The price of power

Rising power prices are causing real distress, but there’s worse to come, throwing into ever-starker relief the need to reduce our energy usage. [28 September 2010 | Peter Boyer]

The disturbing sight on our television screens of elderly Tasmanians getting upset over ever-climbing electricity bills should be a wake-up call to everyone thinking about where Tasmania (or Australia, or the world) is headed.

Remember, this is happening at a time when the standard indicators tell us we should be in fine spirits. We’re distant from world trouble-spots. We got safely through the global money crisis, and booming resource exports are bringing us wealth that others can only dream of. Measured by GDP, our economy leads the world.

For those of you who fear a carbon levy, your fear’s misplaced. At a projected price of around $20 a tonne of carbon, it would be a tiny fraction of recent energy price hikes. The extra cost of petrol during the 2008 oil price spike, for instance, was the equivalent of about $300 a carbon tonne.

In any event, Australia has yet to put in place a single carbon pricing measure. So what’s going on? Why are our electricity prices starting to climb through the roof, and what’s next in store for Aurora Energy’s hapless Tasmanian customers?

Marc White, Principal Consultant at Hobart-based Goanna Energy Consulting, has built his career on studying the myriad pressures and pitfalls of the national energy market and how businesses can minimise their energy costs.

First-hand experience in electricity market deregulation in Victoria and South Australia taught him that energy generation and supply is a tough, unforgiving business. There can be big rewards, but also great uncertainties fuelled by constant demand shifts and fluctuating coal and gas prices.

As White sees it, the past 20 years have been a bumpy ride for everyone in the Australian market, but more challenges are ahead. They’re big and expensive, and the power suppliers know it. To mention a few:

• The days of monopoly energy markets in Australia with their assured margins for suppliers are no more. Deregulation has dramatically cut profitability for ex-government bodies like Aurora.

• Around the world, smart electricity meters are offering customers ways to reduce peak-period energy usage while providing real-time pricing based on demand. But they don’t come cheap.

• Smart meters provide about 4000 times the information supplied by old spinning-disk meters. To enable them to work to capacity, energy suppliers around Australia are having to invest many millions of dollars in billing software systems.

• Australia relies heavily on delivery infrastructures — wires and poles — that are already decades past their expected life. Building new delivery systems able to handle two-way energy flows and multiple sources of generation will be about as expensive as a new optical-fibre broadband network.

For Aurora, such demands are compounded by its radically different past as a government agency with a legacy of residential service obligations, along with the fact that its Tasmanian customer base is relatively small compared to competitors with a bigger slice of the national market.

Additional to all the above is the cost to Aurora of buying power from the generators on the national energy grid whose long term prices, in a world increasingly hungry for energy, are heading in only one direction: up.

Then there’s a carbon price — or rather, its absence. We’re almost certainly getting some sort of pricing scheme, but we still don’t know what form it will take and when it will be introduced, an uncertainty that’s hardly helped by the lack of bipartisan support in federal parliament.

Even more than BHP-Billiton chief Marius Kloppers, energy companies want the uncertainty to end, and that includes coal-burning generators. In the absence of a clear pricing framework people can’t invest in energy generation with any confidence, and that’s bad for business.

Australians everywhere are facing steep increases in the cost of electricity. The prospect of further rises in Tasmania in coming years has Anglicare warning of the suffering of our poorest people. If we were in any doubt, the Hobart television images confirmed that this is causing real distress.

The pressure is building on Aurora and the state government to do something — anything — to stop the crippling power bills, with the opposition calling on the government to direct its energy supply company to limit the size of electricity price hikes.

But such “solutions” are nothing of the sort. The state government may provide some increased assistance to those least able to afford energy for basic needs, but in an energy market that’s becoming more global by the day it’s powerless to cap prices.

What we need is the ability to live comfortably on less energy. The biggest demand on energy is for space heating and cooling. If we want to use less electricity in our homes and workplaces, we need to ensure that they’re well-insulated against outside cold and heat.

Australian buildings — even some new ones — are notoriously poorly insulated, and on that score Tasmania may be the worst offender. What we need is a nationally-funded insulation scheme, like getting batts into ceilings. Now why isn’t someone doing that right now?

• We can benefit both ourselves and the environment by taking part in Walk to Work Day this Friday — the first event of a month-long program of community-driven walking events and activities. For more information go to

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