What's behind the electricity price rises?

The cost and provision of energy has been a vigorously debated issue in Australia throughout recent years. Australia has the unique challenge of providing power to remote locations across a vast stretch of land. These geographical concerns are coupled with the fact that electricity demand is set to increase by almost 50% between now and 2030 ⁽¹⁾.  Since the federal Government announced plans to introduce a CPRS there has been increasing concern from consumer groups about the associated price rises that could accompany the scheme. However, with the CPRS showing no signs of getting off the ground, consumer advocates are questioning why energy prices have already experienced notable increases. 

The fact is that energy prices have risen by around 35% in the last three years ⁽³⁾. According to the federal resources and energy minister Martin Ferguson, these price increases have been necessary to fund the improvements in the national electricity network and promote the renewable energy sector. Ferguson contends that without these increases Australians would be subjected to power rationing and a collapse of the renewable energy sector ⁽⁴⁾. The Minister further asserts that around $100 billion is required to meet growing network demands while also replacing ageing infrastructure. This claim has been refuted by many environment groups who claim the independent regulator has been asleep on this issue and failed to ensure competition in Australia’s electricity market.

Total Environment Centre (TEC) believes that the independent regulator IPART has done nothing to protect consumers from price gauging by electricity retailers. The group suggests that the inaction of both electricity providers and Governments has led to the current situation; where the nation’s electricity network is outdated and extremely inefficient. TEC highlights the fact that the major energy providers plan to spend only the bare minimum on improving the efficiency of the current network. An example of this funding discrepancy is evident in a recent budget release from Energy Australia that allocates only 0.5% of the annual budget towards energy efficiency and demand management. A senior TEC campaigner believes that regulators have a role to play in all of this, and should put more pressure on retailers to improve efficiency instead of just constructing more power poles and wires ⁽⁵⁾. TEC further asserts that IPART have merely become a mouthpiece for the energy companies and their inaction has allowed electricity providers to continuously raise prices without justification. 

Managing director of International Energy Consultants (IEC) John Morris contends that Australian energy prices are considered quite low by world standards, highlighting that prices in the Philippines can be up to double that of those in Australia ⁽⁷⁾. While Morris considers current prices comparatively low on a global scale, he does agree with Minister Wong’s summation that the proposed CPRS will not directly increase consumer electricity prices. In relation to the response of electricity retailers to the proposed CPRS, Morris surmises the situation by stating; “Now will they go out of business? No. Will there be any shortfall in generation? No. It just means that the existing generators won't be making so much money.”⁽⁷⁾ Now the question remains; if electricity retailers are regulated into reduced profit margins, will this actually drive efficiency gains in the sector, which, according to many environment groups is long overdue.    

CEO of Origin Energy Grant King has refused to entertain some of the doomsday scenarios that predict mass power outages through an unreliable supply network. While King does anticipate that energy prices could increase by up to three times the current level by the year 2020 he believes the current energy debate is misguided at best. Instead of citing a price being placed on carbon as a potential cause for energy price rises, King asserts that the opposite is true. According to King, the price of energy will rise considerably because of the real possibility that a carbon price will not be introduced. King highlights the fact that companies like Origin are already poised to invest in the sector but are hesitant without certainty in the policy framework. Moreover, with firm policies in place, energy providers will be better placed to invest in areas of greatest efficiency and the lowest risk of capital ⁽⁸⁾.       

King further contends that an infrastructure upgrade of Australia’s electricity network is not only achievable but vital to Australia’s energy security. He believes that these improvements will be no more daunting than the roll out of infrastructure that has occurred in the past 40 years ⁽⁸⁾. King goes on to suggest that the key is to get the right mix of energy sources based on the policies that are in place. It is undoubtedly a critical moment in the Australian energy debate and King has grave fears that policy makers and politicians have grown tired of this complex matter and have in effect postponed any decisive action. A policy environment void of vision and innovation will effectively lock us into a ‘business as usual’ approach to energy production. Ultimately –according to King- making it extremely difficult to meet renewable energy targets and ensure affordable energy prices into the future.