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What's behind the green door? The Power Producers' Club

By Geoff Carmody - posted Wednesday, 10 October 2018

One more night without heating.

Keep us warm while we're sleeping.
Green door.

What's that secret you're keeping?

Base-load 'kept the lights on'
now they say 'It's shot',

behind the green door.
'Green's so cheap' they swear
but then they hide its cost,

behind the green door.
Wish they'd let me in,

so I could find out what's
behind the green door.

With apologies to The Green Door (Davie/Moore, 1956)

Australia has a large Power Producers' Club (PPC).

Like the Industrial Relations Club (so labelled in 1983), the PPC is a specialised brethren investing and dealing in the complexities of power generation, big electricity grids, NEM bidding systems, reserve/storage capacity, grid stability, the literally second-by-second challenge to keep the lights on across the grid, etc.


Club membership covers a growing bevy of government acronyms: AEMO, AEMC, AER, ESB, and more. Power generators of all types (fossil fuel, renewables, etc), transmission and distribution investors and managers, power retailers, and industry associations of all stripes, belong. High-profile renewables advocates with investment 'skin in the game' are book-talking members.

Above all these, energy Ministers, Commonwealth and State (COAG), are key members. These have their own, conflicting, political axes to grind.

Combined, PPC members have lots of information on power supply and its costs. Power users don't.

Some history on power costs provides context.

Once upon a time, renewables were touted as a way of preventing extreme depletion of scarce fossil fuels that would drive their prices to destructively high levels. Renewables were 'sold' as permanent energy resources. They could also keep depletable fossil fuel costs down by becoming durable substitutes for them.

This was a fairy tale. Economic, reliable, fossil fuels are still being unearthed. Our nuclear stocks are large.


Time for a new story.

Global warming (or climate change, or extreme weather – the labels keep changing) is the new crisis. Now, remaining fossil fuel resources mustn't be used at all. Otherwise the world will cook. Policy protects and subsidises renewables, making them appear cheaper than fossil fuels. They're not. This policy also makesfossil fuel power intermittent, increasing its costs, driving it out of the market, and deterring new investment.

First it was claimed renewables would keep fossil fuel costs down. Now their job is to force them up. Either way, reliable renewables' own costs are opaque. Worse, factual cost information is replaced by ex cathedra assertions that renewables are cheaper. This cost catechism is learned by rote, accepted as faith, repeated ad nauseum, and, above all, must not be challenged by evidence. Those questioning this faith using facts are condemned by believers to apostasy (like Galileo – after The Dialogue).

Greens, governments and international organisations are the lead preachers of this new dogma. Many convert to this faith, in the hope it's true. Some want lots of cash charity as part of the deal too.

Using facts to guide energy policy these days is regarded by some as 'unenlightened'. Ironic. The Enlightenment (1685-1815) stressed reason, logic, scepticism, and evidence, as the bases for knowledge. Historically, these have driven scientific advancement. They still do, where permitted to apply.

Today, from, say, Bandt to Trump, many believe faith trumps reason. Alternative facts are spewed across 'social media'. Advocates of all stripes, and punters, go 'forum shopping' up and down the Tower of Media-Babble to find 'evidence' supporting their ex ante prejudices. Everyone wins. All confirm their priors with 'facts', alternative or otherwise. Cue cacophony.

Enough history.

Users know power costs are high. Consumer pain and business closures are here. Not happy, Angus.

Why are power prices so high, and having adverse effects economy-wide? Users get little information.


Look at your power bill. If it's like mine, it shows (i) power consumption; maybe broken down into peak, shoulder, and off-peak use, and (ii) 'supply charges' (your cost of connection to the grid). If you have solar panels that feed-in to the grid, there's also a line (iii) showing credits you receive for that, plus any other credits, rebates or discounts. At present, individual power bills compress every cost component into these three items. These add up to the user's net cost for power. Other detail is suppressed.

Power consumption charges include costs of power generation, and reserve costs (eg, for hydro water storage, battery costs, etc) as part of wholesale supply bids. Costs for 'peaking' plant (and stand-by reserve costs for them) are in there, priced to meet intermittent peak demand, and passed on to users. These, plus grid stabilisation costs and retail margins, add up to total power consumption costs. Grid connection charges are extra. These cover costs for grid investment, maintenance, and margins (including retail) thereon.

In a fossil fuel-dominated, cheaper, reliable, power grid, grid stabilisation costs mainly come with generators' supply bids. The power consumption charge is dominated by costs of power generation as used. Reserve costs of hydro power water storage, 'peaker' reserves, etc, are 'smeared' across users' power bills, and not shown separately. Grid connection charges aggregate and 'smear' total grid investment, maintenance and margins costs, across users' bills.

Power demand levels and fluctuations are anthropogenic. So is fossil fuel power supply. We turn fossil fuel power on and off as we choose. Competitive markets minimise costs of grid stabilisation, reserve capacity, storage and power delivery. Doubtless we can do better by improving competition.

