The long view: electricity consumers choose cheaper over green
Creating “certainty” is not the urgent issue for industry many believe. They might not realise it, but the urgency to create certainty rests with consumers, writes Ben Freund, CEO GoSwitch.com.au.
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.