Australians are using less power but paying more for it, with potentially highly damaging consequences for the electricity system, a new Grattan Institute report finds.
Shock to the system: dealing with falling electricity demand shows that while the average household has consumed seven per cent less power since 2006, its average power bill has gone up over the same period by more than 85 per cent: from $890 to $1660 a year.
Prices have stayed high in part because network businesses – which carry power through poles and wires from the generator to the home – have spent billions of dollars on infrastructure that falling consumption has made redundant.
‘A nasty correction is coming and the question is who will pay for it – power companies, governments or consumers again?’ says Grattan Institute Energy Program director Tony Wood.
Network businesses, unlike electricity generators, are regulated monopolies not subject to market forces.
For years regulators have allowed these companies to earn excessive profits by setting tariffs that are too high, given the low risk they face as monopolies.
This was less of a problem when consumption was rising but when it falls, the high cost of the network is spread over a smaller volume of power use, and everyone pays more.
In response, governments must ensure that network companies make future investments that better match future power needs, and begin the hard task of reforming electricity tariffs so that they better reflect the cost companies incur.
‘Even with these changes, redundant assets may have to be written down, and it’s a hard job deciding who will pay for that,’ says Tony Wood.
‘Reforms in this area will be neither simple nor painless, but governments must act now to prevent even higher prices and more pain down the track.’
In response to the Grattan Institute’s report, UnitingCare Australia national director Lin Hatfield Dodds sais it reflects ‘the growing level of concern expressed by our clients over the past decade about the impact of energy prices on household budgets’.
‘Charges for network costs can make up half of current household energy bills, making it very hard for people to simply reduce spending via lower usage,’ Ms Hatfield Dodds said.
‘The impact on consumers, particularly people in vulnerable and disadvantaged households, should be paramount for any government when dealing with the nation’s energy challenges.
‘As the report’s author says, if consumers continue to bear the brunt of paying for network infrastructure, and if bills continue to rise while overall demand falls, the result will become politically unacceptable. Ensuring reliable, affordable access to this essential service should underpin policy development.’
UnitingCare Australia, an agency of the Uniting Church, is one of the largest providers of social services in Australia, via a network that employs 35,000 staff, supported by 24,000 volunteers, to one in eight Australians each year in 1,300 sites across remote, regional, rural, and urban Australia.
‘The UnitingCare network is actively involved in the provision of services in every state and territory to assist low income and disadvantaged people via financial counselling and emergency assistance. Across Australia there are households paying two-thirds of their income on housing plus energy – a key stress factor identified by our financial counsellors,’ Ms Hatfield Dodds said.
‘There is no single answer to the conundrum faced by consumers and Australia’s electricity transmission and distribution network businesses.
‘Energy is an essential service. Reliable access to affordable electricity underpins good health and access to the technologies that enable workforce and community participation.’