Networks pricing everyone out of grid: It’s time for competition

Ergon Energy, the massive Queensland electricity distributor and retailer released a document in June explaining how they intended to change the way they charge for the use of their network.

This is a rather startling document in many ways not least a level of double-speak that would have made Orwell turn in his grave. But lets leave that for later. For now lets have a look at some of the remarkable numbers in it.

Ergon reckon that it costs $189 per year to provide a household with 1 kilowatt of network capacity per year. This annual cost can be covered into a capital cost, in the usual way, by discounting it at the cost of capital, in perpetuity.

This gives a capital cost of around $3,400 per kilowatt. If you had the misfortune to live on the western side of the Great Dividing Range, the same calculation based on the western regional annual costs, translates into a capital cost of $7,900 per kilowatt.

AGL Energy will install a battery in a Queensland house for $2,200 per kilowatt. Tesla is currently expected to offer batteries at about $1000 per kilowatt, but who knows what it will be when it actually gets here: these things have a way of surprising on the downside.

So, as things stand today in Queensland, it would be more economical for a household to install a battery than pay Ergon to use its network. Sure you would need to install a few batteries and have a fair bit of rooftop solar, but that’s just an issue of scale, not economics: its still cheaper in the east of Queensland and much cheaper in the West to do it yourself.

If I was an upstream generator or incumbent retailer I would be rather horrified: the distributor is eating my lunch! Networks are pricing themselves and all those upstream of them, out of the market. Not good for those that depend on the network to get their produce to market and not good for those consumers who can’t up sticks and leave. Networks are wonderfully useful, they have taken decades to build. They should be treasured and nurtured.

Queensland now has reinvigorated institutions with an energetic and knowledgeable new Director General of Energy, an ambitious Minister with a million solar roof mission, and a new Productivity Commission whose first task is to get a grip on electricity.

If I was in any of their shoes, I would be having a good hard look at these numbers and I would be asking myself: why is it so expensive? And, how about if we asked someone else to give us a quote on what it would cost to provide network services using our assets, as they do in Germany with electricity or in Victoria with public transport.

Bruce Mountain is principal with economics consultancy CME.