Renewables like solar and wind power, and manufactured battery storage, are different. We don't control their power supply. The weather, seasons, etc do. We need multiplied generation capacity, plus multiplied storage capacity, to deliver reliable power 24/7. Without storage, we also have unusable renewables power.

As Australia moves further towards 100% renewables we are in a new power ball-game.

Users need more information. We can start by getting the PPC to provide more of what it already knows.

Power supply chain providers must have the following data. They couldn't compile power bills otherwise. They don't just make power bills up, do they?

Users need power generation costs. Power can be generated by coal, gas, other liquid fuels, wind, solar, hydro, or other battery discharge. In addition, grid stabilisation and storage costs, allocated across these power sources, should be provided (preferably all separately identified). All of these sum to power use costs for individual users. Across the NEM, the 'mix' of these components varies. The wind component will be large near wind farms (SA). The black coal component will be large in Queensland, and in NSW. Brown coal will be large in Victoria (and as back-up for SA and Tasmania). Hydro power will be large in Tasmania.

Users also need power transmission and distribution costs ('poles and wires'). This covers recovery of capital investment costs, grid repairs and maintenance, and regulated investor/owner margins on top of these (preferably all separately identified). These sum to current supply connection costs. Across the NEM, the 'mix' of these should reflect the generation 'mix' described above, noting the use of transmission and distribution both for 'primary' generation and back up. For example, 'poles and wires' costs for SA would be allocated to SA wind generation (when wind is blowing), or brown coal back-up from Victoria (when it's not).

Users also need power retail margins for each grid catchment area. These, plus generation costs, plus transmission and distribution costs, add up to current grid supply costs for each catchment area. Across the NEM, retail margins may vary depending upon the size of grid catchment areas and competition within them. Large, more compact, catchment areas may have lower retail margins because of greater competition between more retailers than more dispersed, less densely populated, catchment areas.

Other information is needed for full transparency, at the very least at the State/Territory level as well as at the national level. Such aggregates can be apportioned to grid catchment areas in proportion to the power sources for generation applicable to that area.

First, costs of explicit government subsidies for generation and storage should be revealed. These apply to solar, wind, some hydro-power and, increasingly, manufactured battery storage. Some of these are already shown as rebates and credits (for rooftop solar panels, for example). By value, many if not most are not explicitly shown or apportioned across individual power bills. Budget costs for governments are not shown at present for individual power bills. They should be.

Second, efficiency ratings for different generation power sources. These are defined as the percentage of power actually generated and used relative to the rated maximum capacity of the generator concerned. These can be shown as explanatory notes in individual power bills. They quantify actual power supplied as a proportion of 'plate rated' maximum capacity across all sources of power. The effects of ageing on fossil fuel generation efficiency, plus effects of intermittency on solar and wind power, should be shown. Battery efficiency over time should be shown (it declines as batteries are recharged). Renewables force fossil fuel generation to become intermittent and more costly. This effect should be shown (and separately identified).

Armed with this information, power users can assess for themselves the main drivers of changes in their individual power costs. These assessments allow a better, evidence-based, 'fix' on the true cost of renewables versus fossil fuels across the power supply chain as well.

Some might argue providing extra data in users' power bills is either (i) too burdensome or costly for suppliers, and/or (ii) intrudes into 'commercial-in-confidence' territory. Rubbish.

Along the power supply chain, this information must already be available. Users should be told the margins on supply costs for regulated assets – transmission and distribution. These reflect regulated rates of return that users must pay. Total margins for selling power – an essential service – are similarly of interest.

More information promotes (i) better competition, (ii) better understanding of why power costs are high, and (iii) better-informed policy decisions on power affordability, reliability and the actual price we must pay to reduce our own greenhouse gas emissions. The last-mentioned price at present is a dirty big secret.

The PPC's a bit like the computer Deep Thought in Douglas Adam's Hitch-hiker's Guide to the Galaxy. It can provide answers to questions. Often, its answers aren't explanations. They're ex cathedra assertions, like Deep Thought's answer '42' to the question, 'What's the meaning of life, the universe and everything?'

We can better understand such ex cathedra answers if users' power bills include more of the data suppliers use to compile those bills in the first place. Even policy makers and regulators might be better informed.

The PPC brethren have this information. But almost all is behind the green door.

Let users in, by showing it in their individual power bills, too.

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About the Author

Geoff Carmody is Director, Geoff Carmody & Associates, a former co-founder of Access Economics, and before that was a senior officer in the Commonwealth Treasury. He favours a national consumption-based climate policy, preferably using a carbon tax to put a price on carbon. He has prepared papers entitled Effective climate change policy: the seven Cs. Paper #1: Some design principles for evaluating greenhouse gas abatement policies. Paper #2: Implementing design principles for effective climate change policy. Paper #3: ETS or carbon tax?

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