year despite the withdrawal of the Government’s feed-in-tariff two years ago, and is a “game-changer for the industry.

“Here in WA, the rapid growth of PVs on rooftops is having a profound influence on electricity consumption and generation,” he told the West Australian last week in an article that appeared to presage the announcement of higher fixed charges.

The article said that WA’s energy chiefs are pushing for a change in the structure of bills to make customers pay more in fixed charges to make up the shortfall caused by the uptake of rooftop solar. At the moment, fixed costs, such as the supply charge, make up about 15 per cent of the bill.

This should not come as a surprise, because the Australian Energy Market Commission highlighted the issue earlier this year, when it noted that the $40 billion spent on network upgrades meant that electricity charges would rise no matter what, even if consumers reduced demand. “If demand is lower than forecast … then network prices … are likely to rise quicker than outlined in this report,” it noted.

That rise would come in the form of fixed charges, which means that even if a household is reducing consumption to minimize bills, or has installed solar, they will still be hit by rising electricity costs. The network operators want their money back, and the networks in most states are owned by the state governments.

Industry observers suggest WA may be working in lock-step with the Queensland state government, which last year doubled the standing charge on electricity for retail consumers, and appears to be contemplating having another go.

Research being compiled by solar industry analysts SunWiz points to the fact that nearly all the rises in Queensland retail bills for 2013/14 come from increases in fixed charges. The cost per kilowatt hour of electricity consumed barely moved, but the fixed cost per day doubled to 50c, or around $200 a year with GST.

Queensland is now looking at more changes, possibly to bring it in line with some of the fixed charges in NSW, which have been lifted to more than $1 a day, or more than $450 with GST.

Queensland energy minister Mark McArdle last week issued a statement saying that the grid was now being used in a way that was never imagined. But one encouraging aspect of McArdle’s statement was his noting that it was the largest energy users who were causing some of the most dramatic changes.

Most people in the industry, including in solar, recognize that tariffs need to be amended – but not in a simple substitution of energy costs with fixed tariffs. The amount that is used, and when, should also be part of the equation. This means that those with large consumption – either for air conditioning or pool pumps, or whatever reason, bear their share of the burden of the energy they use and the impact on the grid.

There is also a big push from the clean energy industry to argue the “balance of the ledger”, and recognizing the benefits of self-generation, particularly when it comes to solar. Rather than just seeing it as an “intermittent” source that reduces consumption from the grid, policy makers in the energy offices of both states are being urged to consider the benefits of solar – such as grid stability and reductions in peak demand.

Whether this makes the transition from the policy wonks to the politicians is yet to be seen, but the politics of solar – with 10-14% of households with it, and that amount again wanting it – may also bear attention.

As the sub-text from this fascinating story from the US illustrated, where Georgia Power finally yielded to mandating 525MW of solar power in the state, despite the utility’s preference for nuclear and other fossil fuels – the issue is being pitched as one of individual rights versus that of the utilities. It is a natural argument to be pushed by the conservative right, but it’s taken them a while to cotton on.

Alan Pears, professor at RMIT, wrote earlier this year that higher fixed charges are regressive because they also potentially undermine the economics of energy efficiency and other technologies that could be used to reduce or regulate demand. Reducing consumption is one of the principal policy measures proposed by the likes of the IEA to address climate change and the surge in global energy demand.

But Pears noted that the electricity industry – and its policy makers, sees a decline in electricity consumption as a threat to their industry’s viability, so they are working to oppose it.

Industry analysts also say higher fixed charges penalise low income and low user households, as well as solar users, as well as reducing the incentive for energy efficiency and to buy more efficient appliances.

The most obvious way to reduce charges to customers is to write down the value of the networks, seeing as they will not be used to the extent that was planned. This is a reality that has been faced by the telecoms and the media industry, and money others, as business operators realize that the value of the investment they made – in fixed line telephony or huge printing presses – has been sharply reduced by new technologies – mobile phones and the internet, or solar in the case of electricity.

This happens in many other industries, but not likely to happen in Queensland, where the government seems intent on preparing the networks it owns for sale. It is more likely to act to shore up the business model for these assets.

It’s unlikely to be challenged by the state’s pricing regulator, the Queensland Competition Authority, which earlier this year recommended special tariffs for solar users, despite the fact that it thought such measures would not reduce the cost of feed in tariffs, was unfair and possibly illegal. Despite all this, it suggested the tariff change because it would benefit the networks.

And therein lies the problem for these state governments – are they going to act in the interests of consumers, or of the networks that they own and operate? Hopefully, the economics, and the politics, of solar will decide in the favour of consumers.  

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  • Roger Brown

    That will be a Vote buyer, hiking up fixed charges ? With so many Solar owners now, they will vote this mob of thieves out in their 1st term.

    • RobS

      This is going to be a reality that is going to become apparent very quickly, there are now over 2.5 million Australians living in a household with a solar installation and growing rapidly, almost 1.5 million solar residents were added in 2012. We will likely be at a quarter of the population by the end of 2013, piss off 25% of voters at your political and commercial peril…

  • Stan Hlegeris

    It’s already cheaper to generate electricity than to buy it from any retailer. If not already, it will soon be cheaper to generate and STORE electricity more cheaply than you can buy it.

