Why the utilities want us to use more power

Sydney Morning Herald
Saturday 20/3/2010 Page: 5

Huge increases in electricity prices might be more palatable if we were getting, for our money, a cleaner and more efficient grid that helped us respond effectively to climate change. We're not. We are busily expanding a grid that entrenches electricity generation from fossil fuels and will only accelerate climate change. Over the next five years the country will spend about $47 billion - our biggest single-ticket infrastructure item, larger than the national broadband network - on electricity transmission (high-voltage power lines from power generators to retailers) and distribution (supplying power from retailers to homes and businesses).

That is forecast capital expenditure including replacing and adding to an ageing network, in the eastern states National Electricity Market Management Company and in WesternAustralia. That is before a cent is spent on new electricity generation capacity whether from renewables or fossil fuels-or on retiring our dirtiest coal-fired generators. Less than 1% of that expenditure, says Chris Dunstan of the Institute for Sustainable Futures, is on demand-side strategies - a combination of energy efficiency, peak load management and distributed power generation (produced at or near the point of use, like rooftop solar panels).

Spending on the grid, approved by the Australian Energy Regulator, is overwhelmingly focused on supply side infrastructure because it is guided by market rules, which typically link the profitability of network operators to the volume of electricity they supply. Until this nexus is broken, our utilities have a financial incentive to ensure we use more power, not less.

In NSW - which found this week it is facing its biggest-ever electricity price rise, of up to 64% over the next three years-there is an extra layer of incentive to maximise network revenues because the government hopes to maximise the sale price of EnergyAustralia, Integral Energy and Country Energy, as well as the power output from state-owned power stations.

Most of the approved increase in NSW-about two-thirds-is due to higher network costs. The remainder is attributed to the introduction of an emissions trading scheme with a carbon price of $10 a tonne initially, as proposed under the federal carbon pollution reduction scheme. Similarly hefty price increases are expected in other states, as the regulator warned in December.

In December Bruce Mountain, of the energy consultancy Carbon Market Economics, coauthored a Cambridge University paper comparing electricity network costs in NSW and Britain. The study found that costs and allowed revenues were higher in NSW-up to four times more per customer- and were growing much faster over tine. A comparison between NSW and the privatised electricity sector in Victoria bore out the analysis.

Australian media reports, Mountain says, either blindly attribute network cost blow-outs to climate policy or accept they are needed because of demand growth and ageing assets. "These cost blow-outs appear to be a failure of network regulation, combined with a propensity by government-owned businesses to augment the regulated asset bases, as a way to maximise the financial returns that the state derives from these businesses. This is to the considerable detriment of energy users, and the implementation of efficient distributed generation and demand-side response."

The regulator and the energy networks association hit back at the Mountain study, arguing NSW could not be compared with Britain geographically and national regulation of the electricity market had to be given time to work. It's not that our $47 billion spending on the grid is unnecessary. However, an Institute for Sustainable Futures report recommended last year that network augmentation should be the last resort - used after operators have explored all the available demand-side options. The regulator believes new network spending cannot be deferred indefinitely, and cites demand-side initiatives such as the shift to smart meters and tune-of-use tariffs - which are rolling out (with some hiccups) in Victoria.

Rather than reinforcing transmission from new and existing fossil fuel-powered generators, we need urgently to prepare the network to supply electricity from areas where renewable energy resources are greatest-likely sites for wind, solar, geothermal and wave power generation to our main cities. A good example says Mark Diesendorf, the deputy director of the University of New South Wales's Institute of Environmental Studies, would be a new major transmission line from windy Port Augusta in South Australia via Broken Hill and Dubbo to Wollar (near Mudgee) and the proposed 1000-MW Silverton wind farm near Broken Hill.

New-generation infrastructure is another story again. NSW-owned Macquarie Generation and Delta Energy are proposing to build two new coal - or gas-fired baseload power stations, at Bayswater in the Hunter Valley and Mount Piper near Lithgow, with about 4000MW of combined new capacity.

Last year, the institute modelled five energy supply scenarios for NSW to meet projected shortfalls in peak capacity to 2020. They ranged from building a new coal-fired power station or building a new gas-fired power station to three scenarios combining demand-side strategies. Scenario five, combining co-generation, energy efficiency, distributed energy and a reduction in coal-fired capacity, reduced greenhouse gas emissions by 7 million tonnes a year compared with gas, and had a cumulative cost $500 million lower than gas. Compared with the coal scenario the advantages were even greater, saving 8 million tonnes of emissions and costing $1.5 billion less.

Building new coal-fired power is risky, given uncertainty about carbon pricing, and will provoke a sharp community response. Last weekend the second annual climate action summit was held at the Australian National University, with about 300 people turning up to get a national movement going. The summit got very little attention outside Canberra but the very top priority, said one speaker, was ramping up the campaign against coal-fired power especially, a push to shut down the country's dirtiest brown coal-fired power station, Hazelwood in Victoria.

paddy.manning@fairfaxmedia.com.au