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The long view: electricity consumers choose cheaper over green

Australia has been blessed with an abundance of brown and black coal which has provided households and manufacturers with cheap electricity for decades. We have plenty of that same coal left, but electricity generated from coal-fired power stations, or anything made using it, is about to become a whole lot more expensive.

The carbon tax is being billed as a tax on dirty, polluting industries. It’s not. It’s a tax on an essential service that will be passed directly through to consumers while industry is compensated.

Since 2007, electricity prices have risen 30% on average above the rate of inflation, and not one coal-fired power station has been built. Green policies have put the brakes on expanding electricity generation from fossil fuels, because companies cannot make investment decisions without knowing what the ground rules will be.

However, creating “certainty” is not the urgent issue for industry many believe. Sure, power companies need certainty in order to make investment decisions, but without it, the worst case scenario is that they will eventually sell 100% of the power they generate on every day of the year.

They might not realise it, but the urgency to create certainty rests with consumers. The failure by energy companies – in many cases Government owned – to invest in upgrading ageing infrastructure and developing additional capacity for our growing population is now threatening the reliability of supply. For example, during February, extreme temperatures led to blackouts in both Queensland and New South Wales, and prices paid on the spot market during these peak periods are adding double digit percentage increases to the prices consumers pay across the year.

In my conversations with energy companies, they are quite open about the fact that they see themselves as billing agencies who implement Government policies by passing costs directly through to consumers. Ultimately, they would prefer not to have a price on carbon, because artificial price increases make it harder for them to achieve growth (that is, sell more electricity). However, they will make money regardless.

Meanwhile, our customers are telling us every day about the impact that rising prices are having on their families. Traffic to our website more than doubled last year, as more and more people made an active decision to minimise their bills. We have also found that even though people may claim to support “saving the environment” they don’t want to pay for it. Consumers choose a cheaper plan over a greener plan almost every time, and we disbanded a section of our website which was originally dedicated to green energy offers, because of it.

Looking ahead five years, electricity prices are already projected to at least double, if no carbon tax is introduced. If electricity use remains flat, this will see a fairly typical household energy bill of $400 per quarter today become $800 a quarter by late 2015. That’s an increase of $1,600 a year, and for households on low or regular incomes it’s already a pretty big ask.

The general consensus in the industry is that the immediate impact of a mid-range carbon tax will be to double the wholesale price of electricity. As a general rule of thumb, every dollar imposed in tax on a megawatt hour will increase its retail price by 80 cents. Right now, it is impossible to predict future tariffs with accuracy, but we can be certain that a carbon tax will have a multiplying effect on an essential service that is already rapidly increasing in price.

The primary objective of the carbon tax is to make energy derived from the fossil fuels on which we rely more expensive. It concerns me that neither the industry, nor Government, is being open with consumers about the fact that they will bear this cost.

Maintaining the quality of life that Australians are enjoying now will soon become much more expensive, and some will find that it is a cost they can no longer afford.

*Ben Freund is CEO of GoSwitch.com.au, a price comparison website for electricity and gas.

14
  • 1
    gregb
    Posted Thursday, 10 March 2011 at 1:35 pm | Permalink

    Ok, so let’s carry on with business as usual until when? Until all the coal is gone? Give us the solution Ben, not the problem.

  • 2
    b269829
    Posted Thursday, 10 March 2011 at 2:59 pm | Permalink

    Surely what this all means is do nothing ,electricity prices double , impose a carbon tax now, the rise may be steeper but will it go to the same point , that is somewhat unknown , but the rise in alternate energy production will mitigate that rise . In addition a carbon tax may also bring about the earlier decommissioning of one or two coal fired power stations

  • 3
    drmick
    Posted Thursday, 10 March 2011 at 2:59 pm | Permalink

    The solution is to make them find the solution. Bastards have taken money and tax breaks for research and developmement for two centuries here.
    Every safety innovation has actually been argued against by these bastards on the basis of cost, and the number of blokes dying in mining and power generation is still outrageous.
    Try and tax them and they threateatn all types of bull shit.
    Shut them down. Cut off their money. Make them pay the real cost for coal or come up with alternatives, at their cost.
    Governmnt green and nuclear will shorten them up a bit.
    That creature in England shut their mines down decades ago.
    What really shits me is that these bastards are trying to get us to buy more power, while charging us more for it!
    Sponsoring footy teams and rubbing our noses in it instead of minimising costs. They have no incentive to help anyone other than themselves.
    For Christ`s sake! It looks and smells just like private health insurance in this country.
    They keep putting the price up, give you less services in return an get assistance from the government to survive. WTF!

  • 4
    sauron256
    Posted Thursday, 10 March 2011 at 3:00 pm | Permalink

    No boom lasts forever, we’ve enjoyed cheap power for so long and we can’t expect it to just continue perpetually. That’s just reality.

  • 5
    Posted Thursday, 10 March 2011 at 3:13 pm | Permalink

    I think Freund is misrepresenting the Australian Government’s policy. It says repeatedly that consumers and trade exposed industries will be compensated and it implies that other industries wont be compensated.

  • 6
    Delerious
    Posted Thursday, 10 March 2011 at 3:19 pm | Permalink

    No mention of consumers installing solar to offset price increase. How odd. Almost myopic.

