Australia’s energy crisis is not straight-forward. Far from it. It is rooted in complicated matters of government mismanagement, foreign investment of resources, and general mishandling – all of which have contributed to skyrocketing electricity prices for businesses and households.
Over the last three months in Victoria alone, wholesale energy prices have increased by almost 24 per cent. Therefore, it’s fair to say that we’ve all seen (and felt) these increases across our energy bills.
How did we get here? And more importantly: what can you do to take back control over your power bills?
Before the 1990s, all state governments owned and ran the electricity market. Today, the ACT has joint government and private ownership; Queensland has privatised the retail sector but maintained public ownership of the network; New South Wales has partially privatised its network; and Victoria and South Australia have fully privatised their networks (poles and cables), including foreign ownership.
Network services in a particular region are more efficient when served by one supplier, leading to a natural monopoly for these networks.
In an article for The Conversation, Professor John Quiggin from the University of Queensland goes as far to say, “The tragedy is that all this could have been avoided if we had seized the opportunity in the 1990s to build a unified national grid, with a single authority running transmission networks and the interconnectors between them. This would still allow competition in generation, but would abandon the idea of market incentives in the provision of network services”.
In 2010 the Australian Energy Market Commission declared that 90 per cent of all power failures between 2005 and 2010 were a failure of distribution (ie. poles and wires and related infrastructure).
Amid warnings that demand was about to spike, and blackouts would occur and claims by the distributors that they didn’t have the required infrastructure, the Australian Energy Regulator then approved a $45 billion “gold-plated” over-investment on infrastructure.
Instead, demand for power fell and Australians were left to cover the bill for a network that one former federal government advisor described as a “$45 billion investment in fax technology” at the beginning of the internet era.
And unfortunately, this occurred on the eve of what could have been the “biggest energy revolution since the electric light bulb”, says the ABC.
Closing of Hazelwood
For Victorians, the closing of Hazelwood Power Station impacted the cost of power.
Hazelwood Power Station was located in the Latrobe Valley in Victoria and supplied around 22 per cent of Victoria’s electricity generation. As a key energy resource for Victorians, the public’s expectation was that the government had a plan to replace the energy generated by the station when it closed. They didn’t. Ever heard of supply and demand? Less supply and higher demand equals higher prices.
And with the population of Victoria increasing by approximately 2,000 people per week, that means 22 per cent less energy generated to cover this population growth. So, what does Victoria do to cope? It buys energy from other states.
Generators are publicly listed
ASX-listed company AGL operates the country’s largest electricity generation portfolio and fuels about 50% of Victoria’s energy requirements. It costs them only a few cents a kWh to make the electricity and yet because of the lack of supply you pay so much more.
The situation has been likened to Coles or Woolworths owning a majority of dairy farms and they sell some of the milk to themselves and others to small grocery stores. Their internal cost of production is the same but with the shutting down of farms, the market price for milk increases, and customers prices stay high.
According to Renew Economy, AGLs electricity gross margins jumped 30 per cent in the latter half (of 2017) – from $772 million to $996 million which is the difference between the price it sells its output over the costs of generation.
The Labor initiative brought in by Kevin ’07 (at around the same time as the pink batts scheme) has not been managed well. It has resulted in a handful of solar companies taking advantage of the government grants and providing substandard service to customers giving the renewables industry a bad name.
But did you know that you are funding these grants? This is a tax (approximately 5 -10 per cent) incurred through your energy bill that is paying for the solar and LED schemes, which is even more of a reason to find out what solar could do for your business.
Take back control now
Over the last seven years, we have helped thousands of businesses reduce their energy costs through energy efficiency solutions, which ultimately reduces their reliance on the grid – the power that comes from the disjointed and mismanaged electricity grid.
Take back control of your energy expenses and investigate whether energy efficiency investments are viable for your business.
Engage with a provider which delivers solutions with a guaranteed output.