Carbon price makes up only 8% of skyrocketing electricity costs

Monday, 12 December 2011 14:48

 Conclusive evidence from the Australian Energy Market Commission (AEMC), which has released its projections for electricity prices, shows the carbon price has little bearing when compared to soaring transmission and distribution costs.

“It’s been estimated that these costs will be passed on to consumers who will be paying 37% more than they were in July 2011, by June 2014. The electricity companies will pocket the substantial profit associated with increased infrastructure and increased demand, while criticism rises about excessive capital expenditure. This is being driven by electricity market rules that encourage unnecessary ‘gold plating,” said Jeff Angel Executive Director of the Total Environment Centre.

The AEMC is an independent body responsible for developing Australia’s electricity markets. It has assessed how electricity prices would increase both with, and without a carbon price. It has calculated that the carbon price will add $0.015 per kilowatt-hour to the price of electricity. In practical terms, this means that the carbon price will add a mere 8% to electricity prices.

“A large portion of the increase has been caused by rising transmission and distribution costs, the ‘poles and wires’ of the electricity system. The costs involved in locally distributing electricity account for 33% of the increase in prices to consumers over this period.

“It is now widely accepted that the regulated electricity network businesses are building excessive levels of new infrastructure and making excessive levels of profits, at the expense of consumers and the environment,” said Mr Angel . 

“Meanwhile, spending on demand management and energy efficiency programs remains miniscule, even though such programs could defer some of this costly investment” 

“Other countries spend much more money on demand management programs to reduce electricity usage,” said Mr Angel. “This pre-empts billions of dollars worth of infrastructure expenditure. In Australia we continue to largely ignore this important option for meeting our electricity demand and reducing costs.” 

The AEMC estimates that only 2.5% of the price increase is due to such programs. Similarly, payments for rooftop solar panels only accounts for 2.8% of the increase, while the Small-Scale Renewable Energy Scheme, a branch of Australia’s Renewable Energy Target program, will fractionally reduce electricity prices. 

The AEMC is considering ways to improve the use of demand management and energy efficiency options, though this process is in its early stages and any rule changes will not be implemented for some time. 

The AEMC is also investigating changes to the National Electricity Rules to restrain increasing network costs. Unfortunately current increases in expenditure are ‘locked in’ for the next few years.