Background Briefing: The price of power

30th April 2014

If you want the real explanation for high electricity prices in Australia listen to this excellent program from ABC Radio National (and/or read the transcript). Here are some excepts:

"Prime Minister Tony Abbott blames two things [for high electricity prices]; the carbon tax and the renewable energy target. He says that's why the government is reviewing the target again. ... The Australian Energy Markets Commission says the renewable energy target adds 4% to the average electricity bill. ... That doesn't explain why our bills have risen by around 100%. So why have prices become so high? Once you dug away, what you found was that much of the rhetoric out there from politicians and people in the industry simply wasn't adding up to what the numbers were showing. ... 

"In 2009, the network companies made a dire warning: unless the power grid was radically updated, the poles and wires would not be able to cope with Australia's growing energy demand. They said that unless tens of billions of dollars were spent on the grid, Australia's east coast could begin to see rolling blackouts. Their investment request was granted. But as soon as the upgrades began, something unprecedented happened. Demand for electricity didn't go up, it went down. ... Despite the clear reality of falling demand, the network companies continued to say demand was rising, and they carried on investing billions of dollars into the grid. We're paying for that investment through our power bills. ...

"While renewables are not having a significant impact on the size of our electricity bills, the size of our bills is having a significant impact on the way that we consume power. ... The fact that solar panels can slash electricity bills by more than half means they are now an economic choice, not just an ethical one. ... So while many of the politicians out there are going on about carbon tax and green schemes, they're not the main game. The main game is the network. ... These electricity distribution and transmission companies that build the poles and the wires around the state and nation are paid purely based on their assets. They're not paid on the amount of electricity delivered, they're not paid on the efficiency of doing that, they're only paid on their assets. So if they build more, they get paid more. And once we'd sort of worked that out we realised what the incentive was for them to [over invest] when there's no demand. Because they get paid more."

Listen to the program at:  Transcript available