Smart meters, deregulation seen as cures for rising power bills

How to deal with rising power bills – and how to help increasingly disenchanted energy consumers deal with them? It’s a thorny issue for Australian governments and, thus, a major theme of the Gillard government’s final energy white paper, which was released in Melbourne on Thursday.

The long-awaited paper – titled “Australia’s Energy Transformation” and launched by federal energy minister Martin Ferguson – calls for an overhaul of electricity pricing and for innovations to allow customers to better manage their energy use, in an era when retail electricity prices have been rising faster than inflation (in fact, as Ferguson pointed out, there have been average retail price rises of about 40 per cent nationally over the past four years and well above 50 per cent in some states), despite falling wholesale prices and rapidly changing patterns of demand.

“The Australian Government recognises that rising energy prices are hurting households and businesses and that, while there are no quick fix solutions, carrying out the energy market reforms outlined in the Energy White Paper will help to ease price pressures over the longer-term,” Ferguson said today in his speech at the launch.

The minister was quick, however, to shift at least some of the responsibility for “Australia’s Energy Transformation” over to the states, saying that “governments at all levels” needed to embrace key reforms, including improving the efficiency of electricity networks, establishing effective competition and removing retail price caps, providing for greater demand-side participation and moving towards cost reflective pricing.

“If I could highlight one area of critical reform needed to improve competition and deliver innovative solutions to consumers it would be retail price deregulation,” he said.

Ferguson said that Victoria had led the way on this front, and the willingness of other state governments to take on such “hard reforms” would be essential. “It will take political courage where others have failed,” he said.

“Pricing structures are resulting in inefficient peak demand,” Ferguson said in his speech. “This means that additional capacity is required to be built that might only be used for one per cent of the year.”

The problem of excessive investment in “poles and wires” – also referred to as network gold plating – and the effect it has on retail power prices has been apparent to many in the industry for some time, but was recently afforded some political credence by the Prime Minister herself, when she declared that “the inefficiencies that exist in the current system” could no longer be ignored.

As Ferguson noted today, “current market arrangements are distributing the costs of this across the entire consumer base.” And the minister pointed to Productivity Commission estimates suggesting that consumers who didn’t use the additional capacity were effectively subsidising their neighbours (with their multiple TV sets and air conditioners) by as much as $330 per year.

“This is clearly an unfair cost,” Ferguson said, “particularly on those less able to afford it.”

Ferguson also gave Victoria and its previous Labor government a nod of for its roll-out of smart meters, praising it for seeing the potential benefits – while acknowledging that the chosen method of roll-out may have been somewhat counterproductive.

Smart meters and other smart technologies ranked high among some of the key recommended utility and consumer-based “innovations,” aimed at raising public awareness of energy usage patterns and costs, which included charging more for power at peak times.

Ferguson called on the power industry and governments to lift their “engagement with the community,” to help raise awareness of the benefits of monitoring and adjusting consumer energy use, using smart technology and implementing household energy efficiency measures.

Currently, aside from a couple of fairly light-weight demand-management programs in Victoria and NSW, practices like electricity load shifting and automated demand management have yet to really catch on in Australia.

But if the findings of a this recent study are anything to go by, these technologies and practices will soon be the norm; so much so that by 2022 power companies will be managing 1.2GW of load across two million households – the equivalent to around four new gas-fired peaking power generators.

In the meantime, those who aren’t paying attention to time-of-use, or who just happen to use lots of power at peak times, can probably expect even higher power bills. Just one of the many “hard decisions” Ferguson said today were part of a broader move to “overcome populism” for what was in the long-term interests of consumers.