In eye of the beholder

Every galah in the petshop and lots of the media are squawking at the moment that Australians “have the highest electricity prices in the world.” Is this actually so?

Well, no, if you look at the bar chart comparing the NEM States with a raft of selected countries just published in the Australian Financial Review.

The paper’s story asserts that “Australian residential customers are paying the highest electricity prices in the world,” a claim echoed through the media and in community conversation. What the chart shows about prices (including taxes), apart from South Australia sitting right at the top, is that the world’s most expensive countries are Denmark, Germany and Italy. Their costs per kilowatt hour are, respectively, 44.78, 43.29 and 40.30 cents. (The SA figure causing all the fuss is 47.13c.)

Where by far the bulk of Australian electricity accountholders are to be found is in New South Wales, Victoria and Queensland.

In round terms, these three States have 7.4 million of this country’s 9.5 million residential power customers. South Australia has three-quarters of a million such accounts. So, in the three States with 77.9 per cent of the residential account population (and of consumption), the average prices (on the newspaper bar chart, which is sourced using US Energy Information Administration data) are 39.1c (NSW), 35.69c (Queensland) and 34.66c (Victoria).

The games one can play with stats are on full display in this presentation: the US is at the absolute bottom of the ladder with 15.75c but even the meanest budgie in the petshop should know that there is a wide disparity between American state charges; its most expensive ones are well up the high price end. The chart also gives a European Union average of 29.85c and again (as illustrated in the presentation) this is a number diluted by the cheaper ones with seven countries right at the top end.

The simple point to draw is that, despite the pejorative catchcry of “world’s most expensive” now resounding through our corridors of parliament and in the media, it is untrue for the vast bulk of consumers here.  South Australia, source of the claim, accounts for 7.8 per cent of residential properties and 6.9 per cent of household consumption.

(In passing, I can’t resist pointing out that the two most expensive nations on the chart – Denmark and Germany – are countries most presented to us as icons of how to go green while among the cheapest are strong coal-burning Poland, heavily hydro Norway and dominantly nuclear France. In the ever-so-cheap US, the bulk of power is provided by gas and coal – nearly 70 per cent of it – with nuclear and very large hydro developments playing a strong supporting role. The UK, for which an average household price of 31.3 cents is cited, sources 41 per cent of its power from gas, 21 per cent from domestic nuclear and another six per cent nuclear imported from France. South Australia, the State causing us to wear the “most expensive” opprobrium, is of course another green icon.)

Nonetheless, our own price pony has well and truly bolted with the Prime Minister now summoning the large suppliers and their lobbying representative, the Australian Energy Council, to Canberra for yet another “summit” meeting in the week ahead. Symbolic yet again of how politics and populist media ranting get ahead of a proper analysis of situations, Malcolm Turnbull can no longer wait for the Australian Competition & Consumer Commission to report on the pricing issue – even though its preliminary diagnosis is scheduled to be with him on 27 September. The government, it is being reported, is “leaving open the option of (more) regulation.”

This is a repeat of Turnbull’s rush to interfere ahead of the arrival of the Finkel report because of the upheaval within Coalition ranks (and the ensuing media feeding frenzy) over an emissions intensity scheme.

None of this is to bely the fact that electricity prices in Australia are now uncomfortably high for many consumers, although, as I have pointed out numerous times, the worst danger lies in the impact on our manufacturing sector with its real threat to the economy and jobs. But rushing in with more political Bandaid is not a solution, just as interference with LNG exports does not resolve the domestic gas supply issue.

With respect to the industrial problem, it is worth pointing out, too, that the chart published by the Financial Review contains no comparisons with Asian prices – and it is in Asia that the competition lies for our beleaguered manufacturers.

Apparently, in calling the meeting, Turnbull has written to the suppliers that “the situation must be addressed urgently and directly” to “ensure no family pays any more for electricity than it needs to do.”

Getting its retaliation in early, the Australian Energy Council pushed out a statement in response on Friday.  CEO Matthew Warren says: “We agree that energy prices are unsustainable (but) we cannot fix this problem simply by talking about retail bills and customer deals. The price of electricity has increased because it is becoming scarce.  It is the market signalling the need for new firm generation capacity to be built.  The situation is already critical in Victoria and South Australia.”

Heavy industry may be unhappy about the Finkel report (see my previous post), but the AEC and its 21 members (generators and retailers) is adamant “Finkel has offered a blueprint that is the essential element to overcome our current energy crisis. A bi-partisan, national clean energy target remains the key reform to drive new investment and bring down electricity prices,”

Warren adds: “Recent power price increases are the result of old generators closing and the lack of a consistent plan as to how to replace them.  This is a national policy failure that has been a decade in the making. Investors cannot finance replacement generation capacity until they can see a workable, durable and bipartisan policy framework for the sector.”

He has told Fairfax media that “talking about retail bills and customer deals at next week’s power talks will not solve the problem of unsustainable bills.”

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