ACCC throws up another energy shock yawn

Depending on which paper you read, the ACCC has just condemned the entire National Electricity Market. If you read The Australian it’s all the fault of renewables:

Malcolm Turnbull faces a crucial cabinet debate today with a new warning from voters against schemes that pass hidden power costs on to households, with ­almost 60 per cent of Australians saying they will not pay a cent more for clean energy policies.

The warning, in a special Newspoll survey, comes as the consumer watchdog prepares to release extraordinary research today showing households are paying $103 every year on average for environmental schemes.

The Australian Competition & Consumer Commission will warn today of “unacceptable pressure” on households from the spike in energy prices, which have soared 43.7 per cent in a decade — an average increase of more than $500 per bill — as a result of network costs, retail margins and climate-change targets.

The conclusions highlight the challenge for Mr Turnbull and his cabinet colleagues as they meet in Canberra to decide on a new ­energy policy that is expected to emphasise reliable supply and ­affordable prices rather than cuts to greenhouse-gas emissions.

Dumping the idea of a clean energy target, the cabinet is ­expected to endorse a framework to scale back subsidies for renewable energy while encouraging ­investment in new power generators without hastening the closure of coal-fired power stations.

…The regulator’s findings clear the ground for a government campaign on energy prices this week, as Mr Turnbull and Energy Minister Josh Frydenberg seek to contrast their plan with Bill Shorten’s proposal to generate 50 per cent of the nation’s electricity from renewable sources by 2030.

The government has abandoned the clean energy target proposed by chief scientist Alan Finkel, amid warnings from Coalition backbenchers that the subsidies for solar and wind power, passed on to consumers through an emissions intensity scheme, would result in 42 per cent of electricity coming from renewable sources by 2030.

In another sign of a key contradiction at the heart of energy policy, the Newspoll shows 63 per cent of voters support subsidies for renewable power but do not accept paying those subsidies in increased electricity bills.

If you read The Guardian, it’s all the fault of the network operators:

Residential electricity prices have increased by 63% on top of inflation over the past decade, according to Australia’s competition watchdog, mainly due to higher network costs, which comprise 48% of a household bill.

An interim snapshot, to be released by the Australian Competition and Consumer Commission on Monday ahead of the expected unveiling of the Turnbull government’s new energy policy this week, found there was a “severe electricity affordability problem across the national electricity market, and the price increases over the past 10 years are putting Australian businesses and consumers under unacceptable pressure”.

It noted that “large increases in electricity prices have not been matched by price increases in other areas of the economy, nor in wage growth” and it said the burden of higher electricity prices “disproportionally affects those segments of society least able to afford it”.

If you read the AFR, it’s all the fault of the lack of competition:

The competition watchdog has flagged government measures to clip the market power of the big three energy companies, suggesting their rising shares of the retail and generation markets are fuelling electricity price rises and helping them get around regulation designed to protect consumers.

Australian Competition and Consumer Commission chairman Rod Sims has put vertically integrated generators and retailers AGL, Origin and Energy Australia under the spotlight for their influence over wholesale prices in the regulator’s preliminary findings of an investigation into the electricity market.

“This market dominance has led to non-vertically integrated retailers having limited access to risk management products, and outcomes for consumers and businesses are being driven by pricing practices that are not consistent with vigorous competition,” the report said.

If you read the Domainfax dailies then property prices are going up.

In truth, there’s not much that is new here. The Garnaut Review made these pricing break-ups clear a decade ago:

The big network price rises happened mostly pre-GFC as government corporations gold-plated their networks with $80bn of mis-allocated capital pre-GFC. This delivered Australia not only a price hike but a large negative productivity shock:

Given they were doing it to fatten the government’s own dividends and privatisation sales prices good luck turning back that clock. For more on that you can read the Australia Institute.

What is most interesting today, if you look closely at the AFR charts, is the mismatch in recent price rises between households and business and their respective causes.  For households, 17% of recent price rises are driven by generation. For business, it’s 37%. The difference comes down to bulk power contracts, which have been targeted by the Gas Cartel for much more pain than households to manage the political fallout.  It’s exactly the same in the gas bill. Nothing if not tricky these blood-suckers.

I really can’t see the ACCC report making any difference to anything which adds to its own woeful performance in recent years, most pointedly allowing the formation of the Gas Cartel. The report is simply too broad and offers something for everyone, as the above coverage testifies. It’ll be misused by all accordingly with Do-nothing Malcolm deploying his Enron election strategy, Labor going for renewables and letting the Gas Cartel off free of charge.

Beneath that, the energy transformation will continue as renewables, storage and energy efficiency make gains. At least the ACCC did recommend the 5-minute change to NEM bid process which will aid that. All governments will likely adopt it.

