Making the energy transition more equitable and inclusive

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The transition to a clean, affordable and equitable supply of energy is finely on the agenda in Australia, compounded by soaring electricity prices and the mostly favourable response to the Finkel review.

The Australian Council of Social Service (ACOSS), a peak body aimed at reducing poverty and inequality in Australia, has long highlighted the importance of tackling climate change, as we know that the impacts of inaction hit people on low incomes and people who are vulnerable first and worst.

ACOSS is also alarmed by escalating energy prices for people on the lowest incomes who cannot cope. Lack of action to address this intense financial stress is inexcusable with energy being an essential service.

Our joint consultative report with the Brotherhood of St Laurence and The Climate Institute released earlier this week reviews disadvantaged household’s access to affordable clean energy and the impact of the transition to clean energy on low income earners.

The report highlights evidence that people on low incomes are the first affected in an energy crisis such as is currently occurring with increasing electricity prices.

A recent RenewEconomy article criticised one aspect of the report suggesting it was attacking solar and solar owners. Rather our report raised concerns with poor policy designs and the consequences for low-income and disadvantage households.

Based on months of consultation with over 120 community, environment and consumer energy experts, the report highlights the urgency of decarbonising our economy, including our electricity sector, in line with the Paris Agreement. Renewable energy, both small and large scale, will be essential in this transition.

Significantly, the report emphasises the transition needs to be affordable, equitable and inclusive. This is critical if we want a smooth, fair and expeditious transition to a modern clean energy system.

As RenewEconomy readers know too well Australia’s energy system is in disarray, emissions are rising, reliability is at risk and electricity prices are skyrocketing. Low-income and disadvantaged households are bearing the brunt.

Those with the least suffer the most from unnecessary rises in energy costs. Some families are forced to go without basic needs like heating, cooling and food, or don’t send their kids on school excursions, just to pay the bills.

The report notes that big drivers of high energy prices are increases in wholesale, retail and network costs, with reforms needed in all three areas.

Wholesale energy prices have risen steeply due to a combination of factors including: high gas fuel costs; a tightening supply market resulting from loss of new investment due to policy uncertainty, the unexpected and rapid closure of coal generators; and the electricity system’s struggle to cope with rapid changes in generation type and availability.

All of these factors are estimated to be costing households hundreds of dollars a year.

An underlying contributor to rising wholesale energy prices is the lack of a reliable policy framework. To this end the first and primary recommendation of the report was an electricity sector mechanism that would enable a transition to meet the Paris target.

Mechanisms to support the transition to clean energy also contribute to the electricity price. Australia’s national RET, which incentivises growth in small scale (SRES) and large scale renewable energy (LRET), state-based feed-in tariffs (FiTs) and energy efficiency schemes represent around 8 per cent of the average electricity bill.

]This figure varies depending on the State.

The report recognises these schemes have provided broad benefits such as emissions reductions and downward pressure on wholesale prices, while avoiding new peak generation and job creation.

However, allocating costs of these schemes through electricity bills can be regressive. The report recommends that other more progressive measures be considered, like ‘on budget’ as the Queensland Government has just done with their FiT.

The report further notes that because the cost of schemes are currently recovered on electricity bills through charges applied to each unit of energy consumed, households with solar (who already benefit from FiT and SRES), typically contribute less. This is because solar households typically have lower energy bills due to less grid consumption.

Historically many households were on high FiTs with bills close to zero dollars. The NSW’s scheme has ended and the Qld government just shifted their FiT scheme to the Government budget. Three premium schemes still exist in Victoria, ACT and South Australia (although not open to new customers), which are levied through bills.

The RET (SRES and LRET) is national and applies to all households. Network charges are for the most part also applied to each unit of energy consumed.

The report identifies that the predominant issue is not about solar owners or solar, it is about policy design and how we move to more equitable allocation of costs. The environment and community sector are actively working together to identify solutions.

We need to make sure that people who are most affected by energy prices are front and centre in both energy and climate policy. The Report sets out a policy framework for ensuring that this is the case, including how to ensure that people on low incomes are high priority in action to improve energy efficiency and access to clean and affordable energy.

Right now, people with resources are much better placed to make the most of renewable energy offerings on the market.

We cannot allow the use of renewables to be concentrated amongst people who are already better able to cope with energy prices and to reduce their energy consumption.

The CSIRO and Energy Networks Australia (ENA) research predicts up to 66 per cent of households will generate some energy by 2050.

The shift is modelled to provide greater efficiency in the system, reduce the need for significant investment in traditional poles and wires ($16 billion by 2050), improve reliability and security, pay customers for grid support, and save the average household $414 annually compared with a future based on business as usual. This is good, everyone benefits.

