The next election is shaping up to become a competition between politicians about which type of big power stations – nuclear or renewables – will help lower or drive-up power bills.
The fact that paying for big power stations makes up only a third of the power bill will probably be completely missed by both sides of politics. If politicians really want to help households lower their energy bills, there’s better places to go looking than the next big power station.
One of the places they seem to always glance past are the energy network monopolies. I suppose politicians can’t quite fathom how they might be able to turn this into a vote winner. But if you genuinely want to help lower energy bills you can’t afford to look past them.
As I explained in a prior article, the monopoly businesses operating our electricity networks have over 2014 to 2022 managed to manipulate the regulations and the regulator to generate profits 70% greater than the regulator had originally thought they’d capture.
This came on the back of a huge blow-out in expenditure and incredible shareholder returns for many of these networks over the 2008 to 2013 period.
Critically, electricity networks have not delivered these increased profits through better efficiency, with total factor productivity of networks today being worse now than it was back in 2006 when the Australian Energy Regulator began measuring productivity.
In terms of gas networks the story is worse, with the Regulator signing off on prices that gave these businesses profits 90% greater than the Regulated had anticipated.
What’s absolutely staggering is the energy network monopolies are mounting a lobbying campaign to extend their monopoly reach beyond poles and wires and into distributed batteries, electric vehicle charging and the management of household electrical devices.
Yet these technologies can be provided to consumers at lower cost via competitive markets and simply don’t need to be delivered or controlled by network monopolies.
The reality is that we can’t rely on the Australian Energy Regulator to keep these monopolies in check. Instead our best hope to address networks’ excessive charges is likely to be competition.
By shifting away from gas appliances to electric alternatives we can minimise our reliance on gas pipelines.
That, of course, still leaves us reliant on electricity networks. In this case though there is also the potential for competition through use of a combination of solar, batteries and energy efficient appliances and homes.
Also, if electric vehicles are charged during the daytime and outside evening demand peaks they can vastly improve utilisation efficiency of network capacity.
Even better, the technology is available for these vehicles to discharge power during peak demand periods to compete against networks augmenting capacity and large peaking power plants.
Energy networks’ lobbying campaign seeks to suggest they just want to help us make effective use of these technologies to address climate change. Yet effective use of these technologies entails less demand for network capacity.
Why would they want to undermine their own revenue base? And why should we turn to a monopoly to roll out technologies which could be procured competitively from businesses that are vastly more experienced in providing these technologies to consumers than the networks?
Where this is most insidious is the concept of so called “community batteries.” Networks are keen to market “community batteries” – which in reality are network monopoly-owned batteries – as a more efficient and fairer option than households adopting their own battery. This is based on the claim that by building bigger batteries, networks will be able to capture economies of scale to deliver batteries more cheaply.
But as I’ve explained previously, and now corroborated in data gathered by the ARENA, it’s just not true. Network-provided batteries are significantly more expensive than household batteries.
Yet this is not their only area of poor performance in supporting the use of distributed energy solutions.
Networks have in fact been obligated to examine demand-side alternatives to augmenting their network assets for around two decades. In addition, the Demand Management Incentive Scheme was introduced in 2017 to provide an extra incentive to encourage them to utilise demand side options.
Yet networks’ efforts in this space have been utterly hopeless. Across the entire NEM, the best networks have managed to deliver under the incentive scheme is less than 22 megawatts of peak demand reductions in a single year.
It’s also worth noting that networks already have a large fleet of water heaters under their control via controlled load circuits. In Queensland they also have the capability to control a substantial fleet of air conditioners. Yet they have moved at a complete snail’s pace to exploit this capability to make better use of cheap daytime power, nor reduce evening peak demand.
Distribution networks have also done a poor job of properly managing voltage on their networks with an Energy Security Board study concluding:
“The key finding of the paper is that, even in the absence of solar PV, there is a significant level of high voltage across all DNSPs in all NEM states …. The nominal voltage standard in the NEM is 230V – more than 95% of readings were found to be higher than this.”
Yet rather than take responsibility, they’ve instead sought to blame this on solar.
If you want to lower household energy bills, distribution networks are part of the problem, not the solution.
A critical step towards opening networks to greater competition is to take away the networks’ monopoly control over the Demand Management Incentive Scheme. Instead, management of this scheme should be shifted to new independent authorities which are tasked with bringing down consumers’ energy bills.
These organisations should be governed by boards involving community and energy consumer representatives as well as experts in energy management.
These authorities would work with governments to establish markets aimed at funding demand reduction and demand-shifting technologies where they provide a cost-effective alternative to network expenditure.
If we want to lower consumers’ energy bills we need more competition, not less.
Tristan Edis is director of analysis and advisory at Green Energy Markets. Green Energy Markets provides analysis and advice to assist clients make better informed investment, trading and policy decisions in energy and carbon abatement markets.