  • 7
    syzygium
    Posted Thursday, 10 March 2011 at 3:48 pm | Permalink

    Doubling electricity prices or doubling the frequency of cyclones, droughts, floods, fires, extinctions, famines, displacements… This is a tough choice.

    Can we go halvesies? I’ll put up solar panels to produce half my electricity (at your doubled price they’ll pay for themselves in five years, so really only five years of doubled prices). Let’s see, with the other half, now that there is a serious demand for energy efficient appliances I might be able to shave 10-20% off of my energy bill by installing insulation for my air con (jeez it’s warm around here), putting in LED-lights, installing smart electricity meters, and getting a booster switch for on-demand hot water heating. All short-term expenses, but hey - even though prices have doubled I’m now paying 80% of what I did five years ago! Heck, the gov might even use the carbon tax to start subsidising me instead of the coal industry, and I’ll pay next to nothing in up-front costs.

  • 8
    Peter
    Posted Thursday, 10 March 2011 at 4:07 pm | Permalink

    So we’ve been “blessed” with “cheap electricity for decades”…surely we knew the party had to end at some point - it’s not like there haven’t been a couple of decades of signs! We’ve built a power industry around this cheap energy - we created a system in response to the resources available to us. But we now know (and have known for a while) that we’ve been accumulating a huge tab of hidden costs, one that we very urgently need to start addressing. And we also know, and Ben points out, that as a result of not maintaining and upgrading our distribution system, prices are rising rapidly regardless of a price on carbon.
    I really don’t get what Ben’s point is in this article, but surely the picture he paints is (somewhat unintentionally) highly supportive of two things: energy efficiency and renewable energy. Payback periods of both with rapidly decrease in line with rising (fossil fuel) energy costs. Greater deployment will drive continued, rapid production cost decreases in technologies like solar PV, making payback periods even shorter.

  • 9
    Paul
    Posted Thursday, 10 March 2011 at 5:07 pm | Permalink

    I think the point of this article is clear, though perhaps not what the writer intended.
    There has been no poll where a majority of Australian will wear any increase in their cost of living. Remember the people running the anti campaign will not get compensation, only the poor and middle workers will.
    The recent OECD report said it all - 45% of Australians want action on climate change, 55% are opposed to any additional costs. This has been consistent in polls for the past 5 years. It only submerged when there was bipartisan support.
    We will do nothing for the environment if we think it will either cost money or restrict our lifestyles, unless it gets past us with bipartisan support.
    Abbott, to his eternal disgrace, has tapped into this brilliantly.
    The reforms of the previous governments (financial, GST slashing government services) carried with them one overlooked facet, the well off paid less tax, so they convinced the rest it was all a good idea.
    If we want carbon pricing we will have to structure it so the wealthy (particularly self funded retirees) are better off, then it will be a shoo in.
    If that isn’t enough to make you cry I don’t know what is.

  • 10
    Posted Thursday, 10 March 2011 at 5:13 pm | Permalink

    @ Paul

    It does indeed make one weep. I have yet to understand why a majority vote against their interests in favour of a minority.

  • 11
    MLF
    Posted Thursday, 10 March 2011 at 8:38 pm | Permalink

    We had green electricity for a while. The I got peeved off that it was costing me more, on top of price hikes, all the while the power companies were staying in high profit. Bugger that mate.

  • 12
    AR
    Posted Thursday, 10 March 2011 at 9:46 pm | Permalink

    a tax on dirty, polluting industries… It’s a tax on an essential service Thank you for confirming that an “essential service”, ie electricity, is produced by the dirtiest of methods, brown coal and the third dirtiest, black coal. Diesel as used in Broken Hill (big SIC!!) and many other isolated areas is the second dirtiest.
    So in this sunniest, driest, hottest of developed countries you want us to continue with 18thC technology coz you and your superiors have so much investment locked in. Tough, go tell it to the buggy whip and whale oil lamp makers.
    One of the true ironies of wrongheaded development is that, given the abundance of coal, the long haul railways are almost all diesel driven.
    The main problem with PhV is said to be storage or mobility but railways have massive areas of controlled land, easements, ideal for miles and miles of PhV hooked directly into the overhead lines - the vehicle comes to the power not the power to the vehicle as with electric cars.
    Or as a community controlled enterprise, small towns and farming areas could control their own PhV and sell or trade the excess power to the railways that transport their produce to the Great Wens on the coast.
    Jes sayin’

  • 13
    Sense Seeker
    Posted Thursday, 10 March 2011 at 10:23 pm | Permalink

    It concerns me that neither the industry, nor Government, is being open with consumers about the fact that they will bear this cost.”

    It concerns me that neither Ben Freund, not the opposition, is being open with consumers about the fact that they will be compensated for this cost if they’re on a low income.

    And Gavin, why a majority vote against their interests in favour of a minority, couldn’t that be the fatal combination of lots of money, clever advertising, currupt media outlets and a populace with insufficient education or intelligence to understand how they are being conned? (By people like Ben, I’m tempted to add.)

  • 14
    Posted Sunday, 13 March 2011 at 8:16 am | Permalink

    I still trust that people make their own judgements, influenced by, but independently of advertising and the media’s spin.

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