Issue #1567 3 October 2012
Householders battle commercial power industry
Electricity rates in Australia have risen, in some states very sharply, since 2008. In states where electricity generation industries are still publicly-owned the state governments operate them as though they were already privatised, i.e. on a commercial, maximum profit basis.
Under a federal-state agreement, electricity rates are dependent on the value of the “poles and wires” distribution infrastructure. That value is proportional to the amount spent on installation and maintenance, which state governments have maximised (apparently beyond necessity) in order to justify severe rises in rates.
The Guardian has also pointed out that increasing electricity rates facilitates privatisation because it offers prospective purchasers maximum profits as soon as they purchase the generating business concerned.
That, at least, is the intention. However, the growth of the renewable energy industries is posing a serious problem to them.
To date, solar and wind power stations have struggled to compete with coal-fired power plants, which have enjoyed economic advantages including economies of scale. That situation is now changing. Wind power stations are now edging into economic competitiveness, and solar plants are likely to be competitive within ten years.
Unexpectedly, another critical factor is the nationwide proliferation of domestic solar PV (photo-voltaic) arrays. They only provide power during daylight hours, but that characteristic, together with the growth of domestic arrays, is making a highly significant change to Australia’s energy demand, and is highlighting the weaknesses of the privately-owned energy industry.
A vicious circle
Installation of domestic PV solar arrays has increased considerably. In 2010 and 2011 the installed capacity reached 1.4 gigawatts, a seven-fold increase, and by 2013 it’s likely to reach 2 gigawatts. These installations provide just over 1.4 per cent of our total energy needs, but their impact is disproportionately high.
There are two peak electricity demand periods. The initial period is roughly between 9 am and three pm, the later period between 6.30 pm and 8.30 pm. PV solar arrays are very effective in meeting demands during the first peak period, when energy-hungry air conditioners are in use.
The energy corporations charge different rates for different periods, the highest for the peak periods. However, the use of PV solar has resulted in decreased demands during the first peak. In the 2011-2012 financial year it fell 4 percent in Queensland and 8 percent in South Australia, compared with the mid 2007 to mid 2009 period.
That’s bad news for the corporations. Most power stations in Australia are coal-fired, and unlike gas-fired or renewable power stations, their energy output can’t be adjusted every hour, so they have to constantly produce enough power to meet the evening peak demand.
This requirement, together with the decrease in demand during the first peak period, means that corporate profits have been significantly squeezed.
When PV solar installations began modifying the peak-hour demand for energy, the corporations increased their rates, rather than just accepting lower profit margins. Many consumers reacted by installing PV solar arrays, which becomes an increasingly attractive economic proposition with each rise in electricity rates.
The result conformed to the prediction of two economists working for power corporation AGL. They said:
“ … when electricity rates are raised … the rate shock moves customers to cut their kWh use. The utility then raises its rates even higher – causing a further spiral as customers cut their use even more. … In the final stages of that death spiral, the more affluent customers drastically cut purchases by implementing efficiency and on-site [PV solar] power, but the poorest customers have been unable to finance such measures.”
They’re right. The increase in power rates is now having a terrible impact on people who don’t own their own homes, or who do own them but can’t afford solar arrays.
Privatisation not the way to go
The problem lies in privatisation of the state power generation facilities which are crucial national assets and should remain publicly-owned. This is clearly evident in the current situation, in which the need to mitigate climate change demands the use of renewable energy sources for power generation.
If the power industry had remained in public hands the state and federal governments could have cooperated, phasing out dirty coal-fired power stations and introducing new renewable energy plants, with the cost borne by the nation as a whole.
The energy contribution made by PV solar arrays would have been welcomed, because it would have reduced the necessary scale of the new renewable energy power stations. However, electricity privatisation has made all this extremely difficult.
To date, state and federal governments have offered rebates to householders for installing solar arrays. This was essentially done as a vote-winning exercise, with no intention of challenging the domination of coal-fired power in the energy market.
To secure that domination, the state governments might cut the solar rebates and take other measures against renewable energy installations.
But NSW Premier Barry O’Farrell has already tried that. He managed to damage the PV solar and wind power industry but failed to finish them off. The renewable energy industries continue to grow, and it’s possible that the private corporations will end up making so little profit that investors begin to abandon the coal-fired power industry.
The David and Goliath struggle between that industry and householders might precipitate the end of the fossil fuel corporations’ domination of energy generation.
The demise of the privately-owned section of the coal-fired power industry might result in catastrophic power shortages or even an energy collapse. Conservative governments might even be forced to take over the coal-fired plants in order to secure the public electricity supply.
That certainly doesn’t mean that private ownership of the power industry would cease. Many of the new wind farms are privately-owned, just as future solar power stations are likely to be, under current state and federal governments.
We have to change that. Public ownership of the energy industry is crucial, not only to provide Australian households with electricity at reasonable rates, but also to secure the well-being of the planet.
Acknowledgements: Who’s Afraid of PV Solar, author unknown, see theconversation.edu.au/whos-afraid-of-solar-pv-8987
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