It’s the season for cherry picking on electricity prices as an election is called in Queensland. This can happen because no-one, not journalists, not ABC radio hosts, and unfortunately not ‘experts’, reads Queensland Government media releases. The offending politicians from the opposition LNP are getting a free ride, with statements like ‘Prices increased 70% under Labor’ (Tim Nichols on TV) and, ‘We will put downward pressure on electricity prices’ without saying how.
I’ve assembled a fair bit of information in two posts – Queensland powers up for a warm summer and Electricity bills – Queensland acts because it can. In this post I’ll summarise what I think has happened, and then mention some of the cherry-picked claims being made. There is some new information in the post. Also there is a particular problem with Steve Austin on Mornings on local ABC radio. I don’t mind the bloke, normally, but on electricity he’s lost the plot.
I’ve provided some links here, but there are many more in the earlier posts.
The short story is that Labor is taking out of the electricity system about $3 billion for general revenue, compared to the $5 billion the LNP were taking in 2014-15.
From the 1 July 2017, prices went up around Australia, by 3.3% for residential and 4.1% for business in Queensland. In comparable states prices rose by up to 20%. The ACCC report on electricity affordability has this table:
The price for Queensland is rounded up.
Tasmania is not comparable, because they had a hard time in 2016, with the interconnector to Victoria down for months, and a dry winter, adversely affecting their hydro. They had to bring in diesel generators to get by, so the base for the 2% increase was already high.
Holding increases to 3.3% in Queensland was already a fine effort, and happened because of government action. However, the Labor government had also taken a further range of actions around mid-year which were not reflected in the official 2017-18 pricing. The Qld Competition Authority early in June determines the standard offer for SEQ for the next financial year, which then becomes the price paid through Ergon in regional Queensland where there are no private retailers. In practice there is a subsidy of $600 million provided to regional consumers, which I understand is in effect paid by consumers in SEQ.
The Palaszczuk government got Acil-Allen who do the work on pricing for the Qld Competition Authority to take a look at what the effect of the measures taken should be on electricity bills. Acil_Allen found that there were savings in the system equivalent to 16.1% of the residential bill which the retailers were trousering.
Palaszczuk called the retailers in and threatened to start up a government retailer if they didn’t pass on the saving and show it on the bills. That has worked.
These two graphs were taken from the Acil-Allen report:
As you can see, the savings are $210 pa by 2018-19, but all that got through to the media was a $50 rebate.
For the future, Labor is promising to hold any rises to the CPI, whereas the LNP simply has a vague promise to keep prices down.
The actions taken investigated by Acil-Allen are summarised as:
- directing Energex and Ergon Energy (Ergon) not to appeal the Australian Energy Regulator’s (AER) determination
- Powerlink to not appeal the AER’s determination
- removing the costs of the Solar Bonus Scheme from network tariffs
- recommissioning Swanbank E gas-fired power station and directing Stanwell Corporation to adjust its wholesale market offers in order to lower wholesale prices.
Cherry picked information
Labor claim that prices rose by 43% under the LNP, but only 1.9% per annum under Labor. This claim has been made repeatedly, and in writing, but no expert I am aware of has critiqued the claim.
The LNP says prices rose by 70% under Labor, but the only way that could make sense is to take a starting date from early in the Bligh government, or perhaps even go back to Beattie, ignoring their own role along the way. This graph from the ACCC report shows price increases nationally from 2007:
There are some problems with the ACCC information, but the shape of the graph is probably right. The Newman government was in power from early 2012 to 2015. The national carbon price had an effect, but when Abbott eliminated it prices returned to a point that still revealed an upward movement.
Nichols is apt to say that prices doubled in the last 10 years and are now at all-time highs, which is fatuous and misleading. Prices of many things are at all time highs.
Sarah Elks in the OZ (pay-walled – Google her name and ‘Rising power prices and energy security will be a key policy battleground during the 28-day Queensland election campaign’ if you have a sub) reports that the LNP alleges wholesale power prices have spiked 60% under the Palaszczuk government.
It’s true that the spot market in Queensland went a bit crazy over the recent summer when Queensland became the electricity generator of last report in the NEM almost continually exporting power to NSW, a hot summer led to higher than predicted demand, and on one occasion five coal-fired power stations partly failed in the heat.
However, the actual spot market and spot futures for Queensland are now the lowest in the NEM.
The same summer situation is unlikely to re-occur because of re-opening Swanbank E and a raft of measures I detailed in Queensland powers up for a warm summer.
A new coal-fired power station
The LNP’s major promise is to initiate building new coal-fired power station in north Queensland. Nichols reckons he’ll have the processes in place within 90 days.
