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South Australia takes on networks over soaring grid charges

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The South Australia government has decided to take on the monopoly electricity network operator in the state as it continues its campaign against the market dominance of the powerful energy oligopoly, and their ability to pass on huge price increases to consumers that are often blamed on wind and solar.

Network costs in South Australia – like most of the country – account for more than half the average household bill. Consumers were hoping to get some relief after the Australian Energy Regulator knocked back some of the planned spending by SA Power Networks, but its ruling is now being challenged in court.

SAPN

Energy minister Tom Koutsantonis says he will send a senior public servant to appear before the Australian Competition Tribunal this week, accusing SAPN of “cherry picking” individual spending decisions from the AER in the hope of boosting its overall spending allowance.

It’s a crucial intervention by the state government, and comes amid huge public controversy over its ambitious renewable energy plans, and the already high penetration of wind and solar that could reach 50 per cent by the end of the year.

Recent high wholesale electricity prices have been blamed by many in the Coalition, and the Murdoch media, on the state’s reliance on renewables, even though most independent analysts and market regulators blame soaring gas prices, grid constraints, and other factors.

South Australia has long had the highest electricity prices in the country, a point underlined by federal energy minister Josh Frydenberg last week, who also pointed out that the recent spikes in wholesale prices used to be a regular event even before the build out of large wind farms and rooftop solar.

History will show that South Australia is taking the right course, with most analysis suggesting the world’s energy systems are now in a dramatic shift away from centralised, dirty, fossil fuel generation, and to a new smart decentralised grid where much of the power comes from local wind and solar, backed up by storage and smart software.

Right now though, the state government is under pressure and keen to relieve the bill shock on consumers. Hence its focus on network costs, which account for 51 per cent of the average household bill in South Australia, according to the Australian Energy Market Commission.

These network costs have risen dramatically in recent years, but regulators are now trying to bring the spending on poles and wires under control. But to some extent it is handicapped by the system.

The spending decision by networks across Australia have turned into a game in recent years. Typically, the network makes an outrageous request which is knocked back by the AER. Then a revised proposal is made which usually results in a compromise position from the regulator.

It used be a joke that the networks would then take the regulator “out the back” and settle the score, but now they are turning to the courts, taking their  cue from the NSW government owned networks, which is seeking to lease its networks and is fighting any cuts in spending that could lower the value of the assets. The legal bill is huge.

SAPN asked to spend $4.75 billion from 2016-2020, but the AER in its preliminary ruling decided it should only be allowed to spend $3.2 billion, which could have cut household and small business electricity bills by 10 per cent.

SAPN returned with an offer of $4.55 billion, and AER came back with a final determination of $3.84 billion. But SAPN is not happy, and has taken the issue to court. Koutsantonis says if the appeal is successful it will add 15 per cent to average bills.

Grid costs have been ignored by the recent debate over renewables in South Australia, a fact we highlighted in our assessment of a Today Tonight report, which blamed wind and solar for soaring electricity prices, but which neglected to note that one of its “complainants” had decided not to connect to the grid because “there is a huge annual cost even before you flick on the light switch.”

Indeed, the AEMC assessment of South Australia consumer prices says that green energy costs comprise less than four per cent of consumer bills and are falling, and over the short term are having a dampening effect on wholesale prices.

The South Australia government has attacked the power of the energy oligopoly, which it blames for forcing up wholesale electricity prices and retail costs. The problem in South Australia is the lack of competition, a factor not helped by its reliance on just two interconnectors to Victoria. It wants a new one into NSW.

Its attack on the network operator means all three major components of the electricity bill are now under scrutiny – wholesale prices from generation, retail margins, and network costs.

The issue is further highlighted by revelations that the then state Liberal government, in the late 1990s, had abandoned plans to build an an interconnector to NSW in order to inflate the sales price of the state network operator when it was  privatised.

“The deliberate move to restrict competition in the energy market and limit interconnection to other states has resulted in volatile electricity prices for South Australian consumers,” Koutsantonis says,

“There is a reason why the Australian Energy Regulator determined that SAPN could not introduce these extraordinary increases in charges, and that is because there has been no compelling evidence put forward to justify them.

