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From the CEO
Electricity prices have been in the news again, with the recent quarterly update from the Australian Energy Market Operator (AEMO) reporting significant rises in the wholesale (generation) costs of electricity and gas.
Lower wholesale electricity prices account for most of the 10% reduction in the average retail prices paid by everyday Australians in the past two years, so it’s concerning that the rises we are seeing have the potential to wipe out all of that gain. It means the retail electricity prices paid by households and small businesses are likely to stay at historically-high levels for the foreseeable future.
We know that cost of living pressures are high on the list of priorities for voters in the Federal Election, so what do we think governments can and should be doing to reduce both retail electricity prices (the “cost stack”) and bills?
Since global fossil fuel prices are driving up wholesale electricity prices, it has been argued by some that we need to more quickly to break that link by accelerating investment in renewable generation assets and the transmission network that connects them.
Herein lies the dilemma for whoever wins government on May 21: Under-investment in the transmission network needed to service an all-renewables grid could delay the speed of the transition and expose consumers to higher prices. Some might call this scenario too little, too late.
But just as certainly, over-investment – or too much, too soon – will also result in higher prices for consumers.
As a thought experiment, we can understand the extent of this challenge by looking at total system costs in terms of today’s retail electricity price, before the latest wholesale price increases.
The cost stack works like this. Today’s average retail price (27 c/kWh) across the National Electricity Market (NEM) is made up of 13 c/kWh in network costs (both transmission and distribution) and 9 c/kWh in wholesale costs. The rest is retail margins, environmental scheme costs and digital meter installation costs.
Recent increases in international fossil fuel prices could add 3 c/kWh to the wholesale cost component, bringing retail prices back up to previous levels. If we account for estimated new investment in transmission capacity that is included in AEMO’s Integrated System Plan, this would take the retail price up over 30 c/kWh.
Over and above these contributing cost increases, we can expect that there will be further increases in system costs that will flow through into higher retail electricity prices due to the investment required to replace ageing assets in the distribution network, as well as the impact of rising interest rates on the outstanding capital value of existing transmission and distribution network assets. This is only one scenario but it’s in no way a far-fetched one.
We can’t and shouldn’t let that happen. There needs to be a laser-like focus across the sector on constraining retail electricity prices to no more than current levels, by ensuring existing and future network capacity is more fully utilised and not sitting idle. All network investment decisions need to be carefully scrutinised for costs (which come early) and benefits in lower wholesale prices (which usually come later). Necessary investment should meet the test of being least-cost regardless of whether it is funded through private investors or by the taxpayer.
Retail electricity prices will be challenging no matter who forms government in a couple of weeks from now. Fortunately, there are still opportunities on offer to assist households and small businesses reduce their bills, taking advantage of lower prices during the day when electricity is abundant and through better insulating homes and business premises.
The benefits are made clear in the AEMO report, which shows the stark differences in wholesale prices over the course of the day. Wholesale prices during the morning and evening peaks are considerably higher than the March 2022 quarterly average (1.6 and 1.2 times respectively) and considerably lower at other times during the day. At their lowest point at around midday, wholesale prices are around half the quarterly average.
The challenges of shifting some electricity use to daylight hours outside the peaks are shared by both consumers who have rooftop solar (estimated to grow to 6 million in the next decade) and those who don’t have access to solar, because they lack the means, a suitable roof, or they live in apartments or rent.
That brings us to a term you’ll be hearing a lot from us: Consumer Energy Resources (CER).
We’ve decided to do away with Distributed Energy Resources — the term the industry uses to describe the solar panels, home batteries, electric vehicles, hot water systems and more that are owned and operated by consumers and exist ‘behind the meter’ as industry likes to describe it. These CER, along with their owners, make up what we call ‘the second transition’ to an energy system where consumers are full participants: generating, storing, using, and sharing electricity for their own benefit, the benefit of their neighbours and the community as a whole.
We are making this change, explained more fully here, because language matters. Because viewing these things as Distributed Energy Resources says what matters about them is that they are scattered and that they primarily exist as a resource to be harnessed for the good of the system.
We say what matters about them is they are Consumer Energy Resources. They belong to consumers and are conveniently located, where consumers live. Consumers do not purchase or maintain CER because they want to be ‘market participants’, balancing supply and demand or providing other system services. They do so because they perceive benefits — whether it is protection from rising prices and a lower power bill, a sense of independence or making a contribution to addressing climate change.
We invite you to join us in changing the way you refer to these resources. It is a change that is more than merely symbolic.
As we set about trying to ‘rightsize’ the future grid it is critical that we use all of the renewable resources in the system wisely and efficiently. This means consumers are likely to be called on or asked to deploy their CER in ways they have currently barely contemplated. As stakeholders in the system we need to make sure that they are brought along on this journey. They need to have some say and some understanding of what might be asked or expected of them. They have to believe that it is in their interest. Their participation is essential for our transition to a clean, abundant and affordable energy system but it cannot be assumed. It must be earned, secured and maintained.
