Australia saddled with a Taj Mahal power network

By Rob Murray-Leach on 9 August 2012

The Prime Minister delivered a landmark speech yesterday on the need for changes to Australia’s

energy markets, particularly the way that electricity networks (poles and wires) are managed. This

speech will significantly raise the profile of this debate, but to energy insiders this speech isn’t a

surprise, it’s long overdue.

No doubt there will be a political fight in shifting anger about rising energy prices from the carbon

tax (the Australian Government) to the energy market (the states). However, the Prime Minister has

raised issues that are very real and she’s not the first person to raise them. On June 13, Greg Hunt,

the federal Shadow Minister on Climate Action, Environment and Heritage, set out a three point

plan for reducing energy prices that included a specific change to the energy markets.

There is something very wrong with the National Electricity Market. The price of wholesale

electricity is going down, but people’s bills are going up, increasing by over 50 per cent over four

years. The carbon price only accounts for 6 per cent of the average electricity bill, and other ‘green’

schemes are less than 7 per cent of bills and actually lower wholesale prices. In contrast, network

costs (‘poles and wires’) account for 43 per cent of the average bill and are rising rapidly – in 2010

Ross Garnaut estimated that 68 per cent of price rises by then were due to network costs.

Why are network costs going up so fast? Put simply, the network companies are spending $45 billion

to ‘augment’ the network over 5 years, and those costs are passed on to electricity consumers. There

is no doubt that some of this expenditure is essential. New suburbs need to be connected and some

old infrastructure needs to be replaced. However, while its convenient for network companies to

blame aging infrastructure, it’s a scapegoat for a much broader range of spending, and probably only

accounts for 20 per cent of expenditure.