The cost of electricity is back in the news. And contrary to the Prime Ministers recent assertion, when you focus on the detail, a raft of “green” imposed costs, of which the carbon tax is but one, has been responsible for 50 per cent of electricity increases in NSW this financial year and 34 per cent 2011-12. As ever, the devil is in the detail.
There’s no denying power bills have risen dramatically in Australia over the past decade. During the past three years alone, prices have risen by an average of 35 per cent across Australia. And there is more to come, as the Australian Energy Commission (AEMC) estimates that average national prices will jump a further 37 per cent by 2014.
A national impact
This financial year residential and small business electricity prices in NSW have risen by an average of 18 per cent (including inflation). If the just announced raft of price increases from 1st July are included, consumers in NSW will have experienced a massive 113 per cent price rise since 2006.
Hot on the heels of a 7 per cent increase last year, Victorian consumers saw prices increase 10 per cent again in January and have been warned of another 10 per cent increase in July.
But it is not just the larger states that are being affected. For instance last year South Australia saw a 10 per cent increase in costs, bringing the typical annual bill to $1270 a year. While the Queensland government is now considering a new increase of 7.6 per cent, or about $122 for the average electricity bill. And this also follows an average increase of 6.5 per cent last year.
It is a story that is common across the whole country. So why are our electricity bills rising so rapidly, and is there anything we can do about it?
It's the consumers fault
George Maltabarow, Managing Director of Ausgrid, one of the largest electricity networks in Australia, recently told ABC’s Insight, that one of the main reasons prices are rising is because consumers are pursuing energy intensive lifestyles, which means electricity networks have to spend large amounts on infrastructure to meet rising demand. Perhaps, where wi-fi and home computers were once a luxury, they’re now a household necessity.
But does Wi-Fi and more air-conditioning really explain an extra $100-$200 a year? Especially when many consumers are increasingly purchasing efficient appliances and watching how they consume power. While the experts, radio shock jocks and politicians argue amongst themselves let's look at some of the key facts.
Realistically it is more likely to be the result of numerous factors, including; a raft of new green costs, including the new carbon tax, a lack of investment in electricity infrastructure in past decades, inefficient (over-cooked) power network design and practices and rising fossil fuel prices.
The Energy Users Association of Australia, in a report released in August 2011, stated that the jump in utility prices has all to do with infrastructure: saying that while the cost of producing electricity stayed fairly constant from 2001-2010, the price of distributing it had increased, and would continue to do so.
In a detailed report, released in April 2011, the NSW Independent Pricing and Regulatory Tribunal (IPRT) indicated that the average price increases 2011/2012 of 18 per cent were due to a number of factors including:
- Federal Labor's Renewable Energy Target (RET) (34 per cent)
- additional generation costs, (5.5 per cent )
- additional network costs (poles and wires), (55 per cent)
- retail increases in billing, marketing and metering, (5.5 per cent)
As detailed below the average NSW price increases for 2012/2013 are expected to be 16.4 per cent. It is telling that this year's retail increase also included a so called "secret" $39 dollar charge per customer to encourage competition, which seems a little like robbing Peter to pay Paul.
The IPRT also noted that the former NSW Labor government's Solar Bonus FIT scheme may, when costs are eventually passed on by the State government, increase prices by 5 per cent to 10 per cent.
The IPRT indicated concerns that the increase in network costs may also have been partially due to unnecessary network standards and construction costs. Which is a concern mirrored by the new Liberal state government. And the Tribunal also noted that there are no strong incentives for demand management by distributors so there are significant inefficiencies in the system.
Each State in Australia has its own infrastructure, which explains why the power hike is slightly different from state to state. And since Victoria, South Australia and Queensland, are expected to need new infrastructure as soon as 2013-2014, consumers in these states can logically expect higher power bills in the coming years.
The carbon tax and other green measures
The Federal government believes the average impact of pricing carbon to be $3.30 per week on the average weekly power bill. Recently announced price increase suggests this number is way below the mark.
Carbon taxes are going to have different impacts across the country, as each state generates its power from different carbon intensity sources. Tasmania, with its abundant hydro will be affected least, Victoria, with its heavy reliance on brown coal, the most. Also each state has secondary energy efficiency programs with varying price impacts.
The 300 pound gorilla in the room is of course the carbon tax. But it has a few key elements that need to be covered before you can get your head around the concept.
From 1st July this year about 500 companies in Australia will pay a direct tax of $23 for each tonne of carbon dioxide they emit. This price will increase 2.5 per cent per annum, until 2015, when a market based scheme kicks in. It is interesting to note that the current market price in the EU is $7.60 per tonne.
The biggest carbon emitters include electricity generators (wholesalers) but they also include big resource companies and the manufactures of high energy intensive products such as steel, aluminium and paper. As electricity is publicly traded, the costs of the tax will be passed directly onto electricity retailers and larger direct commercial customers.
