Networks to spend another $50bn on Australia’s dumb and dumber grid

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Energy market analysts and consumer advocates slam plans to let Australia’s ‘dinosaur’ electricity networks spend another $50bn on poles and wires in the next five years, saying it will result in a bigger, dumber grid that is less prepared than ever for the low-carbon revolution.

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Australian electricity consumers face no relief from their soaring electricity bills, with energy regulators allowing the country’s electricity networks to spend another $50 billion on poles and wires in the next five years.

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The decisions – some of them final and some of them draft determinations – will take the total spending on Australia’s networks from 2000 to 2020 to more than $130 billion.

This cost has and will be passed on to consumers – reducing what was once Australia’s competitive advantage of cheap power – although some big businesses will be able to duck the network costs because of favourable deals with utilities.

And what do Australian consumers have to show for it? Analysts and consumer advocates say nothing more than a bigger and dumber grid that appears less prepared than ever for the new technologies that are sweeping the world – rooftop solar, battery storage, electric vehicles and smart technology.

Over the past few months, the Australian Energy Regulator has approved spending totalling $16.4 billion by NSW networks, $12.89 billion by Queensland networks, and $3.8 billion by South Australian networks.

A draft decision allows $10.3 billion to be spent in Victoria, and this will likely be revised upwards, as they always are. Separately, the WA regulator has allowed $6.7 billion to be spent by Western Power from 2012-2017.

All this totals more than $50 billion, and takes total spending to more than $130 billion over a 15-year period, since the Howard government ushered in a new regulatory regime that came into effect in 2006, with the establishment of a national rule maker, the Australian Energy Market Commission (AEMC), a regulator, the AER, and an operator, the Australian Energy Market Operator (AEMO).

The objective was supposedly to “reduce costs through competition and streamlined administration.” But the impact on consumers has been the opposite. Investment has soared due to over-inflated demand forecasts, and bills for consumers have more than doubled.

Their appears to be no change to this trend, and consumer advocates, energy analysts, and many in the industry are aghast at the developments.

They fear that it will accelerate the move to the so-called death spiral, where consumers – distrustful of their utilities, or presented with a more economic alternative to massive network costs with solar and storage – will simply quit the grid.

This will leave remaining consumers struggling to meet the revenue targets of the networks, who are already slicing and dicing tariffs to recover revenue as more households add solar and reduce their total demand from the grid.

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Already, major moves have been made to increase fixed tariffs, hit solar households with special fees, or impose “demand tariffs” that could halve the rate of solar installations. Proposals that could have encouraged networks to cut spending and use mechanisms to encourage reduced demand have been postponed for another five years.

Networks have also threatened to impose fines or fees on households that do make the decision to quit the grid. In the meantime, they are pushing to be allowed higher depreciation expenses – effectively allowing their investment to be paid off more quickly – and passing those costs on to consumers.

Consumer advocates note that the electricity networks are rolling out the equivalent of the National Broadband Network every five years, but unlike the NBN it is not making our energy connections any quicker, or any smarter.

Indeed, despite all the talk – from the regulators and the networks themselves – about the “energy revolution” that is supposedly upon us, new technologies are barely mentioned in the spending plans.

The Public Interest Advocacy Centre (PIAC) noted that for the three NSW distributors, climate change was not mentioned once, neither were emissions, nor falling demand. Distributed generation (rooftop solar), battery storage, and electric vehicles got one brief mention each, and EVs only in the cost for assuming higher demand (and higher network costs).

“The lack of reference to the changing context for energy utilities in the proposals is quite startling,” PIAC noted at the time.

The result is pure folly. Despite all the supposed national regulatory reforms imposed over the past decade, it appears to have had no impact.

The cuts imposed by the AER have been cosmetic at best, and largely rest around a lower cost of interest rates. South Australia’s network operator managed to get a 20 per cent lift in its spending allowance after challenging the draft decision.

Where the AER has sought to impose significant cuts, the networks – particularly the government-owned ones in NSW – have embarked on a costly, taxpayer-funded court challenge to overturn the decision.

The NSW government wants the networks to be able to spend as much as they can, so they can then get a profitable return from consumers.

By lifting consumer bills, the NSW government can then pocket more revenue, and lease the networks for a higher fee.

Only the Queensland government has said enough is enough, and told its state-owned networks not to appeal the ruling.

Still, Hugh Grant, the executive director of ResponseAbility, who represented consumers in talks with the AER, says the Queensland determinations are well above efficient levels, in terms of capital spending, operating costs and returns on capital.

Grant says the decisions will result in the Queensland distributors’ prices being retained at excessive levels.

