Power sector primed for overload
Published: May 31, 2012 – 12:43PM
It was just before Christmas when Bruce and Belinda Robertson got the news.
The letter from Transgrid arrived just as they were about to take the kids to the beach for the holidays. In it was a proposal to build power lines – the gigantic coat-hanger variety – across the Manning Valley in the mid-north coast region of New South Wales.
The Robertson family had only four days to nominate themselves for a Community Working group “which will assist in the assessment of a series of corridor options for a proposed high voltage power-line between Stroud road and Lansdowne”.
They were in shock. Ironically, they had left the city to avoid the likes of big power lines. They heated their own water, even pumped their stock water, with solar power.
“At this stage I had no idea that one of the options was next to our farm,” says Robertson who gave up life as a company analyst in Sydney to raise cattle in the bucolic region.
The second letter came in February. Their own valley is one of Transgrid’s development options and now the Robertsons are fighting for their livelihood. They find out next month where the power lines go.
“Imposing 45 metre high steel structures towering above us, just 30 metres from our house,” says Belinda. “Transmission lines of 330,000 volts crackling in the night.”
Although there was no “conclusive” evidence, she says, of there being a greater incidence of leukaemia in children, the leukaemia foundation did not recommend living near power lines.
“Schools are avoided. (There is) no compensation. The easement is on the neighbour’s land. (We) won’t live here any more. (We) won’t raise the children so close to the lines.”
When they got the news, the locals got together to form an action group, the Manning Alliance, and Bruce Robertson was forced to resort to his former skills as a corporate analyst.
He found that Transgrid had a vested interest in erecting power lines, even if they were hardly required. And as the rate of demand for electricity, particularly on the mid-north coast of NSW, was actually declining, rather than rising, there was no need to spend almost $1 billion building this latest bit of grid.
Robertson’s findings are clearly motivated by a desire to save his farm and his livelihood. There is a strong element of ‘he would say that, wouldn’t he?’
Nonetheless, he is onto something, something vital for all power consumers.
Rising power prices are an enormous issue, in NSW and elsewhere in Australia. They are critical, moreover, to business and consumer demand, and the fate of the entire economy.
And while politicians and media focus on the carbon tax as the culprit in the debate over rising power prices, transmission costs – a more significant factor – are overlooked.
“Network costs were the largest part of last year’s 18 per cent rise in electricity prices for households in this region and similar rises throughout the state,” says Robertson. “Network costs will continue to be a big contributor to price rises in future.”
The question is: will consumers suffer higher power bills due to over-spending by the network providers?
“Their incentive is to build more lines and gold-plate their network,” says Robertson. He is referring to the way Transgrid makes its money, via regulated returns on its asset base.
And it plans to spend big, expanding its asset base by 24 per cent for a cost of $2.6 billion over the next five years, a cost which will flow straight into consumers’ electricity bills.
The paradox, however, is that prices are soaring in the eastern states while demand for electricity is falling.
The transmission provider makes a regulated return on its business based on the capital invested. Perversely then, it has an incentive to build more power lines.
Transgrid rejects Bruce Robertson’s claims of “gold-plating”. It responded to a range of questions for this story and expressly denied that its infrastructure investments were driven by revenue.
Rather, its mandate was to ensure an effective national electricity market, it said in a statement, and pricing was determined by the independent Australian Energy Regulator (AER).
But if Robertson is right, the Manning project spend, earmarked at a cost of $126 million not only feeds through to higher prices, but is also unnecessary.
“This project represents a 125 per cent increase in capacity,” he said. “We consider this to be a gross over capitalisation of the network infrastructure and will lead to unnecessary rises in the price of electricity for all residents of New South Wales.”
“The Tamberlin Report, which arose from a special commission of inquiry into the privatisations, found the “regulatory environment effectively encourages over-investment in capital because if the network business can persuade the AER that the capital investment is necessary for reasons of reliability and capital growth, the increased costs associated with it will be reflected in the charges that the business is permitted to levy.”
