25
Mar
2018

How to cut power bills and build a more sustainable electricity network

by Tony Wood


State governments have spent up to $20 billion more than was needed on the electricity grid, and households and businesses are paying for it through their power bills, according to a new Grattan Institute report.

Down to the wire: A sustainable electricity network for Australia shows that customers in NSW, Queensland and Tasmania are paying $100-to-$400 more each year than they should.

The report calls on those state governments to write down the value of the assets to reduce electricity bills, or give direct rebates to customers.

The cost of the National Electricity Market’s power grid rose from $50 billion in 2005 to $90 billion today. But up to $20 billion of that was not needed to cover growth in population, consumption, or even demand at peak times.

There have been some improvements in reliability of supply, but not enough to justify the spending.

The over-investment was overwhelmingly in NSW and Queensland. In 2005, the NSW and Queensland governments required their network businesses to build excessive back-up infrastructure to protect against even the most unlikely events. At the same time, growth in demand for electricity slowed, as appliances became more energy efficient and more households installed solar panels.

Unless state governments fix the mistakes of the past, consumers will continue to pay for assets that are neither used nor useful. And prices that are higher than they should be will lead to poor investment decisions in future.

In Queensland and Tasmania, where the businesses are still state-owned, the Government should write down the value of the assets. This would mean governments foregoing future revenue in favour of lower electricity bills.

In NSW, intervening to revalue the privatised businesses would create too many problems, so the Government should instead use the proceeds of the privatisations to fund a rebate to consumers.

To prevent the mistakes happening again, state governments should move to full privatisation, because the evidence shows that privatised electricity businesses deliver lower prices for consumers, without compromising reliability or safety.

And governments should change the way electricity is priced, so all consumers can see when demand is high. Network costs would fall if customers reduced their consumption at critical peak periods.

“Consumers are copping the bill for the past excessive spending on the electricity grid,” says Grattan Institute Energy Program Director Tony Wood.

“Governments should act now to give some of that money back to consumers, and to ensure we have a more sustainable and affordable electricity network.”

Read the report

For further enquiries: Tony Wood, Energy Program Director
T. +61 (0)3 8344 3637 E. media@grattan.edu.au

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