Why energy utilities are desperate to slug households with higher fixed charges | RenewEconomy

Why energy utilities are desperate to slug households with higher fixed charges

Energy utilities have admitted that they built too much infrastructure based on wrong demand forecasts. But they don’t want to pick up the bill, they want consumers to pay. And their biggest target is solar households.


The West Australian electricity utility Synergy caused a storm of controversy earlier this month week when its chairman, Lyndon Rowe, suggested hitting solar households with higher charges, a sort of “solar tax.”

Synergy, of course, is not the only one. Networks in South Australia and in NSW have considered charging higher network fees for solar households, and a similar proposal is being mooted for Queensland.

Indeed, unavoidable network fees are rising across the country for everyone. Most networks are seeking to boost fixed charges in response to the fact that consumers are using the grid less – due to a mixture of rooftop solar, energy efficiency, and bill shock.

Mark Byrne, from the Total Environment Centre, had a terrific explanation of what NSW distributor Ausgrid is up to in this piece we ran a few weeks ago.

But here’s another story of why the networks are so keen on hitting consumers with higher bills, taken from the presentations of Rowe and Matt Zema, the head of the Australian Energy Market Operator which has now taken over the running of the WA grid.

It’s a story of how networks spent way too much money expanding their grid, and why they wand the retailers like Synergy who have to try and pass on those costs want consumers to pay for their mistakes, and not the owners of the networks ….

So ….. in the beginning, there were great expectations. The incumbent energy industry made very optimistic forecasts about the use of energy. In 2010, they expected big growth in demand (green line in graph below), but slowly wound down those forecasts. In the end, there was barely any growth at all.

synergy demand

But based on those optimistic forecasts, industry members built a lot of extra capacity. By the time they realised their forecasts were wrong, there was about 1,000MW more capacity than was needed.

sydnery generation excess

And that wasn’t because there was a lot of new wind farms (in green below) or solar. Most of it came in diesel and coal plants – the two most polluting technologies.

And because of WA’s bizarre capacity market mechanism, some of these plants will never be switched on, but will still be paid to stand by for an event that will never materialise. The bill gets passed on to the consumer.

aemo generation build

And because of the rising bills, including the costs of a super-sized grid that was also expanded on the basis of those mistaken demand forecasts, many households decided to invest in rooftop solar, first as the result of a high feed-in tariff, but eventually because it cut the bills.

And this is what that has done to peak demand, pushing it back from 3pm to after 4.30pm, and reducing the size of the peak by a considerable margin, meaning that the extra capacity in peaking plant and network size was not needed. Still, despite this, the networks try to argue that solar does not reduce peak demand, and should be hit with higher charges.

aemo WA pv

To cap things off, the government tried to hide the cost of building all those generators and network upgrades by subsidising the cost of electricity to consumers. Even now, each household pays around $328 less than the actual cost.

The fact that solar means that they will use the grid a lot less than they had means that Synergy will get around $900 less revenue a year from a solar households. The addition of storage expands that revenue loss by a further $400.


So Synergy and the network owner in Western Australia Western Power looked at what customers in other networks paid for their supply charges and found, to their horror, that the customer pays a lot less than households in the eastern states.

synergy fixed

That’s why they want to boost fixed charges. And what will be the result of that? Well, solar PV and battery storage costs are going to fall, and that will increase the options for consumers. So much so, that even energy minister Mike Nahan conceded that rooftop solar will meet all daytime demand in the state within a decade, and will force out coal generation.

So we go back to the start of Rowe’s presentation, and this graph below about the failure of Kodak to adapt to new technology and the “gale of creative destruction.”

synergy kodak

What would you do?

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  1. juxx0r 5 years ago

    The fact of the matter is that $0.32/kWh is too much. They should try and do something about that before they find themselves irrelevant.

  2. Miles Harding 5 years ago

    One plus of the WA over-build is that there is capacity to switch off the coal generators immediately with no loss of network capability, a very good idea considering the age and decrepitude of these facilities.
    The town of Collie will require a make-over to redefine it as part of the sustainable new energy economy, it could be a role model for other transitions.

    By 2020, nearly every WA household will have solar panels (and batteries!), making deliberate distortion of the network pricing models suggested by Synergy politically untenable.
    If the government wants to stay in power, they will have to move to an inclusive system where the customer is treated with respect and not simply a golden cow.

  3. Math Geurts 5 years ago

    Because the costs for using the grid are fixed costs, even if you buy only 1 kWh per year.

