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

By Geoff Carmody - posted Wednesday, 10 October 2018

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.

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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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All articles by Geoff Carmody

Creative Commons LicenseThis work is licensed under a Creative Commons License.

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