“I have instructed a representative from the Department of State Development to make the case on behalf of South Australian households and businesses that SAPN is able to meet its service delivery obligations with the revenue allowance that the AER has determined.”

He said the lack of competition can be directly attributed to the failure to build an extra interconnector to NSW. “It is one thing to privatise state-owned assets in order to create increased competition and efficiency, but it is another thing entirely to limit competition in order to inflate the sales price and create private-sector monopolies.

“By putting their profits from the sale of our power assets ahead of cost-of-living for South Australians, we now have a situation where limited interconnection is leading to higher electricity prices.

“We are seeing the results of that terrible decision today and now need to do what we can, with limited levers available to us, to stabilise energy prices in South Australia.”  

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  • ben

    Which is why ETSA should never have been privatised

    • john

      Ben unfortunately this has been the short term gain for a lot of governments throughout the country and long term pain as outlined here.
      As outlined very recently by the ACCC.
      http://www.abc.net.au/news/2016-07-26/accc-boss-says-privatisation-costing-consumers/7662194
      Mind you it is very easy to blame the outcomes on some other part of the system and get away with it because the average person is not going to go read lots of information which sets out exactly how it happens.

      • I believe that most of the “new spend” will be on extra distribution capacity. How about some of that $x.y billion go into “subsidised” behind the meter storage.
        Here’s what happens:
        Behind the meter solar charges the behind the meter storage and chops off the ducks head. Less peak distribution capacity needed.
        Subsidise it enough to swing lots of customers to storage and the State doesn’t have to foot all of the bill, as now private money is partly financing “grid averaging”.

        • john

          Storage will reduce the ducks tail.
          To be able to also reduce the ducks head will mean using rather a lot of storage and in most domestic situations this would not be cost effective.
          In the commercial situation one has to take each case on an individual basics some will shut down before midnight others go all night.
          It just needs to do the investigation into the power usage after PV stops working and how much it costs to put in storage to work out where the cost point is.
          As you know cost of storage is going the exact way as every new technology, it plummets in price as more of the tech is taken up.
          I expect that not in the far distant future but rather shortly that everyone who has the ability to put PV and storage inside their particular situation will do this.

          • Analitik

            Please provide costing for now if we are to deploy more solar PV/wind.

            If it’s not economic now, shouldn’t we wait until it is before destroying valuable infrastructure?

          • john

            It is economic now and no it does not destroy valuable infrastructure but lessens the need to build every more infrastructure or a larger kind.

    • Barri Mundee

      Correct, they have created a self-serving, greedy and uncaring monster.

  • MaxG

    It really annoys the heck of me having to say: I told you so. I have been campaigning against privatisation for the last 20 years. As usual; nobody is listening.

    • john

      Max when the head of the ACCC supports your position just possibly you were correct.

    • lin

      I think you will find most of the people agree with you, and it is just the politicians and their handlers who ignore the will of the people as a matter of course for the imbiggenment of their handlers bank balances and their own prospects after getting the boot from the people. We call this “corruption” when it happens overseas.

  • Clem Clarke

    In 2008 and again recently I printed and sent this and similar letters to most NSW politicians. I shall send it to the rest of the Australian politicians soon,
    ==================================

    Re: Money is made from thin are – why then are we selling our Assets?

    Sale of the Electricity System in New South Wales

    Dear …

    It’s TRUE. Quantitative Easing is creating money from nothing.

    What would it take for all of us and especially our Politicians (you!) to REALLY
    understand that money is made from thin air through methods like Quantitative Easing, and that the banks are flooding the world with money and pushing prices up and UP?

    All we need is a new National or Development Bank or even a State Bank that once again can fund our Infrastructure and similar as we use to have before the Commonwealth Bank was sold off.

    NOTE: Privatisation is selling our infrastructure to organisations and countries that
    use this “thin air” money to buy other’s assets. In other words, we are really giving away our assets! PPP’s are similar.

    Money (Paper or computer money) has no real value. It is created from thin air. Google for the movie “Money as Debt” to see how it is done.

    Since money is made from nothing, then selling the New South Wales Electricity system is the same as giving it away, isn’t it?

    We wouldn’t be silly enough to do that, would we? And pay others forever more for what is ours? And end up like Greece, Argentina and other countries.