“This is likely to accelerate the emerging network ‘death spiral’ as it will result in the economics of self generation and storage being more  attractive to consumers,” he said.

Oliver Derum, from PIAC, which is a party to the court case between AER and the NSW networks, but is trying to get the spending allowance reduced, says the model of economic regulation appears to have failed.

“The networks are a monopoly, and have to be regulated. But we need an effective regulatory framework that is capable of delivering what everyone knows it needs to achieve.

“What I cry out for is for some laws that do what they are meant to do. The networks do not appear to me see the writing on the wall,” Derum said.

“They can move with this revolution, or go the way with magazine publishers. They are acting like dinosaurs.”

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27 Comments
  1. john 4 years ago

    I have not read the article only the take out. $50 billion on the network.
    Ok
    This will result in further network costs on the consumers bill.
    I do not think it is justified because the demand power has not exceeded the previous build.
    I fully expect that the bills will change very shortly to a demand charge due to use which will be on a per KW demand on a sliding scale.
    This after all is the reason for the build in the first place.

  2. lin 4 years ago

    And again Australian consumer/customer/citizens will have to “drop ’em and touch their toes”. Classic corporatocracy.

  3. Pedro 4 years ago

    The PV hybrid industry must be rubbing their hands together with glee.

  4. Andrew 4 years ago

    So are you suggesting there should be no spend on our networks ? Are you serious ?

    • Sqawkin 4 years ago

      Not what the article says.
      Spending should be more on grid efficiency and adaptability to new power generation coming on line all around the grid. Localised smart grids and storage can enable power to be generated, used, battery stored for peak time use and when generation is low, thereby stopping the loss of electricity in transport from centralised generation.
      Amazing things could be achieved but the power companies only want to follow their old recipe for making money.

    • john 4 years ago

      No Andrew there is no need to spend the situation is that if a State can make a case to spend they will be rewarded with 10% return on the capital.
      Yes a total rip-off but that is how it is.

  5. Jacob 4 years ago

    The ACCC or telecom regulator has recently forced the telcos to cut prices that hurt the poor.

    Why not the regulator of the grid?

    • john 4 years ago

      ATMA you mean

    • john 4 years ago

      It is not Telecom.

      try http://www.aemo.com.au/

      That may be of some help

      • Jacob 4 years ago

        So the authorities changed the rules recently to stop telcos from ripping off voters.

        And Turnbull or the financial regulator changed the rules recently to stop credit card companies from ripping off voters.

        But the governments and regulators will not stop the grid from ripping off voters.

        And you are obviously happy with that situation.

  6. Alen T 4 years ago

    What is the solution, when will the breaking point come?

    1. There’s been a Senate inquiry into past network overspend.

    2. Politicians are actively talking about battery storage (both grid-connected and off-grid, i .e. leaving grid)

    3. Individual customers and whole communities are announcing and making plans to leave and become independent

    4…etc. list goes on, and the writing on the wall is so abundantly clear.

    What will it take to finally see change? What is the solution?

    • john 4 years ago

      Those who have the money will leave the network those who do not will be not able to.
      Is this equitable?
      Actually a market will emerge to help those who are financially challenged.
      If power can be delivered at under 12C a KwH and the charge is over 20c a KwH then it is obvious that a market opportunity exists.

    • Ken Fabian 4 years ago

      Perhaps the breaking point is actually conceding that a transition to low emissions energy is an unavoidable and absolute necessity – ie that energy policy has to defer to our science based understanding of future consequences and costs of climate change.

      Climate concerns are still being treated as inconsequential right the way through to the top of relevant government and policy – and even treated as the kind of lefty green beat up and anti-progressive ideology the opponents and obstructors have sought to frame it as as for expediency – rather than the carefully considered conclusions of our most capable scientific institutions.

    • Sean 4 years ago

      the solution is simple. Stop being in the energy supply business and start being in the energy transport business.

      Stop relying on the fact that for the last 100 years there has been no economic alternative to electricity and start aggressively pursuing more customers.

      Networks have HUGE capacity that isn’t being used. Even 10 years ago only fractions of the network were ever used. That is HUGE dollars that they have spent, getting no return.

      Encourage 100% use of the network by pricing power to the consumer based on the congestion of the network.

      This is worked out simply by adding a multiplier to the wholesale price of power at each congestion point (every transformer) in the network.

      At 0% use, the customer price would be equal to the wholesale power cost.

      as the network becomes increasingly loaded, the price scales exponentially, encouraging a reduction in demand, reducing brownouts.

