Electricity pricing is confusing – and that's why they're using it to mislead us

Extract from The Guardian

Greg Jericho

One of the more frustrating aspects of energy policy is that it begins and ends with electricity prices and the over-arching issue of climate change is a side issue

‘When you pretend there is no cost of climate change you end up with idiocy such as the treasurer of Australia taking a lump of coal into parliament.’

Photograph: Mick Tsikas/AAP

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Thursday 16 February 2017 11.29 AEDT 

The government has clearly decided that electricity prices is its key message for the next three years – and as a result the prime minister has ensured the policy debate will be biased towards climate change denial and will continue to treat Australians as idiots.

When the prime minister let fly against Bill Shorten in parliament last week, amid the personal attacks, the only policy areas he broached were company tax and energy prices. Pointedly, energy price was the first issue that came to him after he told his jokes about Shorten dining with Dick Pratt.
Turnbull exclaimed of Shorten that “he is selling out the jobs of Australian workers, every day he perseveres with his ludicrous policies on energy, which will have the result of further unsustainable increases in the cost of electricity”.

It is one of the more frustrating aspects of energy policy in this country that it virtually begins and ends with electricity prices and the overarching issue of climate change is almost a side issue.
For example, there is next to no political cost that the government – now in its fourth year – still has no long-term climate change policy. Laughably, despite signing up to the Paris agreement, and despite having a goal of reducing emissions to 26-28% below 2005 levels by 2030, the government is still conducting a review to work out how it will actually achieve that goal, because its current policy runs out in 2020.

Mostly this is because the state scheme it so loves to criticise are the main means by which the targets will be achieved.
Remember that the issue of climate change was a hot-button one 10 years ago in the 2007 election? That was when a journalist could say “the prime minister also gave some new details of how his proposed carbon trading scheme will be set up” and be referring to John Howard.
It was also a time when our current prime minister could say of the impact of climate change that “for practical purposes this will mean that by mid-century all or almost all of the world’s electricity will have to come from zero or near-zero emission sources”.
And lest you think we have progressed, Turnbull – who once played the role of one who cared about climate change – now stands in parliament and accuses those who would encourage renewable energy as being “ideological”.
And far from being mocked, the move is considered a political masterstroke.
It’s rather sad that shafting future generations and adopting the rhetoric of those who see climate change as a UN hoax can get praise and not universal condemnation.
It’s also a weird state of affairs given electricity accounts for just 2% of household annual spending.
On average, Australian households spend more each year on take-away food, eating at restaurants, international holidays, domestic holidays, beer, tobacco and a heck of a lot more on rent.
For employee households, the level of spending on electricity is even less than the overall average. For such households, electricity is just the 15th biggest item they spend money on each year.
Because electricity is a necessity, it does account for more of the budget of poorer households – such as aged pensioners and those on government benefits, but for none is it the biggest item:

The big problem for rational discussion of electricity prices however is that unlike rent – which is a regular fortnightly or monthly cost – electricity for most households is a quarterly cost and thus much larger, and more able to subject households to “bill shock”.
And unlike rent or mortgage payments, electricity pricing is bloody confusing and thus very able to be used to mislead – such as suggesting renewable energy is the main culprit rather than responsible for around 8% of the total cost of electricity.
It’s mostly forgotten now, but electricity prices used to rise in line with inflation – and even a bit slower. From 1984 to 2007 electricity prices across the nation rose on average by 3.6% each year, compared to an average annual inflation rate of 4%.
But after 2007 electricity prices took off – and zoomed ahead of inflation well before the carbon price was introduced in July 2012:

The major reason for the price rises was not renewable energy, but a massive increase in the network costs due to what was referred to as the “gold plating” of the network – essentially over-investing poles and wires because of the ability to pass on the cost to consumers.
It meant that across the nation the rise in electricity price in the two years before the introduction of the carbon price was almost as much as the occurred during the two years that the carbon price was in place:

Now while you certainly can argue that energy companies were gaming the system, one of the things in their favour was that prior to 2010 the use of electricity had been rising along with our population pretty much since the second world war:

But over the past five years the consumption of electricity has been flat across the country.
Partly this is due to electricity-heavy manufacturing businesses closing, partly it is due to households using more efficient electrical devices – think how much more efficient a refrigerator is now than one bought 10, 15 years ago – and partly it is due to households using less electricity, because of the sharp rise in costs.
There has also in this period been an increase in renewable energy, which as the latest report by the chief economist on Australia’s energy statistics notes, is more efficient than electricity generated by coal.

The big driver in the increase in renewable energy since 2010 has been wind and to a lesser extent, solar:

That increase, which was driven by increases in the Renewable Energy Target by the Rudd government and the introduction of the carbon price, saw renewable energy go from accounting for 7.5% of electricity generation in 2008-09 to 14.9% by 2013-14.
But once the carbon price was removed, that level began to fall:

And as a result, after a long downward trend of electricity generated greenhouse gas emissions, once the carbon price was removed in the middle of 2014 those emissions began to rise – and have continued to do so:

It’s not something the government likes to talk about – and actively avoids doing so when talking about its energy policy.
And it is worth remembering that the only reason renewable energy, issues with national energy market, worries about brown coal fired power stations closing, or the cost of renewable energy targets by 2030 are an issue is because we need to reduce our emissions.
It is a symptom of the backwards debate we are currently having.
A more sensible debate would be for the fight over how we can reduce our emissions in the most cost effective way.
But that of course would mean putting a price on carbon – either through an economy-wide emissions trading scheme or though a more narrow emissions intensity scheme for the electricity sector.
The current debate with its primary focus on cheap electricity instead loads the debate in favour of coal and gas – because currently they are cheaper for generating electricity. But they are cheaper only so long as you pretend that there is no cost of climate change – in effect setting a price of zero for carbon emissions.

And when you do that, you end up with idiocy such as the treasurer of Australia taking a lump of coal into parliament giggling like he is some particularly stupid Grade 1 student at show and tell.
The reality is not even the private sector wants to invest in a new coal fired power station because the price of renewables is falling so fast that a new coal power station would not be able to compete.
When you leave climate change out of the debate you end up with the current system where supply can be gamed and where the first step is to blame renewables and it all becomes out finding someone to blame for short-term political purposes.
So long as the energy debate ignores climate change our policy response will remain at that infantile level. And so long as that is the case we should condemn both the policy and the politics.