The poles and wires problem in the grid by Mike Sandiford

In the electricity game, the “poles and wires” have become the big issue. Even the Prime Minister has starting pointing the finger at excessive investment in the electrical power grid.

So what is it with the grid that has suddenly got the Prime Minister, and just about everyone else in the electricity game, so fired up?

The background to the debate is provided by the rising cost of retail electricity. Retail electricity prices have been rising much faster than inflation over the past few years.

With the carbon tax now in place, the cost of electricity is a very hot political issue, so reducing pressures on electricity price rises is a key objective of the government’s offensive. In emphasizing the “pole and wires” the Prime Minister is pointing the finger at the grid as a key driver of recent price rises. It is the way we distribute electricity, rather than generate it, that dominates retail prices, so the argument goes.

In particular, the Prime Minister and others have begun to highlight policies that have encouraged over-investment in, or gold-plating, the electricity grid. With utilities receiving a guaranteed rate of return, grid investment has been something of a “no-brainer” for them, even if demand hasn’t fully justified it.

And now electricity demand is changing the way we utilize the grid in quite unprecedented ways.

To get some sense of the challenges, we need to look at those changes in the context of past forward projections that have guided recent and current investments. From 2000 to 2006 average demand on the National Electricity Market – or NEM – grew at about 2.2% annually. Growth varied by state, lower than average in the south (1.7% in Victoria) and higher in the north (3.8 % in Queensland).