Household electricity prices to rise, year on year

An agreement to try to reach a deal by 2015 on emissions of carbon dioxide and other greenhouse gases is the bottom line of the past fortnight's climate change jamboree in Durban.  A few days before the conference's inevitable failure to reach any meaningful agreement on emission reductions, Australia's electricity regulator, the Australian Energy Market Commission, issued its estimates of the likely increase in household electricity prices between 2010-11 and 2013-14.

In nominal terms, the average electricity price increase is estimated at more than 37% across all Australian states.  A large share of the cost is due to increased charges from the regulated ''poles and wire'' component.  According to the distribution and transmission businesses, these stem from the need to renew a system falling into disrepair as a result of previous clampdowns on allowable spending.  Energy users claim the allowable cost increases are excessive, especially in NSW, Queensland, Tasmania and Western Australia, where the businesses are less efficient because they are government-owned.

The AEMC puts the direct contribution of the carbon tax on increased household prices at 8%.  However, the indirect effects of other greenhouse gas emission reduction measures need to be added to this to provide an accurate picture.  The most direct of these is the passing on of the carbon tax in retail margins.  This adds about a 1% supplementary impost.

In addition, there are two other effects.

These comprise, first, a higher wholesale cost of electricity.  This is a result of government regulatory risk on carbon, which prevents new power stations using coal from being built.  The coal for those power stations is cheap and abundant and the cost of new power stations is not increasing.  The risk-induced higher wholesale prices from preventing new coal stations from being built add a further 7% to prices.

Second, there is the effect of the various renewable energy programs.  These are divided into requirements to use the output of high-cost, large-scale facilities (mainly wind farms) and even higher cost small-scale facilities (such as rooftop panels).  In addition the costs include high feed-in prices resulting from state-based regulations.  Together these add a further 3% to electricity charges.

So the costs of the greenhouse gas restraining measures means an increase in electricity prices of 19%.  Hence, an average household would see its annual electricity bill rise about $300 to about $1900 a year in 2013-14.

And the increase will continue year after year in line with the policy intent of imposing costs on fossil fuels to bring about an increasing share of supply from low-carbon sources.

These costs are not the full extent of price increases for households.  Consumers also incur the costs of the price increases embedded in the goods and services they buy.  For the average household this would bring a further cost increase of at least $300 a year.

Then there is the cost loaded on to the traded goods Australian firms produce, costs that none of our rivals have to bear and that will bring a loss of competitiveness and, therefore, income levels.

Kevin Rudd proudly ratified the Kyoto Protocol on carbon emission reductions in Bali four years ago.  As the protocol enters its death throes, Australian consumers are reaping its legacy in spiralling costs of electricity, a commodity in which out natural cost advantage is being destroyed.

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