Regardless of the result of the Federal Election there is one other significant change we’d like to see; a renewed sense of collaboration and shared purpose across different levels of government. The disruption of Covid-19 saw the shelving of the Council of Australian Governments (COAG) and, as a result, the COAG Energy Ministers Forum – a process that was not perfect but which provided valuable connective tissue and helped drive common purpose and shared action across the sector.
It’s understandable, given the nature of the pandemic, that the National Cabinet formed to replace COAG has been focused on responding to the immediate challenges of Covid-19, but it’s now time to build new opportunities and mechanisms that can cut across jurisdictional differences and drive common purpose. The kind of reforms we still need to see will absolutely require a greater capacity for collaboration and cooperation than we currently have.
Some of the discussion that was underway at a NEM-wide level has taken a back seat during the pandemic. In the meantime, we’ve seen different governments attempt to make the running within their own jurisdictions when it comes to new investments, policies, projects and programs. In most cases that’s laudable but it will be important to make sure there is a national approach at the heart of future action if – again – we are going to create a system that places and uses appropriately-sized assets in the optimal locations.
We haven’t just been waiting and watching as the election campaign plays out. This month we’ve lodged new submissions on the Victorian Default Offer. We are hard at work on a series of new research projects and position papers covering topics as diverse as smart metering and data, consumer protections and energy efficient homes. We can’t wait to share the results with you in coming months. As always, the arguments we offer and the insights we share will be grounded in the irrefutable evidence of what consumers are thinking, saying and doing.
We’ve also recently announced the funding of six new projects under our Grants Program. When I think about what we’ve funded I can’t help but feel proud. These projects are tackling wicked problems like creating an inclusive circular economy for used PV panels, helping renters access the benefits of energy efficient housing and ensuring across the varied supply arrangements that remote and indigenous Australians have access to similar rights, protections and service levels as the rest of us. They really matter.
On a different note, this month signifies another milestone for us as we return to the ‘new normal’, for the first time in almost two years we’ll be holding an in-person event. Our always-popular stakeholder forum is back and will be held in Sydney. Energy Security Board Chair Anna Collyer will join me for a chat about how our respective organisations are navigating what we call ‘the two transitions’. We’ll follow that with a Q&A and then some networking nibbles and drinks. If you’re a NSW-based stakeholder we’d love to see you there, if not rest assured we’ll be holding similar events in other cities over coming months.
Lynne Gallagher
Chief Executive Officer
A Suite 2, Level 20, 570 George Street, Sydney NSW 2000
Tw @energyvoiceau Ln /energyconsumersaustralia Fb /energyconsumersaustralia
Events
Board Stakeholder Forum: Navigating the two energy transitions
The Energy Consumers Australia Board invites NSW-based stakeholders to an in-person forum to discuss the issues facing residential and small business energy consumers in a transforming energy market.
Anna Collyer, Chair of the Australian Energy Market Commission (AEMC), and Lynne Gallagher, CEO of Energy Consumers Australia, will outline how both organisations are navigating what Energy Consumers Australia calls ‘the two transitions’, followed by a Q&A and networking drinks.
The event will be at the Hilton Sydney on May 18. Register here.
National Energy Efficiency Conference 2022
We’re pleased to be the multimedia partner for the National Energy Efficiency Conference 2022, Australia’s leading event for energy efficiency, energy management and demand response.
Our CEO Lynne Gallagher will be speaking in the plenary session on day one called ‘Perfect match – linking renewables and energy management’. You can register for tickets here. Look out for our media zone where we’ll be capturing plenty of stories and insights from this event!
Grants Case Study
Tracking the cost of energy for a more transparent market
Energy Consumers Australia’s Grants Program is funding Vinnies Victoria to track the cost of electricity and gas on behalf of consumers.
St Vincent de Paul Society, a charity dedicated to supporting disadvantaged Australians, recognised this challenge more than a decade ago and began investigating ways to make the market more transparent.
The full case study of this project’s impact can be read here.
News
Death to DER? Why we need to change the language we use for the energy transition
When it comes to the change that drives us — towards a future energy system in which consumer needs, preferences and expectations are the central consideration — words matter. We’re changing how we talk about distributed energy resources and we’d like you to join us in making the switch. Read more here.
Energy consumers are investors too. So where is their return?
ECA Board Member Gavin Dufty spoke at the Energy Networks 2022 Conference about rewarding consumer investment. The full speech can be read here.
Publications
Submission to the Review of the Victorian Default Offer Order in Council
We do agree that there is room to improve consumer awareness and understanding of the reference price. Read the full submission here.
Submission to the Victorian Default Offer Draft Decision
We support the proposed continuation of the current approach to setting the VDO. Read the full submission here.
From the Board
ECA is looking to find ways to create a more inclusive and equitable energy system
Energy Consumers Australia’s Board met in April and were focused on how the Grants Program can play a role in creating a more inclusive and equitable energy system. Six projects were approved for funding at the meeting. Read their full communique here.