  4. Chris Drongers 5 years ago

    Synergy/other utility will have to go to full pricing (currently >40c/kWhr). The fall in state royalties from iron ore, coal and gas will not allow the subsidy issue to be fudged for much longer. Naturally, consumers will respond with anguished wails and kick the politicians who (in this instance anyway) have done the responsible thing. Hopefully the politicians will try to divert the anger by kicking the utilities to adjust to the new reality that monolithic power companies are in a fight for survival and governments have limited willingness or ability to fight on their behalf.
    The only way out is for the public relations people in the utilities actually earn their keep by educating consumers about how prices are set and about the advantages of staying connected to the grid.
    Critically, the engineers/accountants running the utilities will have to back up the spinsters by (rapidly) adjusting the grid to accommodate all the distributed generation (PV, large and small wind, landfill gas…..) that can be thrown at it. That way the absolute red flags to consumers of higher network charges, rejected surplus generation and low feed in tariffs can be avoided.
    The utilities will go through a period of reduced profitability – boo hoo! Be real about the interest rate you pay, about the profit margin you expect and accept that survival is a great improvement over being ‘the next Kodak’.

    • Max Boronovskis 5 years ago

      Nicely put.

  5. Pedro 5 years ago

    For an owner of PV with storage system who consumers very little from the grid it still offers some value. Even at $1.44/day the grid is a reasonably reliable back up generator that you don’t have to fuel, maintain or put up with the noise.

    • Ian 5 years ago

      Pedro, go off grid and pay your neighbour to recharge your batteries when your own energy supply is not available

      • Pedro 5 years ago

        I will seriously consider that when my generous FIT ends. Hopefully Lithium batteries will be at a price I am willing to pay as well by that time.

    • Max Boronovskis 5 years ago

      Interesting point Pedro.

    • Mike Flanagan 5 years ago

      For the past ten years or more I have found carpet and egg cartons are wonderful noise baffles for my timber boxed 65dB @ 7m generator and my noise sensitive disposition.

  6. Chris Fraser 5 years ago

    There is undiscovered utility in the wide (although separate) grids. But these characters refuse to see it. They have only about 5 years to understand what needs to happen before the grids start to get written down.

  7. JohnOz 5 years ago

    Why should the consumer pay for corporate errors?

    If companies can’t cover their costs a percentage of their assets will need to be written off and the shareholders, be they private or government, will loose money.

    Passing the costs of poor business decisions on to the general public, as happened following the GFC, will only slow worthwhile investment and economic growth and reward incompetence and dishonesty.

    • patb2009 5 years ago

      given the social nature of utilities, the rate payers pay part of this.

      it’s why there is a rates commission.

    • JeffJL 5 years ago

      Too right JohnOz. Socialise the costs and Privatise the profits.

  8. Max Boronovskis 5 years ago

    Great article, thank you!

  9. Mike333 5 years ago

    With most markets giving NO INCENTIVE for you to buy an EV and charge at night, what did they expect? No Growth.

  10. Peter Grant 5 years ago

    Great Article Giles.

    WA has an embedded energy policy myoipia that runs deep.

    A new, replacement, children’s hospital is about to go in line in Perth. This new hospital was used as a part justification for raising the distribution voltages and replacing all the transformer infrastructure of the surrounding (wealthy) suburbs – costing hundreds of millions of dollars.

    The children’s hospital being scrapped has a nation leading combined heat and power plant that has been in place for decades. The new hospital has no combined cycle plant, or embedded generation, or demand control infrastructure.

    Go figure Mike Nahan, your government owns it all.

  11. dhw 5 years ago

    Over spending on false peak demand increases is true etc, but it is secondary in my view to the real reason for solar charges of higher fixed costs. There is a clear error above which states “The fact that solar means that they will use the grid a lot less than they had”. Sure, PV owners use less energy from the grid, but grid costs are by and large independent of energy usage. Wholesale energy is very cheap at 5c / kWh which is the only cost that PV owner’s reduce, despite saving ~30c/ kWh themselves due to the domestic tariff. The 25c difference normally pays for the network. This issue exists whether or not there has been excess network spending. Who do we suggest should cover the network costs that PV owners avoid? Me because by roof is shaded or because I live in an apartment?..

    • Rikaishi Rikashi 5 years ago

      Time of use charges. Users pay only for the services they use and if networks make mistakes when predicting future demand for those services then they pay for those mistakes. Sad day for them, but that’s capitalism.

      If they don’t pay for their mistakes, then they are given a perfect opportunity and incentive to defraud the community, which is the current state of affairs.

      A properly functioning market should eliminate any problems with consumers who cannot mount solar panels, simply by giving a premium to the value of property on which panels can be mounted.

  12. patb2009 5 years ago

    have local grid purchased by the municpalities, and let the genco’s sell at a free floating price, as long as there are a minimum of 8 generating companies and they aren’t allowed to price fix…

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