Everyone will pay for better grid

Sydney Morning Herald
Wednesday 15/12/2010 Page: 9

UP TO $130 billion of investment in the national power grid is needed to cope with an expected surge in electricity demand, placing further pressure on household electricity bills.

In a network development plan to be made public today by the Energy Minister, Martin Ferguson, the Australian Energy Market Operator the independent operator of the national electricity market says demand is likely to rise between 30 and 70% over the next two decades, depending on economic and population growth. The investment is needed to cope with increasing demand, ageing infrastructure and the transition to a low carbon environment.

But the market operator's chief executive, Matt Zema, said only "a very small amount", about $4 billion, of capital investment had been committed nationwide so far, though he added that electricity generators had never previously failed to deliver the required investment to meet demand. "It's the uncertainty associated with a carbon price. The industry is not willing to make any great decisions about investment and generation".

The high investment cost is likely to fuel higher wholesale electricity prices, which typically make up 30 to 40% of what the consumer pays. The introduction of a carbon price is already expected to at least double wholesale prices. If economic growth is strong and the carbon price is high, the market operator said wholesale prices could increase four-fold over the next 20 years.

The operator modelled a number of scenarios, factoring in economic and population growth and the impact of a carbon price. Even in the scenario of lowest economic growth, it said $40 billion of investment was required. The prevailing low-carbon environment means gas and renewables will provide most of the new electricity generation in the next decade.

The market operator said this would increase demand for gas five-fold by 2030, but that there would be sufficient gas reserves to meet both domestic and export demand, even though production in Victoria and South Australia was expected to decline.