Eventually households will see lower energy prices as renewables and demand-destruction pushes gas towards the margins. But business is buggered. As gas volumes fall, the Cartel will only raise prices to offset lost market share so contracts for both power and gas will get more and more painful.

My advice to them is to either get off the grid or offshore as soon as you are able.

Houses and Holes

Comments

    • The government-owned electricity businesses are just as, if not more, aggressive in using their monopoly power to push up prices. High prices = big profits = big dividends to the government.

      • But at least if the assets are government-owned, the profits go into government coffers. And the opposition can ask questions like “why are you charging so much for car parking at the airport”.

  1. Hnh, you’ve been saying the way to fix the energy crisis is to fix the price of gas. My read of those charts above is the primary cause of increases is network costs (although generation is a close second for C&I customers).

    Whilst gas prices are definitely an issue, doesn’t this suggest the most important thing to sort out is why our network costs are increasing so rapidly? There’s an article a day about gas (and has been some political action on this so far) but I don’t hear much about what appears to be the most important factor?

    • The ACCC report does mention supply and cost of gas as a factor that impacts wholesale prices.

      All the above play a role in final electricity prices paid by industry and consumers.

      Network costs (40%)
      Retail (26%)
      Generation (17%)
      Direct green energy (16%)

      Indirect green energy costs considerably higher and incorporated in each of the other cost areas (as previously noted by ACCC, “smeared” across all energy bills). Costs are fair exchange for transition to reduced emissions with exception of “gaming” in regard to PPA’s and LGC’s. Requires attention imo, as do Retail Costs. Further, ACCC says it is “arguable” CET would reduce power costs as suggested by Finkel.

      Recognition that the decarbonisation transition which is necessary and to which we have committed under the Paris Agreement will not be without cost, will not necessarily result in cheap electricity costs to the community through the transformation stage is welcome. There has been too much fanciful boosterism in this regard. This has damaged the transition process and threatens public acceptance of policies required to reduce emissions. The population must accept responsibility to reduce emissions and be prepared to pay what is in effect a modest $500-800 increase in power bills: $10-15/week, not such a burden.

  2. Of course it was networks that pushed prices up between 2007 and 2015 in absolute terms because it gets the largest share but at least we got something in exchange (newer and better network that will last for decades).

    Since 2015 prices went up only because of monopolised generation-retail often combined into same companies.

    BTW. if you look into first chart you can see how report is biased. Sure network cost contributed the most to the cost increase but that’s because it had larger share of cost to start with. But network cost increased slower than the overall cost increase (by only 40% compared to 52%). Retail cost on the other side 60% compared to overall 52% despite us being told that competition would do the opposite. The only thing we got from that retail cost increase is much worse customer service

  3. Australia’s Electricity death spiral started a long time ago with stupid decision building on other stupid decisions where everyone assuming that costs just didn’t matter because Electricity was a sort of monopoly. It has just taken a while to develop the residential technology that capitalize on this monopoly pricing stupidity but now that it is here it game over for the Grid.
    Today in Australia it’s game over for Grid Electricity at the residential level. Buying Grid electricity everyday makes absolutely no financial; sense for any householder with suitable roof area to install a 7KW PV system. Unfortunately for the grid it does make sense to stay connected so that they can power those huge air conditioners on the few days of the year when PV just wont cut it (and that week or two in mid winter when the sun refuses to shine). This is the worst possible client for an Electricity retailer, most days they sell excess electricity (after fully charging their batteries), when the grid really doesn’t need it. But worse still they buy cheapish electricity on the few day of the year when the wholesale price of electricity vastly exceeds Retail price.
    All that the informed Electricity consumer can do is to accept that logic left the room about 10 years ago, today it’s all about identifying your own best case optimization and leaving this F’ed up National grid to cope as best it can. The grid has entered a death spiral so those that value electricity availability will take steps to ensure that their own personal needs are met through PV and Storage.

    • Buying Grid electricity everyday makes absolutely no financial; sense for any householder with suitable roof area to install a 7KW PV system.

      It would be interesting to know what that number actually looked like.

      My guess would be well under half the population once you’ve allowed for apartment/townhouse dwellers, renters, those without the $10-15k to spend, etc.

      I suspect the oncoming tidal wave of electric cars might keep the grid going for a while yet, as well. Everyone’s going to want to be charging their cars off-peak overnight.

      • Yep, those least able to pay and those with no alternatives are going to get bent over double and buggered mercilessly.
        In Australia the obvious solution will be some form of hardship support for those unable to pay these rip-off electricity charges. Corporate welfare at its best.
        None of this makes any holistic sense, from a national electricity perspective it’s the worst case outcome, from a Carbon footprint perspective it’s a terrible end point but it’s still the most likely outcome and no amount of wishful thinking can change this fact.
        Course the good news is that it won’t show up as Australia’s carbon footprint, we meet our Carbon commitments and China absolutely blows the worlds carbon budget by making all these things.