When Assets Become a Liability
The cost of electricity has garnered heated debate among consumer groups, regulators and the Queensland Government over several years.
Electricity costs for small business consumers have on average doubled over the past seven years. This has largely been attributed to network cost increases. The average electricity bill can be broken down as follows:
Source: Electricity supply chain (tariff 20) Source: QCA 2013
Half of the average small business electricity bill goes towards paying for use of the network (the poles and wires).
In Queensland, the electricity network businesses are owned by Energex (in South East Queensland) and Ergon Energy (regional Queensland). Both Energex and Ergon Energy are government owned corporations, making the state of Queensland the primary shareholders.
Every five years, the network businesses Energex and Ergon apply to the Australian Energy Regulator (AER) for revenue to operate the networks over that five-year period.
This process involves Energex and Ergon submitting proposals to the AER detailing how much money they need and why. The AER then analyses whether this amount is appropriate or not and eventually determines a final allowance to be awarded.
The revenue approved by the AER is passed directly on to consumers through electricity bills, with the more revenue recovered, the higher the costs for consumers.
In addition to this, the network businesses also pass on the costs incurred for government schemes, such as solar bonus rebates.
For example, based on the AER’s data, the 44c solar feed in tariff will have cost electricity consumers $2.6 billion ($1.715 billion for Energex and $916 million for Ergon) between 2010 and 2020.
The Queensland networks have been identified as the most inefficient businesses operating in the National Electricity Market (NEM). However, this works in the State Government’s favour as the networks are highly profitable businesses that provide exorbitant returns to the government.
Despite acknowledging that these returns no doubt go towards funding other state initiatives such as social schemes, it begs the question whether a conflict of interest exists for a government owning electricity assets while committing to keep electricity costs down and implementing ambitious renewable energy schemes.
The current situation in Queensland is fast revealing the dichotomy of the State Government’s position. Due to the Government pledging to retain assets such as Energex and Ergon, they are bound to using these businesses as a major source of revenue stream. Simultaneously, the Government has announced a target of achieving one million solar rooftops by 2020.
This will be difficult to achieve without introducing another rebate scheme, which appears likely given the newly established Queensland Productivity Commission (QPC) has been tasked with investigating a fair price for solar. At the same time however, the Government has also committed to reducing the high costs of electricity prices for consumers.
Policy makers need to consider and address the likelihood of a ‘death spiral’ inevitably occurring. With new and improved battery technology emerging offering increasingly cheaper solutions, more and more consumers will opt to disconnect from the network entirely.
You can’t blame them either, provided the low rates paid for power fed back into the grid from their solar panels, only to be stung with huge power bills to buy it back.
The high cost of electricity is set to continue increasing, putting pressure on consumers to seek alternative options.
Small businesses in particular rely on minimising costs where necessary to maintain a competitive edge.
Going off grid is fast transitioning to become not only a more environmentally friendly option, but also a cheaper one. The back hand of this is that the more people exit the grid, the more costly it becomes for those who remain connected. Governments will be forced to counter this through subsidised benefits to entice consumers back to their networks.
One wonders if the network businesses had been sold or leased when the chance arose, the State Government would have been equipped with the financial freedom to pursue real reform in renewable energy policy and lowering costs for consumers.
While poor policy commitments secure positions at election time, it does nothing for Queensland constituents in the long term.
See earlier QPC report: http://www.brisbanetimes.com.au/queensland/solar-power-pricing-to-be-probed-by-queensland-productivity-commission-20150903-gje78e.html
Julia Mylne is a Policy & Advocacy Adviser at CCIQ and is our energy policy and advocacy specialist. She also serves as joint project manager for the provision of small business and residential energy consumer advocacy services in partnership with the Queensland Council of Social Service (QCOSS) and the Department of Energy and Water Supply (DEWS).