So the carbon tax will be directly passed to you, the consumer, via your electricity bill. But it will also be as passed on via a multitude of small passed on costs that will flow through the economy. From the price of milk to council rates.
But the carbon tax is not the Federal governments only green incentive. Underpinning the direct tax on carbon is a complex scheme called the Renewable Energy Target (RET). The RET creates a market for renewable energy, using a mechanism of tradable certificates created by large-scale renewable energy generators and owners of small-scale solar panel, wind, and hydro systems.
The certificates are created by:
- The creation of new capacity via the widespread installation of solar water heaters, solar panels and small-scale wind and hydro systems under the Small-scale Renewable Energy Scheme (SRES).
- The creation of new capacity via the building of large scale renewable energy power stations under the Large-scale Renewable Energy Target (LRET).
Demand for these certificates is created by legislation forcing electricity retailers, to purchase and then surrender certificates to the Clean Renewable Energy Regulator. Certificates are also traded directly between power stations, small-scale system owners, and other traders, through a self-regulated open market.
In addition, depending on the state, there are a range of new additional schemes and funds that add an additional burden. For instance in NSW the Energy Savings Scheme (ESS) and the Climate Change Fund levy (CCL) both add to consumers bills.
So the impact is multiple. There is an impact on wholesale electricity prices by the direct imposition of the carbon tax (and to a lesser extend wider passed on costs). And there is an increase in retail pricing, due to the introduction of the SRES and the LRET. And depending on the state, a range of additional costs and levies.
And the cost? Well this is where things get really interesting.
The ACT price regulator has stated that of the upcoming $244 average increase in household electricity bills 77% can be attributed to the carbon price. This amounts to almost $190 per annum.
From 1st July, NSW will see an increase of 16.4 per cent in the average power bill. Dr Peter Boxall, the Chairman of the Independent Pricing and Regulatory Tribunal (IPART) Chairman estimated that roughly 50% of the total NSW increases will result from the introduction of a carbon price.
In practice this percentage varies between retailer. The specific carbon impact on price increases is as follows:
- EnergyAustralia 49.4 per cent of a 19.2 per cent increase or $158 of $338
- Integral Energy 92.2 per cent of a 10.3 per cent increase or $167 of $182
- Country Energy 44.8 per cent of a 17.6 per cent increase or $170 of $381
IPART has also just released a report which indicates the costs of complying with the full range of green measures will amount to $315. This is 15% of the average electricity bill of $2,101*.
Contribution of green schemes to the average NSW electricity bill of $2,101
So taking the ACT and NSW as representative, about half of upcoming electricity increases can be attributed to carbon pricing and about 15 per cent of total bills and rising. However in NSW carbon pricing has already been in the system for at least the last financial year and was responsible for at least 34 per cent of last year's price increases.
Overall we are looking at green related cost impacts across the whole economy that are even higher that that caused by the GST. And right in the middle of a major global economic crisis....
What you can do about it
But we’re not completely powerless as consumers. Thanks to Government deregulation of the electricity market in Australia, consumers are now able to choose which company they buy electricity from.
Compare > Compare electricity prices
So by comparing different energy companies and taking advantage of competitive rates, you can lop off a substantial chunk of the power rise. It’s perfectly legal to switch providers, you sometimes need to pay a fee if you’re on a contract, but this is often outweighed by the saving you make on your annual bill.
And then there’s the environment. While the carbon tax might be making you quake in your boots at the thought of bigger bills, environmentally-sustainable changes to the home actually help you cut your power bills.
Solar panels are one option, particularly where the consumer gets a rebate on their electricity bill. They can be costly to install, but in the long-term can equate to environmental (and financial) freedom.
Although it should be noted that the increase in the NSW Climate Charge Levy is due to a blow out in the Labor governments scheme. So in effect, if you live in that state, you all are paying a little more for solar panels that are probably not on your roof.
More > Solar panels, the good, the bad and the ugly
A recent study studies revealed another benefit to going solar, data from case studies show that home owners that have installed solar are becoming more energy wise, reducing electricity usage by an annual average of 20 per cent compared with home owners that don’t have solar installed.
More > Make your home more energey efficient
Another environmentally sustainable energy option is wind-turbine. In areas with wind farms such as Toora, Victoria, residents with the turbines on their properties receive an annual cheque for the ‘inconvenience’. Residential based wind systems are also available, although council regulations will apply.
I don’t know about you, but I could bear a little environmentally-friendly ‘inconvenience’ if it meant I received cheques rather than bills.
Commonwealth Government Household Assistance Package
The Commonwealth Government’s Household Assistance Package is designed to assist low and middle-income households in dealing with the increases in the cost of living, including energy, as a result of the introduction of the carbon price.
These increase in will be mitigated by providing direct government payments to low-income and middle-income households and via a range of changes to the tax system.
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* Costs calculated for a typical customer from 01/07/2012, using 7MWh per year. Includes GST and energy losses. Forecast inflation is 3.1%.