Demand for electricity is plummeting, so why do prices remain so high?
Demand for electricity is plummeting, so why do prices remain so high?

Energy myth busted, then busted again

A MID-North Coast economist-turned cattle farmer has made a splash in the power price debate, producing figures he says shows electricity demand has plummeted and over-investment in "gold-plated" infrastructure is the true reason for soaring power bills.

However, power company TransGrid, which owns and builds high-voltage power lines, including one controversial new line intended for the Northern Rivers, has slammed the comments as "completely misleading".

Bruce Robertson, a former investment analyst now raising beef cattle at Burrell Creek, about 10km south west of Taree, has earned a mention by Fairfax and ABC Radio in Sydney this week after the Productivity Commission corroborated his claim about the reasons for high electricity bills.

This morning Greens MLC John Kaye called for TransGrid's project to build new high-voltage power lines through the Northern Rivers - to be scrapped, because the falling power usage suggested they would not be needed.

Speaking to ABC Radio in Sydney, Mr Robertson said peak demand in NSW had fallen about 15% since 2008 while power prices in regional NSW had soared by about 154%.

"These guys have been doing price rises in spades," Mr Robertson told the ABC's James Valentine.

"It's up 15% per annum. In our area, if you're a country resident, it's even worse - we're up 154%.

The average bill, in a Country Energy supply area, is up 154% since 2005.

 

"They keep forecasting large rises in peak demand, large rises general demand, when both are in fact falling. They are forecasting against an established trend."

Instead, Mr Robertson said the high electricity prices came down to the level of investment power companies are investing in major infrastructure, such as the TransGrid network (which says it accounts for about 6% of North Coast electricity bills).

"We're paying too much because these guys are investing too much," he said.

A spokeswoman for TransGrid agreed electricity usage had fallen over the past few years. 

However, she said the power sector had always been open about the shifts in demand and the reasons behind the prices were more complex than that.

The key factors behind the higher prices were:

  1. Ageing infrastructure, with some parts of the electricity network as much as 50-years-old. That meant money had to be spent replacing that infrastructure, while, in the meantime, more had to be spent maintaining the existing network.
  2. Increased demand as growing prosperity led to more people owning more power-hungry appliances.
  3. The increasing pressure of periods of peak demand - when everyone gets home from work and turns on their air-conditioners, for example - on electricity infrastructure.
  4. Meeting reliability standards for the electricity network.
  5. External impacts, such as the higher cost of credit since the global financial crisis and the impact of high commodity prices during the past few years on the cost of repairing and replacing infrastructure.
  6. Other factors, such as changes in government policy, which can force the replacement or upgrade of infrastructure.

The spokeswoman said those causes were widely agreed across the industry and its regulators and were cited to a Senate inquiry into power prices by, among others, the Australian Energy Regulator, the Department of Resources, Energy and Tourism,  the Australian Energy Market Commission, and the Energy Networks Association.

She said Mr Robertson's observations were taken over a relatively short time frame and longer term trends still pointed to demand increasing in the longer term.

That said, she agreed demand had fallen, pointing out the chairman of peak body Grid Australia, Peter McIntyre, had told the Senate as much during its price inquiry.

"In the last year or two we have observed a softening of demand, with peak demand falling and energy consumption falling, and the companies are going through their plans to look at how they reduce capex and how they rework the numbers and the solutions to meet the demand," Mr McIntyre told the Senate.

The Transgrid spokeswoman said falling demand was the reason TransGrid had put the new North Coast high voltage network on hold to as far out as 2020, the spokeswoman said.

"When you are building a massive piece of infrastructure, obviously you have to look at the long term trends and the underlying reasons for that," she said.

The point remains that even if you take out the impact of demand, it is difficult to dispute that much of the vital transmission and distribution infrastructure, built 40 to 50 years ago, has reached the end of its useful life and needs replacing.

Among the variable factors impacting on consumption on the Northern Rivers were things such as the recent run of mild summers, a relatively slow economy, and the enthusiastic uptake of solar power.

However, in the longer term, the independent Australian Energy Market Operator was still forecasting increases in demand over the coming 10 years, with an average annual growth rate in NSW of 1.2%. Queensland's average annual energy use was tipped to rise an average 2.5% a year over the next decade.



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