What is really behind the 20% power price spike in Queensland?

Hi, I’m Jervis Whitley. Today is Friday, 14th of June, and you’re listening to WindFront, the weekly roundup of the wind industry from Australia and around the world. Today, I’m gonna cover dollars and cents. How much money was made in wind this week? And what’s behind the 20% hike in power price in Queensland?

But first up, let’s have a look at the dollars and cents. So this last week, wind farms collected $6.6 million across Australia. So that breaks down to about $3.6 million in South Australia, $2.4 million in Victoria and about half a million in New South Wales.

Now let’s move on to the big news of the week, which is the 20% power price increase in Queensland. It sort of hit the media. I’ve read about it in a lot of different papers. There were headlines like “Queensland electricity prices have risen more than expected”, “electricity prices are set to soar”, “fight back against electricity price rises”, and even a Sunday Mail in Queensland has begun a big switch campaign, where they’re encouraging consumers to sign up and petition that they’ll switch their energy provider.

So, I mean, these people and others have been raising the question, how can you beat the price rise? Well, Dean Spaccavento, owner of MisterVint, actually questioned that theory that you could actually beat the price rise. He’s looked into the reasons behind them, and he’s actually found that it might be very difficult for families to beat this price rise. In fact, the majority of the increase in price has come from a 40% increase in fixed charges. So what fixed charges are, are the dollars and cents per day that you pay to be connected to your electricity. You pay it regardless or whether you use anything or not. And the peak tariffs have actually reduced by 17%.

So on the one hand, we’ve got a 40% increase in fixed charges, which you can’t escape, and a reduction in pig towers by 17%. So the amount that you pay just for being connected has gone up, and the amount you pay for actually using your electricity has gone down. And on average for a, like a family of four, that might be about a 20% increase in real dollar terms. So it’s like Telstra hiking their landline costs and then increasing the cost per call. Dean has said in his blog that the move will directly line the network owner’s pockets.

What’s actually happened over the past year is that they haven’t recouped the revenue that they’re expected to get. And so this is a measure that they’ve put in place and has been approved by the Australian Energy Regulator to increase prices across the board so they can recoup their targets, they can hit their energy, revenue targets. So what this sort of, it’s a price signalling method where the network businesses are attempting to get the consumers to change their behaviour in a certain way. And this message that’s coming across, a 40% increase in fixed charges, an actual reduction in peak tariffs, Dean says will increase peak demand usage.

So what’s happened since the decline in the Australian economy and the significant uptake in solar panels, we’ve actually seen a decrease in peak over the past few years. So while all the network businesses were predicting an increase in the peak electricity use each year, what’s actually happened is that it’s reduced. And they’ve been caught short. They’ve predicted our high value and it’s actually coming low, which means they haven’t met their revenue targets. So what they’ve done is they’ve reduced the peak terrace, which will encourage people to use more electricity during the peak.

And networks actually build the network out to meet the peak. So if you think about it, it’s no good having the electricity network if each day when it gets hot and everyone turns on the air conditioners that the power shuts down. So they have to build the power network in a way that will handle these extremely hot days and these extremely high demands. And each time they install a new piece of equipment, that goes into a regulated asset base, which they can actually earn further money from, a regulated return on that. So, for instance, if you had, in your regulated asset base, a $1000 worth of equipment, the government will allow you, or the regulator will allow you, a return of, say, 7 to 9% on that $1000, guaranteed every single year. So the higher, the more equipment you have, and the higher your asset base, the more revenue that you’re going to get.

So what’s happening is that they’re increasing the demand for peak, peak demand, which will now means that they were justified in spending more on their asset base to meet that new higher peak, which means in turn get more revenue again. And consequently, because they’re reducing the amount of money that they’re paying at in peak, which means the cost of electricity during peak times is lower, which means the payouts to people with solar panels will also be lower in some respects.

So the company, what do they have to say about this? In their submission to the AER, the Australian Energy Regulator, Energex said that the reason they’re increasing the network charge was to better reflect the cost of supplying the smaller residential loads. So they’re saying that, I mean, they haven’t been able to make their revenue numbers and they’ve actually said that throughout the entire submission that they weren’t able to meet them. And then this is a way measures, these cost increases are a way for them to meet those targets. The criticism is being coming, that the way they went about it was probably not in line with direction that we’d like to be going. By increasing the fixed charges and decreasing people’s sensitivity to peak tariffs, people will just use electricity whenever they want and will have to build more equipment in the future to meet that demand, which will probably in the long term cost us a lot more money.

So that concludes my discussion about the hike in electricity prices, with the conclusion, I guess, that unfortunately, if you’re a family in Queensland, you won’t be escaping these 20% increases unless you move. I’m going to leave you with this question then, based on that topic. Is this evidence of a power company death spiral, which is something that’s been talked about recently in some of the bloggers on the internet. So leave your comments on the site and I’ll read through them on next week’s program. Until then, keep buying those green electrons.