    Iceland stopped those who attempted to loot their country and jailed many bankers. We need laws to protect Australians, and Politicians with the guts to enact and enforce them.

    It is my will that Privatisations cease and that Australian Assets (for example
    – Infrastructure, Houses, and Farms) remain in Australian hands and that we
    protect our food and water from profiteers.

    What would it take to get such a bank operational and save Australia? Will you help?

    Yours sincerely,

  • Chris Fraser

    Not very nice predatory behaviour, is it ? I understand from the lack of information offered by SAPN that increasing amounts of embedded solar and storage have not been modelled.

  • iampeter

    This is a fantastic article which states numerous facts about the situation in SA only to draw the exact wrong conclusion from each of them.

    For example: “He said the lack of competition can be directly attributed to the failure to build an extra inter connector to NSW.” Doesn’t that mean that solar/wind has failed? SA now requires more reliance on an interconnect than it did when there were more fossil fuel energy producers in the state.

    “most independent analysts and market regulators blame soaring gas prices, grid constraints, and other factors.” This is caused by wind/solar businesses muscling into the market not with a superior product but with regulations and subsidies on their side. Also doesn’t the reduction in the supply of gas producers as wind and solar take over leading to higher instead of lower energy prices also demonstrate that wind/solar have failed?

    “The deliberate move to restrict competition in the energy market and
    limit interconnection to other states has resulted in volatile
    electricity prices for South Australian consumers.” Doesn’t anyone know that the only restriction of competition has been the forceful elimination of fossil fuel businesses from the SA market?
    Also how are you both supporting the elimination of fossil fuel businesses and blaming them for been eliminated?

    “By putting their profits from the sale of our power assets ahead of cost-of-living for South Australians.” Why not just cut to the chase and nationalize everything already? It’s what a lot of the commenters here seem to want.

    In a world where we literally have citizens of Venezuela crossing the border to buy food, as no production is possible in their over-regulated country, people are calling for more policies that are already having SA citizens “walk across the border” to buy their energy which can no longer be produced reliably in their own over regulated state.

    What is the end game here? What exactly are you all counting on?

    • Cooma Doug

      Sorry pete. You need to read a bit on the function of the market. All you have said here lacks necessary fundamental understanding.
      The article is accurate in all assumptions. It does however require some understanding of how volatility emerges in the wholsale price zones.

    • Analitik

      Couldn’t have put it better myself. Bravo, iampeter .

      And aren’t interconnectors “wires and poles”? Isn’t adding loads of these, which aren’t used when the wind blows/sun shines, gold plating?

      • Alastair Leith

        you really have been asleep haven’t you. gold-plating is about ‘natural monopoly’ network corporations (either private or state owned) going to government with ‘evidence’ they need to upgrade all the network due to increased demand (even when it’s been falling since 2012) and peak load demand (which has grown in some places thanks to large number of new AC installs). Government or it’s agency then approves the fortification of network assets and the costs are passed on. This is the only way these network corporate entities can increase their ‘shareholder value’ and dividend (other than not spend money by running the network down which also happened after privatisation under Kennet Government and rolling brown outs ensued in many Melbourne suburbs where previously there had been none).

        building transmission interlinks has nothing particularly to do with networks and their gold plating strategies and any new proposed transmission must be evaluated on it’s merits through serious modelling by reputable academics like those at MEI or independent consultants not beholden to the fossils industry.

    • MikeH

      You haven’t heard about the **National** Energy Market? It began operations in 1998. 🙂

      There are interconnectors between all the states including those that have little wind. Victoria has three.

      What are you suggesting – we go back to pre Federation and have custom offices at state boundaries?

      Interstate trade in electricity has been part of the NEM from the beginning. That was the whole point. LOL.

      http://imgur.com/1lKVLHp

      And as Alastair notes, it gives SA the opportunity to export cheap wind to the other states.

      http://i.imgur.com/5jszuXi.png

    • MikeH

      Another chart that shows net imports into South Australia were much higher as a % in the period prior to wind. And look at all those imports into NSW which has few renewables

      http://i.imgur.com/1lKVLHp.png

      Facts – they are like kryptonite to fossil fuel trolls.