    This leads to a critical issue: we need to protect our right to go off grid. Note that we can’t do so with water. My last water bill was $260. If I had used no water at all, it would have dropped to only $240, being the fixed quarterly charge. I can’t opt out.

    We’re headed for the same thing with electricity. QLD in particular is desperate to protect the value of its obsolete generating and distribution assets. As customers leave the grid behind, the value of these assets will move toward zero, unless everyone can be required to keep on paying for the grid-based system regardless of use. That’s exactly where the generators, distributors, retailers, and regulators are heading.

    Feed-In tariffs and RECs and all that won’t matter, as solar PV is getting so cheap it doesn’t need those subsidies. What DOES matter is making sure that we can choose to go off-grid and not be forced to keep paying for obsolete infrastructure.

    • RobS

      I guarantee you that once it is cheaper to go off utility that right will be brought back to us, we are approaching 25% of the population and growing rapidly living in a home with a solar array, It would be a foolhardy politician or business person with a short lifespan who would try to stand against 25-50% of the population and tell them they can’t generate and use their own power on their own property.

      • MorinMoss

        Oh, they’ll try. They’re owned by the corporations and voted in by idiots.

    • JonathanMaddox

      “… we need to protect our right to go off grid.”

      Absolutely. In Spain, the government has recently passed a law which effectively forbids it for those in urban areas. Madness.

      http://www.businessspectator.com.au/article/2013/8/21/solar-energy/spains-solar-stupidity

  • M.G.Adams

    The power suppliers presumably see the writing on the wall, that they are a dying industry, but it has not yet sunk in. Their technology is rapidly becoming obsolete as the consumer moves to Solar power. In the same way as they are trying to raise charges in order to maintain their profitability and protect their business model, their very action will force the consumer with Solar to protect himself by adding storage capacity to his installation. Battery technology is rapidly advancing as it can bee seen as a money maker in today’s world, and as soon as the new battery tecnology is economically viable, householders will use it to get off the grid, to avoid the excessive & dubious charges being levied. Moral, get your money out of power companies & put it in batteries. World Finance now recognises Coal as actually being dirty, so State Govts with coal fired power stations, may well find that irrespective of their attempts to whitewash them for sale, any would be buyers may well have difficulty in raising the capital to purchase them! Politicians pursuing policies to protect the power companies at the expense of the customer, may well find themselves being interviewed by centrelink after the election. The World is a changing!

  • Marcel Den Ouden

    Here in the Netherlands the government actually did something right a few years ago: they’ve split the grid and production in seperate companies. The grid is still owned 50%+ by a state run company and the producers were sold. Turns out to be smart after all as producers are struggling. In the meanwhile consumers/cities/regions are starting their own production companies.

    Is separating the grid from production a viable solution here?

    • JohnRD

      In Qld the average price paid to power producers has dropped due to rooftop solar replacing high cost peaking power and generally increasing competition. It is the grid meisters who are making the money.

    • JonathanMaddox

      It has already been done — even where grid and generators are both still state-owned as in Queensland and NSW, they are under nominally independent corporate structures — but the interests of grid owners and power station owners still remain closely aligned, and retail provision of electricity is by companies which are more closely tied to the generators than the grid owners, so it hasn’t yet had much effect.

      • Marcel Den Ouden

        OK that different here. In Holland they’ve sold the generators and it turned out to be profitable for the government. One company was sold for 10 Billion and you can buy it back now at 6 Billion (Euros).

  • JohnRD

    The underlying problem is that the costs of getting power to the home are largely fixed while the power bill has been 100% variable .(i.e., you pay for the power consumed.)
    There is a lot to be said for a large slab of the bill to be based on peak demand.

  • Thomas Dejanovic

    My understanding is that one of the drivers of this change is to separate the two principal costs, distribution and generation. The distribution network cost is relatively fixed and independent of customers use where as generation cost is a function of use. Separating the two components makes sense particularly if the two businesses (generation and distribution) are separate as is becoming the case with the privatization of state electricity assets.

    Separating the cost also makes sense for roof top solar. If you are a generator it is reasonable for you to be changed for access to the distribution network.

  • Rob Campbell

    The current situation exposes fundamental problems with the way we are governed here in Australia and whilst it is far from unique, we are governed by people who get voted in on popularity. Our two party system and short tenures means that fundamental management for the public good can never be achieved. While the federal government seemed to do great things in the Howard era, all state governments of the day went flying into the red, something that Federation caused, and we had a disconnect from the fudical responsibility to every citizen. In practice the Feds gave with one hand and took with the other, while letting the states run a mock with credit. Now we have state governments saddled with huge debts, with most of their revenues going to pay interest. There is no correlation with charges to the services they are supposed to provide. The prime example is the 3×3 fuel tax introduced in NSW after the horrific bus crashes in Grafton and Kempsey. This 3c per litre tax was to pay for the duplication of the Pacific Highway over a 3 year period. More than a generation has past, the tax remains and the Pacific Highway is still single lane in many places. To add insult to injury, Queensland chucked 3cents a litre on 5 years ago because it was too hard to administer the rebate from the Feds. Where is that 3 cents now?
    There was a time when governments where judged on their ability to govern, now they seem to be constantly trying to hide realities to the best of their abilities just to gain or stay in office. The sad thing is, even with the noblest of intentions, no government can fix the problem in one term, and the decisions that need to be made are not conducive to re-election.