Assumptions and Spin

 

Image courtesy Richard Bradley

To be perfectly honest, gentle reader, AI gives me the yips.

But every now and again, just to stir the possum, I ask it a question.

I asked - "Why have energy prices in Australia increased?"

The answer didn't mention "net zero". 

Here it is in full -

Australia is a major energy exporter, and domestic prices for gas and coal have been driven up by high global demand and geopolitical factors, such as Russia's invasion of Ukraine. 

Gas-fired generators are often used to top up supply when other sources are insufficient, and the high cost of gas in the wholesale market effectively sets the price for all electricity during those periods.

A large portion of an energy bill (around 40-50%) covers the cost of the poles and wires network. Significant investment is currently required to replace aging infrastructure, improve cybersecurity, and build new transmission lines to connect remote renewable energy projects to the main grid. 

These costs are passed directly onto consumers through network charges.

Many of Australia's coal-fired power stations are old and becoming less reliable, leading to frequent unplanned outages. When these major generators fail, backup power (often more expensive gas) is required, causing price spikes in the wholesale market.Inflation and Interest Rates.

The general rise in inflation and interest rates has increased the cost of capital expenditure for energy companies, which in turn influences the final price for consumers.

The only rationale across this list with a direct relationship to the current government's policy refers to the cost of replacing infrastructure. Some of this replacement is simply maintenance, as what is in place now is aging. This would be necessary irrespective of how the energy is generated.

Certainly, the cost of networking wind and solar is a factor. The Australian Energy Council has presented estimates, but they don't necessarily show that the generation source is the prime factor driving increased costs. There are a range of factors, it's very complicated, and a long way from the "Net Zero is to blame" meme.

Perhaps there is another very significant factor which arises from how energy is marketed and sold, not how it is generated.

Electricity costs in Australia rose by 183% between 1996 and 2016, which was about three times the general rate of inflation. South Australia is  fully privatised and has the highest prices. Marketing, advertising, managerial and sales staff (increasing by over 200% in comparison with pre-privatisation) has a cost attached. 

Privatisation has delivered high rates of return to private owners, who were able to inflate the asset based used to calculate permitted returns at a net loss to the taxpayer.

Private companies face higher borrowing costs than government, and these are passed on to customers. Contrary to expectations of increased efficiency with privatisation, the sector experienced a marked decline in labour productivity after privatisation.

The history shows that privatisation was not the efficiency silver bullet expected, and it's worth considering whether nationalisation of the grid might at least be worth consideration. It's an essential service, after all.

But then ideology would emerge as a consideration, and debates over ideology never end well....