Rising power prices prompt calls for overhaul

Updated April 08, 2012 16:29:31

Photo: A drop in demand under an energy savings initiative could save $12 billion in infrastructure costs. (Mick Tsikas: Reuters)

There are increasing calls to overhaul Australia’s electricity sector as electricity prices skyrocket and governments try to reduce carbon emissions.

A massive $45 billion over five years is being spent to upgrade and maintain the network, and that cost is being passed onto the consumer.

Because it is based on burning coal, the electricity network is Australia’s biggest polluter, producing one third of national carbon emissions.

Experts say one of the problems is that power companies do not have a financial incentive to stop people using so much energy.

RMIT Adjunct Professor Alan Pears says Australia has to reduce electricity demand at all times of the year.

“The rules of the energy market need to change in a pretty serious way so that energy networks have a financial incentive to help people to save energy rather than to get them to use more,” he said.

“We have examples in other parts of the world where energy networks are paid on a different basis and are paid to achieve societal outcomes rather than a very simplistic economic model.”

One of those examples is what is known as an energy savings initiative.

New South Wales, Victoria and South Australia have already introduced versions of this system and the Federal Government is investigating a national system.

The system works by a government setting a yearly energy savings target for electricity retailers.

Those retailers can then choose which way they will reduce the amount of electricity they sell.

Erwin Jackson, the deputy head of the Climate Institute, supports the scheme.

“Effectively what it is doing is giving an incentive for an AGL or an Origin to go out and work with a company like Harvey Norman to get energy efficiency appliances into someone’s house, whether they be a solar hot water system, a more efficient fridge, more insulation,” he said.

For example, electricity retailers can organise a bulk buy of solar hot water heaters, and then sell them to customers cheaper than other outlets.

Changing incentives

Mr Jackson says a trading system is at the heart of energy savings initiatives. He says the best known example being used at a state level is replacing old inefficient light bulbs.

Every company that sells low-energy light bulbs can earn a credit for every tonne of carbon they abate. Those credits are called white certificates, and they are worth money.

A light bulb company can sell its white certificate to a big electricity retailer, so that retailer can meet its energy savings target.

Mr Jackson said it changes the way electricity companies make money.

“You’re trying to create value or a price around energy efficiency,” he said.

“At the moment the incentive is for a company to go out and sell more electricity so they can actually go out and make more money.

“What you’re trying to do with something like a white certificate scheme is create a financial value on energy efficiency so they have an incentive to go away and save energy.”

If an electricity retailer fails to meet its target, it gets fined.

“So there is a direct financial penalty if they don’t,” Mr Jackson said.

Australia’s biggest infrastructure project

Electricity sector reform could help reduce bills by cutting the amount power companies must spend on network maintenance and upgrades.

By law, electricity companies must provide enough power to meet even the highest demand.

Energy expert Chris Dunstan is a research director at the Institute for Sustainable Futures at the University of Technology, Sydney.

He says more poles, wires and generation facilities are being built because of very short periods of very high demand, “typically on a hot summer’s day where there’s a lot of air conditioning running or on a cold winter’s day when people have got their electric heaters on.”

He says three-quarters of everyone’s electricity bills are swallowed by what is now Australia’s biggest infrastructure project.

“People focus on the National Broadband Network but that is only about $36 billion over an eight-year period,” he said.

“So the electricity network infrastructure spending is much greater and over a short period of time than the NBN.”

Jon Jutsen, who heads an energy consultancy called Energetics, calls it is a ridiculous situation.

“Electricity consumption (for) maybe 40 hours in the year is driving a whole investment program to supply that need,” he said.

Incorporating the customer

Mr Justen said electricity companies need to work much harder to reduce the periods of peak demand.

“What can be done in the future is to incorporate the customer into this whole equation,” he said.

“We don’t have to have a system which says we will invest and supply every need that we perceive that the customer is going to have.

“We can go back to the customer and say, how can we provide you with an incentive, or provide you with technological support, so that you can reduce your peak demand and improve your energy efficiency so we will have less infrastructure to build to supply you.”

Some electricity companies are already paying big energy users to reduce their power needs at times of peak demand.

“For example, rock-crushing businesses don’t need to crush 24 hours a day,” Mr Dunstan said.

“Even simple things like having controllers on air conditioners that can keep the fan running but interrupted for a few minutes every hour the compressor that is providing the chilling function.

“That can have a significant impact on reducing peak demand overall, but have a minimal impact of any impact on comfort.”

But Mr Dunstan said governments also need to intervene, and put a target on the network to reduce peak demand, with regular reporting against those targets.

Australian governments are now investigating a national energy saving scheme, incorporating the state systems.

Federal Government modelling shows the drop in electricity demand under a national energy savings initiative could save $12 billion in infrastructure costs.

But the Government has not yet committed to the scheme.

Parliamentary secretary for energy efficiency Mark Dreyfus says the Government is consulting.

“So often when you are dealing with state control matters it is impossible to put a clear end date or timeline,” he said.

Listen to Di Martin’s full story on energy efficiency which aired on Radio National’s Background Briefing.

Topics:electricity-energy-and-utilities, industry, business-economics-and-finance, environment, environmental-policy, australia

First posted April 08, 2012 06:48:19