Why your power bill will stay high

This week, Prime Minister Scott Morrison continued his verbal assault on high electricity prices at press conferences and on Twitter.

“You asked about how we’re getting electricity prices down. Here’s my answer,” he wrote before launching into an explanation that was all passion and no substance.

In another video clip showing him having a cuppa with a family supposedly struggling with their power bills, he says that Australia has to “have laws and a big stick to make sure that they (energy companies) do behave”.

In yet other footage, he fronts the media with Energy Minister Angus Taylor to declare his mission to keep “big energy companies under control to get prices down”. Mr Taylor chimes in that the Government is going to ban “sneaky late payment” fees on bills.

Mr Morrison threatened to force big energy companies to divest in order to increase competition, which he said would lead to lower prices. His intentions were met with dropped jaws from business and economic leaders.

But all this talk is at best window dressing and at worst hyperbole, because there is little the Government can actually do in a free market, in this case the highly competitive energy supply market, to force base prices down.

Further, any ideas about building more coal or gas-fired stations to ensure that electricity supply is constant will actually drive up prices as generators factor the new construction costs into their pricing. Someone has to pay for new generation and, as usual, it will be the end customer – you.

The way the Australian wholesale energy market works is complicated. So much so that the only outsiders who understand it thoroughly are regulators and big think tanks. It is all too much for most others.

In a nutshell, it goes something like this.

The National Electricity Market (NEM) monitors how much power the grid needs at short intervals throughout the day and night, depending on consumer demand. Electricity suppliers are obliged by law to match that demand.

The suppliers buy the electricity from about 100 wholesale generators connected to the NEM. The generators place bids into the market and the Australian Energy Market Operator (AEMO) decides which offer, usually the lowest, will be taken up, signalling to that generator to pump power into the grid.

And this is where the system is gamed, according to the Grattan Institute, because the generators can manipulate their prices to take advantage of spikes in demand.

On a very hot day when air-conditioners are sucking power from the grid, for example, there can be a shortage of energy to go around. Knowing this, generators such as gas companies will agree to switch their furnaces on to create extra supply for the grid. And guess what? They command a premium price for the favour. That extra expense is then passed onto the customer by the energy retailer.

So until the Government intervenes to stop this gaming, there is very little that will guarantee electricity prices fall. You can take the Prime Minister’s words with a grain of salt, for now.

Earlier this week, Mr Morrison also hinted that the Government might offer cheap loans to companies who agreed to build new coal-fired power plants.

He and others assert that only new fossil-fuelled generators will ensure there is plentiful electricity “when the sun goes down or the wind don’t blow”. This is inaccurate. We now have the technology to build huge, lithium-ion batteries to store the power produced by renewables so that it can be dispatched when needed.

Just ask South Australia which last year took delivery of such a battery system, courtesy of colourful entrepreneur Elon Musk. An assessment of the system by the AEMO declared: “The speed, precision and agility of the battery is unprecedented in dealing with both major power system disturbances and day-to-day frequency variations.”

And as for the Coalition’s assertion that renewables are too expensive, that’s another furphy. Renewable electricity in the wholesale market is regularly cheaper than fossil-fuelled power. Plus, solar farms are far less expensive to erect than fossil-fuelled generators. Don’t believe me? Ask Origin Energy.

Finally, for all those who fantasise that we should begin building nuclear power plants because they are emissions-free, think again. If you take the whole lifecycle of nuclear energy into account, it is far from emissions-free. Carbon emissions are created when the uranium is mined, transported and processed to make it into a fuel.

Plus, the volume of water needed to cool the super-hot spent rods afterwards means that whole lakes or other bodies of water would be needed. In fact, per unit of electricity, nuclear plants require vastly more water than coal-fired power stations.

And coal-fired power plants are very water-hungry. If they were not cooled they would turn into big piles of molten metal, such is the high temperatures required to burn the fuel in order to create steam-powered electricity. When so much of Australia is dry and now in the grip of a drought, can we spare a single drop of water to support an energy industry?

Oh, and let’s not even get started about how much more expensive nuclear energy is compared with renewables or where to bury the waste that will remain radioactive for many lifetimes.

Do you think the Government is illogical in calling for more fossil-fuelled electricity generators when there are cheaper, reliable alternatives? Should it be putting in more effort to encourage renewables in a bid to lower Australia’s impact on the climate from carbon emissions?

Related articles:
High power prices to stay
Power companies risking lives
Know your energy plan

Written by YourLifeChoices Writers

YourLifeChoices' team of writers specialise in content that helps Australian over-50s make better decisions about wealth, health, travel and life. It's all in the name. For 22 years, we've been helping older Australians live their best lives.

Leave a Reply

How to holiday without luggage

The rabbi’s grievous mistake