The Turnbull government’s newly revealed energy plan comes with a hidden cost – and one that will ultimately be paid by lower-income Australians.
That’s because the plan, which aims to improve ‘reliability’ by forcing power retailers to sign expensive contracts with gas and coal power generators, has little chance of reducing prices overall. Worse still, it will push more of the burden of maintaining the power grid onto low-income Australians.
To understand why, we need to revisit a few basics.
Many people are unaware that electricity demand has been flat or falling in the past few years. Consumption was 6.5 per cent lower in 2016-17 than at its peak in 2008-09.
This is due to several factors. First came the efficiency revolution, in which better technology, better appliance labelling, better home insulation and things such as low-energy light bulbs cut the amount of power homes use.
Then came the boom in rooftop solar, which has been installed in 1.5 million homes – 16.5 per cent of all households – and is growing at a rapid pace.
Solar panels are a perfect match for the highest energy demand in the typical home – refrigerated air-conditioning – which can be used to keep the fabric of dwellings cool when the sun is at its brightest.
And finally there is a new threat to demand from businesses who’ve worked out that ‘behind the meter’ solar and storage systems can slash their bills. As reported recently, some shopping centre installations are expected to pay a 16 per cent return on investment for their owners.
Given that backdrop, the generators, transmission networks and retailers that make up the grid face an economic ‘death spiral’.
That is, as demand reduces over time, the portion of each unit of power accounted for by transmission costs rises. The fixed cost of the grid becomes a larger and larger slice of each unit of power sold.
So demand falls and prices go up. Demand falls further because it’s so expensive and – you guessed it – prices have to be raised again.
Who picks up the bill?
The high prices caused by that ‘death spiral’ mean the economics of storing energy are now good, and will only get better.
Rooftop solar plus battery storage is the common way to do this, but even without solar panels, homes and businesses can invest in storage systems to buy power at off-peak prices and use it later during expensive peak-demand periods.
The problem is that not everyone can afford to invest in the equipment to manage their power use in this way.
Lower income homes, particularly renters, can’t use solar-plus-storage to reduce their bills unless their landlords make the investment themselves.
That problem was identified by Curtin University professor Peter Newman two years ago when he warned that without appropriate policy, we’d end up with ‘Mad Max’ pockets in which energy poverty is a real issue.
The Turnbull plan does nothing to fix these dynamics.
Yes, the ‘reliability’ part of the package should keep the lights on, but will those ‘Mad Max’ suburbs be able to pay the power bills?
The way to avoid this problem has been understood for years.
Using incentives to bring forward investment in clean energy generation, plus providing policy certainty to encourage investment in the peaking-plants and battery projects to to support it, would create the required energy supplies for the future.
Indeed, the government’s own Finkel review found that wind power, plus the ‘firming costs’ of such back-up, is the cheapest new-build source of reliable power.
The industry knows that, and would be pushing ahead with those investments if a forward-looking energy policy was in place.
Instead, the Turnbull plan will force the industry to turn back to out-dated ‘baseload’ power plants – based on a decades-old, and frankly wrong notion of what ‘baseload’ actually is.
That leaves in place the incentive for wealthier households to take charge of the expensive portion of their own power needs, and will leave poorer Australians hesitating to turn on the air-conditioner this summer.
The heat the PM was feeling in the party room will now be felt by lower-income households instead.