Then there is the Garnaut Report on climate change, the updated version from late last year, which found that network costs in the national electricity market (NEM – transmission and distribution costs) have risen dramatically since 2006 and that the high cost of capital investment required in electricity networks is the largest single cause of recent electricity price rises.
The Stroud to Lansdowne project, contends Robertson, has been consistently justified by Transgrid as being for demand growth on the lower mid-north coast driven by population growth.
“Their inconsistent forecasts are for peak summer demand to grow at 25 per cent or 35 per cent over the next ten years depending on which Transgrid information brochure you care to read.”
Transgrid’s own figures show that peak summer and winter maximum demands are flat for the period 2005 to 2011.
Indeed the lower mid-north coast of NSW used less electricity in 2011 than it did in 2005 for both summer and winter maximum demands.
“It would appear that Transgrid has arrived at its 3.3 per cent per annum growth rate in electricity demand without back-testing its growth model,” claims Robertson. “This lack of rigor in a $126 million project is alarming.”
He reckons that peak summer and winter demand in the region will fall significantly over the next three years.
This falling demand is not contained to the mid-north coast of NSW. It seems consumer behaviour has changed since the global financial crisis. People switch off their lights more diligently and are far more conscious of their usage.
(And it might be reasonably supposed that demand from aluminium plants such as Norsk Hydro’s Kurri Kurri will shrink as they shed jobs if not close down entirely.)
Yet the trend is more marked in some areas than others.
On the mid north coast electricity bills went up by 18.1 per cent in 2011 (an increase of around $316 on an annual bill of $1,747). Continued large price rises are likely in 2012 as network costs and the carbon tax are transferred onto the consumer.
IPART, the pricing regulator, is now considering another round of rises of up to 20 per cent. This could add a further $412 to the average bill. So the era of low electricity prices is over. Further price rises will only make consumers and business more aware and lead to even lower demand, says Robertson.
Then there is slower population growth.
“ The latest figures for the lower mid north coast show population growth has slowed to one per cent in 2011 from 1.3 per cent in the 2001-2008 period. Transgrid’s forecasts do not appear to have been updated for the slower growth in this region since the GFC,” he says.
Another factor is lower industrial demand. “Some businesses are closing while others such as Wingham Beef Exports have cut shifts and laid off workers.”
Lower demand is also the trend among retailers thanks to a tough retail environment and the structural shift to internet retailing.
Other mitigating factors in what Robertson describes as the “permanent shift in demand to lower levels” are uptake of alternative energy sources.
“Solar hot water uptake has been significant, insulation schemes mitigate peak summer and winter demand, grid connected solar mitigates peak summer demand, over 1600 houses in the Taree area alone are now totally off the grid.”
Delaying unnecessary projects means costs savings for all consumers, argues Robertson and his Manning Alliance.
“At a project cost of over $120 million and a financing cost of 6.8 per cent, the saving amounts to over $8 million a year”.
Indeed the Australian Energy Market Commission, the agency that advises the government on energy rules, has said that about $11 billion of electricity infrastructure is only used for 100 hours or fewer each year.
“The Stroud to Lansdowne project will merely add to this inefficient, under utilised network”.
If Robertson is right, and he seems to have a fair argument, the government should be investigating other power solutions before shelling out another $120 million. Indeed, the entire infrastructure spend should be re-evaluated in light of falling demand.
The National Electricity Market has now been in operation for 13 years and with electricity prices going through the roof it is not looking like much of a success. It should be said, though, that a large factor in spiralling energy bills is down to coal supply rolling off old contracts at higher prices.
Still, the regulatory response is far worse for some than for others:
“We came (to rural NSW) for the pristine environment,” says Belinda Robertson. “We farmed without chemicals, fenced 2.5 kilometres of river to protect its banks from grazing cattle.
“We planted hundreds of trees, contributed 1kw solar power to our power requirements, insulated every wall in the house. We have no air conditioner, no heater, no microwave, and if the power lines go up, no compensation”.
This story was found at: http://www.smh.com.au/business/power-sector-primed-for-overload-20120530-1zitp.html