It’s a challenge akin to unscrambling an egg, but there is growing support for the re-regulation of Australia’s retail energy market to help bring power prices back to earth.
A return to not-for-profit power retailing could slash current prices paid in regional Australia by a third according to some analysts.
Price gouging by retailers and opportunistic pricing structures for the “poles and wires” distribution network are among the factors blamed for an exceptional jump in Australian power costs to world-beating highs in the past five years.
South Australia reputedly has the world’s most expensive electricity, averaging about 47.1 cents a kilowatt hour.
World’s highest prices
NSW and Queensland are in fifth and seventh place behind Denmark, Germany and Italy, while Victoria is about ninth.
In Victoria, the first state to embark on market deregulation about 15 years ago, a report to the state government has just recommended reintroducing price regulation to keep a lid on soaring electricity costs.
It found retailer margins were adding at least 10 cents/hour to the average cost of every kilowatt of power used by Victorians, who pay an average 34.7c/kWh.
That translated to about $423 on the average $1388 annual power bill.
The findings coincide with a Commonwealth Bank of Australia (CBA) noting farmers have rushed to take up specially discounted loans to instal solar panels and more efficient pumps and other equipment in a bid to rein in leaping power costs.
Farms invest in efficiency
The value of new farm sector loans for energy efficient equipment jumped more than 400 per cent in the first half of 2017.
CBA’s NSW regional and agribusiness general manager, Margot Faraci, said that trend was expected to continue as rural areas faced more power price rises of almost 20pc from this financial year.
CBA has followed Westpac and National Australia Bank in a partnerships with the Clean Energy Finance Corporation to provide a 0.7pc discount on loans from $10,000 to $5 million if businesses fund energy efficient vehicles, equipment and projects like methane, solar and wind generation systems.
The Victorian power market inquiry group, led by former deputy premier, John Thwaites, blamed that state’s 25 retail electricity providers for high profit and marketing strategies, including vague pricing comparisons, to add more than 40pc to some consumers’ energy charges.
It recommended retailers be required to provide a transparent basic power service price in line with Victoria’s Essential Services Commissioner’s suggestions.
However, unlike NSW Queensland and Western Australian, where high network charges are blamed by many industry experts for contributing to excessive costs, the Thwaites group found so-called “gold-plating” of transmission networks and extra generation costs was not such a big issue in Victoria.
It seems as distribution improves, very little changes in the way of costs to the consumer.
Brisbane-based energy specialist, and executive director of ResponseAbility, Hugh Grant, said retailers in Victoria and SA appeared to have led the way in creaming off profits after the electricity poles and wires network had been made more efficient in those states.
They were eroding many of the savings achieved by distributors.
“Other states have now deregulated their networks, too, but it seems as distribution improves, very little changes in the way of costs to the consumer,” he said.
Mr Grant said ideally the electricity industry would not need, or want, to re-regulate pricing structures, but the call for re-nationalising retailers as not-for-profit businesses may have real merit.
“Yes it could be a bit like unscrambling quite a few eggs,” he said.
“But the system is now so badly skewed against the customer, from what I’ve looked at, I think it’s feasible to achieve about 35pc to 40pc reductions in power prices.”
Despite being a potentially extreme and controversial solution, he said returning to state-owned energy retailers, or something similar, may be essential if other free market price control efforts continued to fail, particularly for regional consumers.
The Australian Energy Council has been quick to defend the open retail market against profiteering claims, saying much of the surge in power prices had been in the past year.
Council general manager, Sarah McNamara, said interference in energy markets, such as the closure of old coal-powered power stations and diversion of gas for export, had been key contributors.
Re-regulation the retail system would reduce open competition and would not keep supply costs under control, she said.