      • iampeter

        I’m not sure what “facts” you think are kryptonite and I’m not trying to troll anyone. A lot of the facts cited are often evasions of facts or simply misunderstandings of basic facts of reality leading to woefully incorrect conclusions. E.g. constantly touting the dropping costs of alternative energy while refusing to acknowledge their true costs via regulations and subsidy. Which if acknowledged would render any suggestion of dropping costs completely laughable. Or suggesting that fossil fuel companies receiving tax credits (in many cases more of them than even subsidy to wind/solar) because they are profitable companies is the equivalent of subsidies and so on. There’s a lack of understanding of fundamentals leading to some non-shake-able beliefs here.

        You guys keep putting all these graphs up and talk about “cheap wind export” even as the lights go out in our number 1 wind powered state which is now desperately clambering for reliable fossil fuels to help contain the spiraling costs. This is some pretty serious evasion.

        It’s like you wake up on a Monday morning and look outside the window to see it’s pouring. An environmentalist hack shows you a graph promising no rain on Mondays, so you go out into the pouring rain without an umbrella.

        So I ask you: who do you think you should trust, graphs, or your bleeding eyes?

  • Charlie

    This challenge by SA government could become a milestone in the nation’s energy supply history, counterbalancing AER’s failure in defending its position early this year on NSW utilities’ expenditure (which already resulted in a 10% increase in electricity price from July). The NSW network had just been gold-plated not long ago with a phenomenal price increase. Now with the upcoming privatisation of the utilities in NSW who can tell what will happen?

  • Cooma Doug

    I heard some leaders of our nation talking about the SA issue.
    I was taking them through a control room and answering questions.
    So very disappointing that they were convinced that the only solution is via large base load Nuclear and retention of existing gas and coal.
    I talked about renewable solutions and how it would be much cheaper for many reasons especially the reduction in network infrastructure.
    They spoke to me as if I am some dillusional greenie.

    • Analitik

      Please provide your solution to the intermittency issue with costings to show that you are not.

      • Alastair Leith

        it’s called variable generation, intermittency suggests a bad line, while solar and wind are pseduo-randomly variable in power output they’re also predictable with very high certainty over short durations. Certainly enough for the bidding and dispatch market operator to call on gas peakers, pumped hydro energy storage (if we had more of it would be good), solar thermal with storage (if this continent finally got a plant that would make us the last continent for the penny to drop — except Antarctica of course), grid scale chemical battery storage for ancillary services like frequency control (at prices cheaper than coal and gas can provide these services), DSM etc etc.

        I’ve put this video up a few times this week but it looks like you still haven’t watched it. Listen and learn…

        • Cooma Doug

          Great simple video and from my 40 years experiance in the industry it is true.

  • Cooma Doug

    Over the last 15 years there have been some amazing volatility in SA. The cause of some examples are amazing when you look close. There have been 13k prices caused by situations you would never think viable.
    I can not recall one attributed to
    failures of renewable energy but recall many being avoided because of it.

  • Geoff

    You guys remain firmly locked in denial. Until you can find a substitute for 24/7 On Demand electricity those that DO have 24/7 On Demand electricity will continue to play SA like a fiddle.

    • trackdaze

      Coming like a freight train.

    • Ken Fabian

      As long as they don’t have to transition to low emissions the existing major energy players won’t. Failing to engage with this transition and deferring the true and full costs of fossil fuel dependence onto our future as irreversible climate change ought not be treated as optional. The Transition isn’t simple or cost free but facing it will lead to solutions whereas permanently avoiding it won’t – using foreseeable difficulties as excuse to embrace permanent failure is a grave mistake. Deliberate and thoughtful policy is needed, that facilitates gas plant shifting to the role of backup to renewables as market penetration grows, even as the costs of gas plant sitting more and more idle give increasing incentives to investment in emerging storage options, time shifting of demand and energy efficiency.

      Much of this will happen ready or not just by having open energy markets that do not deliberately limit or exclude “insignificant” renewable energy – because emerging market forces, with solar and wind passing below significant price points, are going to keep making it ever more significant. It’s just going to happen with less disruption if it’s done with foresight and planning.