Is it time for Queensland to ditch reliance on gold-plated grid?

A new report from the Queensland government’s pricing regulator has underlined the massive subsidy paid to deliver coal fired electricity to regional Queensland. And it begs the question: would’t everyone be better off if the government owned network operators embraced renewable-based mini grids?

The answer would surely be yes. In fact, the state-owned network operator that delivers electricity to regional Queensland thinks it is inevitable, as solar and battery storage becomes a “game changer” in the industry. But there is a massive question over the political will to effect such a transition, and in what form.

A discussion paper released by the Queensland Competition Authority this week puts the subsidy to deliver electricity to consumers in remote and regional areas of the state at $655 million in the past year.

That is how much it costs to ensure that homes and small businesses pay no more than in south-east Queensland, under the state’s Community Service Obligation. That works out at an average of $900 for each one of Ergon Energy’s 724,000 customers, or $436 a year for every man, woman and child.

According to the QCA, if a customer in western Queensland paid the true cost of delivery, their bills would be more than double – 140 per cent higher – than in South-east Queensland. That would put their bill at more than $4,000 a year rather than less than $2,000 a year. If they had to pay the true cost, it would be a no brainer to go solar and storage, or to create regional or community-focused mini grids.

Queensland, of course, is not the only state to deliver a massive subsidy to consumers. In WA, the state pays $620 million a year to keep the cost of centralised fossil fuel generation – and its deliver to consumers – way below its true cost.

The long term answer to this problem is obvious. Even the state-owned regional network provider, Ergon Energy, recognised this last year when it said that by 2020 would probably be cheaper for homes to use solar and/or other renewables and battery storage rather than remain connected to the grid.

The South Australia network operator recognised also that it would make sense for regional towns and communities to creat renewable-based mini grids to essentially provide their own clean energy.

But the governments that own the networks are showing no signs of rushing to embrace any change, probably because they are focused on short term returns, and their ability to sell or lease the networks to private operators.

The QCA says in its discussion paper that it is not about to change the subsidy in the coming year: the problem is that the government doesn’t want to deal with the political battle of rising prices. And if it encouraged more renewables based mini grids, that would reduce demand for the government owned coal-fired generators.

There is such an oversupply of coal fired generation in the state that prices have fallen below zero during the day time, and this week have averaged around $16/MWh. But as long as the subsidy remains in place, the incentive to install solar and storage in those areas is reduced, a situation made worse by the existence of more than 1.2GW of solar PV on the state’s residential and commercial rooftops.

In WA, as we wrote last month, a report commissioned by the government even went so far as to suggest the state import thermal coal from Indonesia. Its report on future fuel options did not even mention solar, or wind energy.

The QCA document notes that the CSO “potentially leads to inefficient investment and decision‐making an ongoing subsidisation of electricity prices by taxpayers.”

So, is Queensland going to extract itself out of this mess? Not very quickly, judging by the QCA discussion paper, and certainly not while the state government is intent of gaining a good price for its coal generators and sprawling networks of poles and wires.

The subsidy for the cost of delivery to regional consumers is not the only distortion in the tariffs through the state.

The QCA documents remind us of something called “retail headroom”. This equates to 5 per cent of the average bill, and it is collected from all consumers so that retailers can use that extra profit to deliver discounts to others – and so continue a subsidized merry-go-round of consumers changing service providers in search of a discount.

In the meantime, the pricing regulator continues to support the gradual increase in fixed tariffs, as opposed to variable consumption, as the state tries to counter-act the impact of more solar use, and more energy efficient appliances.

In some tariffs, this has reached extreme levels, as we noted in the Ergon tariff structure which charges – in some cases – more than $500 a day in fixed costs, and very low consumption charges.

As the QCA notes, higher fixed charges have a negative effect on customers with low consumption (i.e. it would increase their bill), but a positive effect on customers with high consumption (i.e. it would lower their bill).

The Queensland government is prone to demonise solar for claimed “cross subsidies”, but as the QCA observation makes clear, hitting consumers with higher fixed charges reduces the incentive to be efficient, or to connect solar. It is simply designed to reinforce an ageing business model that cannot survive.

Meanwhile, the tariff structure continues to reward confusion. The QCA’s tariffs are an incomprehensible maze. But retailers, whose main role is to package and send bills to customers, charge the average households $183 a year for the costs of administration, call centres, corporate overheads, billing and revenue collection, IT systems, and regulatory compliance. And then they charge a further $81 for their profit. And then there is th extra charge for “surplus profits” or headroom to try and steal customers from each other.