The ACCC Wants To Lower Electricity Prices Even If It Kills You

The Australian Competition & Consumer Commission, or ACCC, published a report last Wednesday titled Restoring electricity affordability and Australia’s competitive advantage.  Michael alerted people about it here and wrote more here.  The opening lines of the report don’t pull any punches and begins with:

“Australia is facing its most challenging time in electricity markets. High prices and bills have placed enormous strain on household budgets and business viability. The current situation is unacceptable and unsustainable.

The approach to policy, regulatory design and promotion of competition in this sector has not worked well for consumers.”

It eventually goes on to make 56 suggestions on how to reduce the price of grid electricity.  Recommendation number 24 is to eliminate the Small-scale Renewable Energy Scheme (SRES) by 2021.  This is commonly known as the “solar rebate” and lowers the cost of rooftop solar for households.  The ACCC makes this recommendation even though it will reduce household electricity bills in the short term by only 1% and is likely increase them over the longer term.

The ACCC DOES NOT Recommend Reversing Privatisation

Interestingly, the ACCC doesn’t recommend the one step that should result in the largest reduction in electricity prices.  It’s no secret what it is, although there are those who would rather not admit it.  This is to remove most of the changes resulting from electricity privatisation over the past two decades and return control over transmission, distribution, and retailing to a single body in each state.  If you need convincing that electricity privatisation in Australia has been a disaster then I’ll let you know that over the past 10 years, after adjusting for inflation, there has been a 56% increase in residential electricity prices.  That’s pretty strong evidence.

The reason why the report makes no mention at all of winding back privatisation may be because the Australian Treasurer, the Honorable Scott Morrison, didn’t say, “Hey, ACCC!  Write a report on what’s the best way to lower electricity prices!  And make it snappy!  I got honorable things to do!”  Instead, he wrote a letter to the ACCC telling them…

“…to hold a public inquiry into the supply of retail electricity and the competitiveness of retail electricity prices in the National Electricity market (NEM)…”

This arguably means that giving the advice “dismantle the NEM” lies outside the scope of the remit given to them by the Treasurer.  But I think the ACCC still should have mentioned it as an option because you can’t rely on politicians knowing these sorts of things.  They are usually big picture people who are far too busy running the country to focus on the details of running a country.

Of the 56 recommendations made in the report many are good if you assume the NEM is going to be kept around rather than being taken out the back and shot, which seems the kindest thing to do for all involved1.  But others make no sense at all.  One I definitely put into the “no sense at all” basket is Recommendation 24 calling for the abolition of the SRES.

Why Recommendation 24 Is Bad

The ACCC report summary gives a once sentence explanation of the why the SRES, which lowers the cost of rooftop solar power, should be eliminated.  Here it is:

Image: ACCC

Image: ACCC

I’m afraid they failed to convince me of the validity of their proposition.  Six reasons they have failed are:

  1. The cost of the SRES only comes to 1% of household electricity bills and is already being phased out.
  2. The SRES probably lowers electricity prices for consumers by more than it costs.
  3. Even without the advantage of lowering electricity prices, the SRES disadvantages poorer households without solar far less than other charges.
  4. It is not being replaced by something better.
  5. People will lose their jobs.
  6. The playing field is not level as fossil fuel generators receive hidden subsidies.

The SRES Adds Around 1% To Household Electricity Bills

The SRES adds about 1% to household electricity bills.  Don’t take my word for this — just ask the ACCC.  Here is a graph from page 10 of their report:

 

Image: ACCC

Image: ACCC

The column on the far right of the graph is for the NEM or National Electricity Market.  This consists of Queensland, NSW, Victoria, Tasmania, and South Australia.  The annual environmental costs added to electricity bills in these states averages $106.  The SRES is 17% of this which is $18 a year.  The ACCC report says the average annual residential electricity bill in the NEM is $1,636.  This means the $18 a year cost of the SRES is only 1.1% of the household electricity bills.

The SRES is already being gradually phased out and will end on December 31st 2030.  While the amount of rooftop solar installed each year may increase, the reduction in price the SRES provides for each  kilowatt of solar panels installed will decline each year.