      Throw in buying solar at the current retail market rate for supplying power where it is needed, when it is needed, and the death spiral halts.

  7. Malcolm M 4 years ago

    Is there any requirement that the power companies call external tenders for these upgrade jobs ? Their internal maintenance divisions could charge the asset holding company inflated costs for the upgrades. The asset holding company makes its regulated return on investment, while the maintenance division makes a nice high unregulated profit.

    • john 4 years ago

      I am not sure about the maintenance department.
      but capital spend has a guaranteed return.

  8. MaxG 4 years ago

    Like I said: we can debate this until the cows come home; this will be a ‘no win’ for the people, when the government is in bed with the corporations. This was one major reason for us to leave it all behind, and remove ourselves — going off-grid.

  9. Alastair Leith 4 years ago

    Loving all those black, or very dark grey tiled roofs. Just the opposite of what a reflective white roof ideal for minimising summer heat gain would get you. And no penalty in the planning schemes. The Winter thermal gain is the silver lining I suppose.

  10. phred01 4 years ago

    The networks are aware that their assets are going to be stranded in the future. Like the big US banks pre GFC knew they were too big to fail. So here the strategy is govn’ts will come to their aid buying stranded assets back @ inflated prices. So in the meantime customers will be charged exorbitant fees until the day of reckoning comes.

    • Miles Harding 4 years ago

      Oy!!
      Those are our dollars being squandered by these idiots.

  11. suthnsun 4 years ago

    If I wanted to spend 50 billion I would be investigating a 30gW HVDC cable across from NEM to Kalgoorlie or thereabouts. Instal a massive hybrid PV/wind farm there and connect to Perth.Then mid morning rooftop PV in the east could supply early morning demand in Perth, mid afternoon generation from Kalgoorlie could supply the NEM evening peak. Minimal storage required, low maintenance, low energy cost, long term infrastructure, coal withers..

    • Miles Harding 4 years ago

      To be worth doing, the interconnector would be big, really expensive and the transmission losses huge (50% would not surprise me), making local storage and demand mitigation a far cheaper and more robust solution.

      The service it mainy provides would be a 3 hour time lag to cover a good part of the ES evening peak, but this is easily covered by smallish batteries coupled to solar power systems.

      • suthnsun 4 years ago

        Losses around 3% per 1000km, depending on voltage, so less than 7% to some NEM point from Kalgoorlie. Demand mitigation and response, if established, would achieve more at lower cost I agree, we don’t seem to be getting organized for that yet but we should be..
        The build cost and longevity of the link would need to be examined to see whether it stacks up against other (3hr) storage options, I suspect it may.(I did a ‘napkin’ assessment a few years ago) I may be just trying to pander to the ‘silver bullet’ mentality. If we are spending multi billions on infrastructure I would like to know it is durably effective and distinctly for the good..

        • Jonathan Prendergast 4 years ago

          I have had the same thoughts sunthnsun. Put enough renewables spread over a big enough area in Australia, and you have abundant reliable renewable energy across the day and across the year. Make it feasible by using HVDC. But as you and Mike say, local storage is probably more feasible and scalable (as in – ability to start small).

        • Miles Harding 4 years ago

          I was surprised to see how efficient a big DC line could be. It also avoids synchronisation issues, but I still think that the cost will be prohibitive.
          A 2010 study here: http://www.aemo.com.au/~/media/Files/Other/…/0179-0176%20pdf.pdf
          Examined a 2GVA, 1150km interconnector out of South Australia:
          500KVAC $484M Substations, $3,220M T/Line
          500KVDC $1,113M Substations $1,823M T/Line
          A bit of extrapolation probably makes a national DC interconnector more like $12b to $15b, allowing for 1MVDC and and nearer to 4000km to get between Perth and Sydney. Perhaps it only needs to go as far as Adelaide?

          Still, it puts a $50b, likely very wasteful proposed spend by the utilities into some perspective.

          Another perspective is that $50b could buy about 350GWh of battery by 2020, or (really???!) 15KWh per living person in the country.

          With this scale of waste sensibly directed, the country could be a very long way along the path to sustainablility.

  12. JoYohana 4 years ago

    Why, why, why????? Sharing the way to go Look at the economics!!!! Increases national productivity

  13. Miles Harding 4 years ago

    We refer to this as “Future Proofing” – the future has no place in these networks!

    It is clear that without a credible transition plan for a move to a sustainable footing in the next couple of decades, the networks should be able to really improve on their mistakes of the previous decade.

    http://cdn.shopify.com/s/files/1/0535/6917/products/governmentdemotivator.jpeg

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