However, the report notes that active participants (those with solar and batteries) are better off than passive (those without solar and battery).

How do we ensure the new energy system doesn’t exacerbate inequality?

The report highlighted three recommendations to promote rooftop solar and distributed energy in low income and vulnerable households. These recommendations sought to expand the pool of people with access to solar.

However, further policy consideration needs to be given to how to allocate costs and costs of energy generation more equitably, and how to further narrow the gap between active and passive households to ensure that the cost allocation of the transition is truly equitable, and indeed improves the living standards of people who are worse off.

In the meantime more needs to be done now to relieve the pressure on those doing it tough now. Rising electricity prices are a slap in the face for households already struggling with increasing costs of living, slow wage growth and unemployment.

Retaining the energy supplement; improving social security payments, in particular Newstart; improving energy concessions; providing greater support for energy efficiency like minimum energy efficiency standards for rental properties; and support for rooftop solar is necessary.

Dr Cassandra Goldie, CEO, Australian Council of Social Service. Reproduced with permission.  

  • Tom

    Thank you for your calm and considered clarification.

  • john

    I note that the reason for the rise in price of electricity to consumers is because of.

    Wholesale energy prices have risen steeply due to a combination of factors including: high gas fuel costs; a tightening supply market resulting from loss of new investment due to policy uncertainty, the unexpected and rapid closure of coal generators; and the electricity system’s struggle to cope with rapid changes in generation type and availability.

    Sorry I for one do not agree.

    The overwhelming reason for the rise in cost of electricity is due the stupid guaranteed 10% return on investment in transmission plus the as not pointed out in the above copy and past the gaming of the bidding of the wholesale price of electricity by the incumbent players in the market

    When a power generator can bid up the price to $14000 a MWH which lets be honest is gouging the market one has to ask why???

  • Rod

    Sorry, Giles was spot on.
    This article doesn’t even acknowledge the downward pressure on wholesale prices rooftop solar provides.
    The energy supplement; improving social security payments, energy concessions, etc. are all subsidies paid for by all tax payers. Also most States have energy efficiency schemes with extra benefits for “people without resources”.
    “Minimum energy efficiency standards
    for rental properties”
    So Landlords pick up the tab and get caned if they increase the rent to cover this.
    “Support for rooftop solar is necessary.”
    Not even sure what that means. Free PV for the underprivileged?
    “People with resources”! A 5kWp system can be installed for under 4K

    About the same that someone might spend on cigarettes, alcohol, drugs etc. in a year.

    If you really want to help, push for the removal of supply charges as they hit low energy users the most.
    Work with Landlords and housing associations to find a way for both landlords and tenants to use PV. or something similar.

    • solarguy

      Rod, I agree with the above, but mate a 5KWp system can’t be installed for under $4k, don’t believe the Euro solar ads.

      • Rod

        No, I wouldn’t believe the Euro type ads. My Brother in law worked for a similar mob. Bad for workers, crap equipment then moved the cash to China and went bust.

        Maybe changed since the drop in certificate price but there were a couple of smaller firms here in Adelaide offering 5kWp (PV and inverter) for under 4k with half decent panels as far as I can tell.

        One, Carbo Solar, had Jinko panels and don’t quote me SMA inverter for $3700.

        I’ve met the guy and seems straight up and hates the fly by nighters as much as the next man.

        • solarguy

          $3.7k would only just buy the gear wholesale after STC’s are deducted! Be very suss Rod, I would ask to talk to one of his customers.

          • Rod

            It’s ok, I’m not in the market for more pv just yet.
            Looking at his web site he does have some 2nd tier panels too so maybe that is how he gets to $3,700

    • darkdirk

      “4K … About the same that someone might spend on cigarettes, alcohol, drugs etc. in a year.” The number of very low income people spending $80 a week on drugs, cigarettes, and alcohol is likely to be relatively small. Sure there’ll be some; but most sacrifice little luxuries to put food on the table and pay rent and bills. (I speak from my experience working with people in severe poverty.) But even if we take your comment at face value, coming up with the money all at once to buy an asset is much more difficult for people with few savings and poor credit rating. People in poverty often spend much more than other people on the same things because they cannot come up with a large amount of money up front. For example, they’ll spend far more purchasing and running and inefficient heater or fridge than they would if they bought a more expensive more efficient one because they cant get a loan or get enough money together all at once to buy the more expensive better quality product.
      I know it’s hard for middle class people to understand, but to a person in poverty $4,000 is an unattainable resource,
      Also of course tenants can’t install solar even if they could afford it