State spat on power reform

Australian
Thursday 3/12/2009 Page: 5

VICTORIA finds itself on the frontline of an emerging international effort to pursue energy efficiency and contribute to reducing greenhouse gas emissions by changing its electricity supply grid. It is a complex, expensive and increasingly controversial venture. The state's auditor-general has reviewed the project, the forerunner of a potential national development, and reported the "smart meter" roll-out under way could cost 2.4 million residential and small business consumers two to three times more than estimated by the state government.

Victorian Premier John Brumby has reacted sharply to the criticism, saying 50 million smart meters would be installed across the world in the next year and Auditor-General Des Pearson was out of step with the international trend. The spat highlights the fact that surprisingly little is known by Australians about a radical move in the electricity industry to move the 60-year-old existing network system from a model of central control by producers to offering greater consumer interactivity.

There are two key drivers of this change the need to address feared climate change by making power consumption more efficient, and the need of network operators to slow the relentless expansion of grids to meet demand created by a growing population and economy. In Australia, the networks, half of them still owned by governments, will spend more than $35 billion on capital works in the next five years and, without a major change in demand trends, another $30bn or more in the following five years. With network charges responsible for half of end-user power bills, this represents a major increase in consumer prices over the next decade.

The need to devote billions of dollars to having networks ready to deal with peak power demand in extreme weather means as much as $10bn of the grid assets developed by 2015 will be in use for only about 100 hours a year. These problems confront utilities and governments across the developed world and, with the added impetus of the need to speed up carbon abatement, industry and policymakers are taking the first steps to transform the grid system.

Consultancy Port Jackson Partners, in a report on infrastructure published by the Business Council, predicted last month that the cumulative changes in train will double power prices for Australian end users by 2015. The Rudd Government has so far not disputed this claim. By the end of the next decade, it is forecast, consumers will no longer pay for electricity on the basis of the kW hours they have consumed. Instead, they will purchase a capped amount (with penalties for exceeding it) combined with features such as financial rewards for reducing consumption at peak periods.