Domestic power bills have been rising substantially across Australia since 2007. Find out why, and what we can do about it.

Is the Renewable Energy Target driving up power bills?

Opponents of the Renewable Energy Target often claim that the target is forcing up the price of power. However, analysis from energy market experts ROAM Consulting found that Australian households would pay over half a billion dollars more for power in 2020 without the Renewable Energy Target in place, and up to $1.4 billion more per year beyond that.

Even the government’s own modelling, conducted by ACIL Allen as part of the Renewable Energy Target review, found that the average household electricity bill would be lower in the future with the target in place than without it.

This is because less renewable energy generation means we need more gas, which is set to triple in price this decade. A variety of energy sources also means more competition in the electricity market – and as in any market, competition helps keep prices down.

Why have electricity prices gone up so much in the last few years?

The biggest contributing factor to electricity prices in recent years has been upgrades to network infrastructure – the poles and wires that deliver power to homes and businesses.

These network upgrades were made because of a predicted rise in electricity demand. However, overall electricity consumption has actually fallen over the past five years, due largely the uptake of household solar and an increased awareness of energy efficiency. Nonetheless, network companies still have to pay for these upgrades, and the cost has been passed on to consumers in the form of higher power prices.  

The Australian Electricity Market Commission (AEMC) estimates that network costs now account for half of all residential electricity charges. Meanwhile, the Renewable Energy Target only contributed between 3 and 5 per cent to the average household power bill in 2013, according to analysis by the AEMC, the NSW Independent Pricing and Regulatory Tribunal (IPART) and the Queensland Competition Authority (QCA).

What will happen to electricity prices in future?

Power prices rises are expected to ease significantly over the next few years as network costs stabilise. However, the overall upward trend will continue into the foreseeable future.

While opponents of the Renewable Energy Target suggest that reducing or removing the target will lead to lower power prices, it’s not that simple. Reducing the Renewable Energy Target means more of our electricity will need to come from gas-fired power, the cost of which is set to rise dramatically over the course of the decade. Meanwhile, the price of energy from renewable sources such as wind and solar will continue to fall.

The result of all this is that without the Renewable Energy Target to encourage more renewable power generation, Australian households would pay a total of $510 million a year extra for electricity in 2020 (equivalent to more than $50 per household). Beyond 2020, the extra cost could rise to $1.4 billion each year.

What can we do to combat rising electricity prices?

In addition to retaining the Renewable Energy Target, the best thing we can do to combat rising electricity prices is to reduce or better manage ‘peak demand’.

Peak demand refers to the small number of times each year when very high amounts of electricity are used – usually the hottest few days of summer. As we build more houses and install more air-conditioners, the demand for electricity on these very hot days goes up, and we need to build more power plants to avoid blackouts.

These new plants come at a considerable cost to consumers, even though they might only be used for a few hours a year (over the whole of 2012, the electricity network experienced peak demand for less than 40 hours). Energy policy experts generally agree that building additional power plants specifically to meet the small number of peak demand periods every year is the most expensive way to deal with the issue.

So what’s the solution? Clean energy sources like co-generation, tri-generation and solar can help reduce strain on the electricity network during peak demand times. And energy efficiency measures can also make a big impact in reducing peak demand.

The increasing uptake of rooftop solar panels is already playing a major role in managing peak demand on hot summer days. The technology’s growing contribution was particularly evident during the January 2014 heatwave – the Energy Supply Association of Australia acknowledged that rooftop solar probably stopped Victoria from hitting a new record for network power use on a single day.

There is also substantial scope for different types of ‘smart’ power demand management to help reduce peak demand. These can include remotely cycling air-conditioners on and off, more widespread use of energy storage and a system that charges different rates for power use during peak periods.

By better managing peak demand, we can reduce the need to build expensive extra power infrastructure and help ease the pain of residential power prices.

References

  • AEMC Residential Electricity Price Trends, December 2013
  • IPART Report - Review of regulated retail prices and charges for electricity 2013 to 2016, June 2013
  • Queensland Competition Authority Final Determination Regulated Retail Electricity Prices 2013-14
  • BREE, 2013, Australian Energy Technology Assessment 2013 Model Update
  • Roam Consulting, RET Policy Analysis, April 2014
  • Threat to energy support now shifts to bush fires and storms, ESAA media release, 17 January 2014.