Rooftop Solar Lowers Electricity Prices For Everyone

In addition to lowering electricity bills for households that have it, rooftop solar lowers the cost of electricity for everyone by helping keep a lid on wholesale electricity prices.  We can be certain this effect is real on account of how much grid generators hate rooftop solar.  This benefit may save consumers over twice the cost of the SRES.  In addition, rooftop solar can help lower transmission costs.  So if something that is being gradually reduced anyway is saving consumers more than it costs, it makes no sense at all to get rid of it on the grounds that it will save consumers money.

Australia’s Electricity Sector Is Designed To Screw The Poor

One argument I’ve heard for eliminating the SRES is that it is unfair on the poor who often rent and so can’t install solar power of their own even if they could afford it.  But if the benefit from reduced electricity prices outweighs its costs then they are coming out ahead.  Also, because the cost of the SRES is, technically at least, applied to the per kilowatt-hour charge for electricity and poor people pay a larger portion of their electricity bills in fixed supply charges than the well off, the portion of their electricity bills that goes towards paying for the SRES should be less than average.

The argument that the SRES is bad for the poor has always struck me as disingenuous as I have only ever heard it from people who have never given a rat’s arse that Australia’s electricity sector has always screwed the poor by design.  The fixed supply charges on electricity bills mean it is possible for a poor person who is very careful with their electricity use to — in extreme cases — end up paying twice as much for each kilowatt-hour they use as a well off, wasteful, neighbour.  But somehow people who have managed to overlook this for decades suddenly transform into valiant defenders of the poor when a solar scheme that increases their electricity bills by 1% is involved.

It’s Not Being Replaced By Anything Better

If the SRES was being replaced with something better that clearly had a greater environmental benefit, then we could say out with the old and in with the new.  But it’s not.  Not one of the 56 recommendations in the ACCC report involves pollution or greenhouse gas emissions.  If this doesn’t sound bizarre to you I’ll point out that it is now the 21st century and Australia has international commitments to reduce greenhouse gas emissions.  If we do nothing we risk ending up in a future where China will place trade sanctions against us for being a major polluter.

Without the SRES there will be next to no support for renewable energy at the national level.  In 2020 the subsidy for large scale renewable generation such as wind and solar farms is likely to fall to under one-third what it is now and investment in large-scale projects is expected to fall off a cliff.  If the SRES is removed as the ACCC suggests, then investment in small scale solar power will also plunge.

People Will Lose Their Jobs

The purpose of the SRES was to lower the cost of rooftop solar and build a solar installation industry.  It has been successful in helping achieve both goals.  Rooftop solar now costs a fraction what it did just seven years ago and — while it’s not quite perfect — Australia’s rooftop solar industry is the best and most cost effective in the world.  But snatching away the SRES will destroy a good part of this hard work for no good reason.  At the moment it is likely there are over 7,000 people working in the solar power installation industry.  Thousands of them will be at risk of losing their jobs.  The economic disruption will be increased because if Recommendation 24 is adopted there will be a huge rush on solar installations as people try to beat the price increase.  There will be a enormous boom followed by a massive bust.

 

 

The Playing Field Is Not Level

Fossil fuel generation receives two large hidden subsidies.  Or at least they seem to be hidden from Coalition politicians.  They can talk about energy policy all day without ever spotting them:

  1. Fossil fuel generators don’t have to pay the health costs that result from their pollution.
  2. They don’t have to pay to remove carbon dioxide and other greenhouse gases they release into the atmosphere.

Pollution from burning coal does have real health effects and the amount of additional greenhouse gas that can be safely added to the atmosphere is zero.  These are real costs and while they don’t appear on our electricity bills, we are still paying for them through reduced quality of life and a less stable climate.  It makes no sense for the ACCC to ignore these costs when determining what benefits consumers.

If we lived on planet sensible we would require polluters and greenhouse gas emitters to pay for the full cost of their emissions.  But at the moment I don’t think we’re even in the same galaxy as planet sensible.  In the absence of leadership that cares more about a bright future for Australia than a smokey, haze filled past; we should not allow the Coalition to take away the one significant remaining support for clean energy the country will still have by the end of next year.

We should fight hoof and nail to keep the SRES and not let it be removed unless it is replaced with something superior because losing it will cost lives.  Even if I’m completely mistaken about rooftop solar power lowering wholesale electricity prices (I’m not) and the SRES does result in a net 1% increase in residential electricity bills, we are one of the richest countries in the world.  Australia has never been richer than it is now.  We can afford to spend a little bit of money to improve our heath, protect the environment, and save a life or two.

Jai