What he is not saying is that it will take 7 or 8 years to be built, so it opens in the mid 2020’s when on present forecasts storage through batteries, pumped hydro, molten salt or whatever will be cheaper and quicker to build.
Also there is a serious issue of the risk of stranded assets. The capital cost of coal-fired power is normally spread over 40 years. The world is accepting already that we need zero emissions by 2050.
In fact the problem is much worse than that. Around 2015 the IEA told us we should build no new coal generation after 2017. I think that by 2025 the world will realise that you simply can’t go on using this stuff and there will either be regulations or cost penalties imposed to make it difficult if not impossible.
Today’s news brings a story that a secret government report splashed on the front page of the Courier Mail which reportedly found that the NQ coal-fired power station was doable and would bring power prices down.
I heard Mark Bailey say he didn’t know about it until yesterday. Palaszczuk refuses to say whether she knew, but now says it has been released, but it has been cherry-picked, go read it.
I might do that, but for now everything I said above remains true. Also in the earlier post I pointed out that Jim Soorley, who is on the CS Energy Board, reckons that CS Energy did the numbers and they don’t add up. CS Energy lives in the real world, so I’d tend to think they know what they are talking about.
I’ve set up a tag Austin_Steve and I’m sorry, if you want the full story you’ll need to read four longish posts.
He started by interviewing Mark Moore, CEO of CS Energy and Mark Bailey, the Qld energy minister, in July and then used Rod Sims to undercut them, saying over and over that the Labor government has a secret taxation agenda with electricity which is bleeding consumers dry and Queensland prices are the highest in the country.
Sims of course, did not have detailed information on Queensland, and for example has no idea of the challenges of weather, topography and foliage growth in running an electricity network in Queensland, but has a neoliberal agenda which favours privatisation and competition. If these policies are not producing the right outcome, you just need more of them.
More recently Austin has been trying to hold the Qld govt to account when he hasn’t done his homework on the issue at hand. I’m not going to repeat it all here. It has become ugly, to the point where Queensland ministers, justifiably I think, are clearly reluctant to go on the program, making it impossible for his program to provide fair and balanced coverage of the election. I think he should be benched for the period.
ACCC has questions to answer
Meanwhile, as I reported in the post Electricity bills – Queensland acts because it can, there are serious questions about the accuracy of ACCC information in its report. The average Queensland bill at $1955 is about $600 more than I found from two other sources.The ACCC did not verify the information by surveying actual bills.
In thinking about this, I wonder whether they have taken country network costs, which are subsidized befiore they are charged, and smeared them across the state. Or perhaps the reverse with retailing, as Ergon carries the functions of sending out and collecting the bills in the country.
But there is a problem more generally, as the Thwaites inquiry in Victoria found the costs of retailers acquiring and keeping customers was part of the retail charge, but exceeded the benefits of competition.
Sims might contemplate why Queensland has done so well with so much consolidated public ownership. He might also contemplate this graph:
And then this table on the introduction of private retailing:
Prices were on a downward trend before we started down the road of privatisation and competition in the mid 1990s. The NEM became fully functional from about 2009.
These graphs from the Grattan institute are also interesting:
That graph shows that wholesale prices fell after 2005, and have been flat from 2010, network costs have risen moderately, but retail prices have rocketed.
Networks are way less than the 50% found by ACCC, and wholesale, the actual electricity, is minuscule.
The more you delve into the electricity industry the more complex it becomes. I doubt anyone understands it completely. Meanwhile you can cherry-pick information to say almost whatever you like.
Update: On the mysterious report on a new coal plant in North Queensland, the Brisbane Times reports that the report was commissioned in February, done by consultancy firm Energy Edge, and delivered on 21 August.
- The top line in the briefing paper from Queensland’s deputy director-general of energy to the department’s director general on August 21, 2017 says only if high wholesale electricity prices continued was the plant “commercially viable.”
It would also need to stay open for 30-40 years and would become unviable if a price was put on carbon.
- it is not viable if the wholesale electricity price drops to last year’s average wholesale price of $59.99, the Energy Edge consultants report makes clear.
“The ultra super-critical coal-fired power plant is only viable under high price scenarios where the wholesale price is maintained at $75 per MWh,” it says.
Queensland’s wholesale electricity price in 2017 according to the Australian Energy Market Authority is $93.12, but in 2016 it was $59.99 per megawatt and was $52.15 per megawatt in 2015.
While we are here I’ll post these future prices from the Australian Energy Regulator published in July:
And from Finkel: