TiP

Federal Energy Minister Martin Ferguson has used an electricity networks forum to remind other policymakers and stakeholders that critical economic infrastructure needs to be paid for and there is no quick fix for rising power bills.

“We need to be honest about that,” he said. “We cannot let the community lose sight of the huge investment task in network and generation infrastructure.”

Earlier this month he told a Committee for the Economic Development of Australia forum that total capital outlays on electricity supply infrastructure from now to 2030 could cost $220 billion.

Ferguson acknowledged this week that the right balance has to be achieved in regulating networks between reliability and user costs, but warned “we can’t have continued reliability without meeting the costs.”

Media coverage focuses on higher bills, he said, but what is less mentioned is what it would cost householders and business if under-investment in supply assets leads to lower reliability. “Lack of reliability will threaten jobs and businesses and undermine economic prosperity.”

He issued a reminder that a 2004 independent inquiry in Queensland following a run of blackouts during storms and hot weather had attributed poor reliability to inadequate capital and maintenance expenditure and called for a significant increase in capital outlays. “This, of course, is contrary to some recent suggestions of over-investment in distribution networks.”

Looking at experiences in New South Wales, Queensland and Victoria, Ferguson also acknowledged that comparisons “certainly raise questions of efficiency around publicly versus privately owned networks” but said definitive answers will depend on productivity benchmarking by the Australian Energy Regulator.

Ferguson lauded the technical achievements of the network operators in delivering reliable supply over large systems serving areas with a small population density compared with Britain or the US.

(The transmission network is the world’s longest interconnected high voltage system, covering more than 5,000 kilometres from Port Douglas to Port Lincoln and containing in aggregate 50,000km of cables. The distribution network has 750,000km of lines.)

He pointed out that there had been a major period of network investment between 1950 and 1970 and Australia is now entering a stage when the bulk of these assets must be replaced. “The next 15 years will be critical.”

Maintaining the systems’ status quo is not enough, he added, because of demand growth. “Our nation is wealthier than ever, our standard of living the highest at any point in our history and this manifests itself in the accumulation of more and more electrical gadgets and increased demand.”

Ferguson said the use of air-conditioning has created a situation where 25 per cent of retail power costs are derived from serving peak events that occur over less than 40 hours a year. “A smarter network that can help us reduce peak demand is an important aspiration.”

He noted that, after household power price rises of about 40 per cent over the past three years, residential customers could expect to see a further increase of 30 per cent in the next three years.

He said he believes Australia can better manage the drivers of increased network costs and pointed out that the national regulator is already working on improving distribution determinations by reviewing the rules under which they are made.

Consideration of the framework for setting distribution reliability standards is already on the Australian Energy Market Commission’s agenda. “The Ministerial Council on Energy is accelerating delivery of this work.”

The council is merging next month with the Ministerial Council on Minerals and Petroleum Resources to become the CoAG Standing Council on Energy and Resources. “Energy networks and market frameworks will be high on the (new) council’s agenda.”

Ferguson said the AEMC is also considering rule changes that will affect distribution network planning, including the use of demand management.

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