Electricity Prices Increases on 1 July - What are you doing?

[Nebulous (Chris)]

Originally Posted by stanlite

The issue of higher prices are far more complicated then just the government selling the ownership rights it has to do with the disruptions being caused surrounding the entire economics of Electricity.

the recent spikes in power prices are mostly due to the closure of large base load power stations in SA and VIC (as they reach the end of there working life) and the lack of sufficient base load replacements. eg. demand is greater then supply = prices go up 20% in a year.

...........

Good read. Thanks for posting it.

The calculations, even for a single household situation, can get very complex and involve predicting a range of factors that most of us have little data on. I remember trying to factor in things like the interest we'd lose on the invested money we'd need to spend on a solar system, the expected usage at different times of day and night, seasonal variations, unavoidable decline in panel performance, possible failure rates, etc and balance all that against the inevitable increases in grid power costs and the overall fluctuation in the make-up of the energy market over the next twenty years or more.

But ultimately it came down a series of best guesses and the hope that we would be future-proofing ourselves against higher power costs in the later stages of life when we could least afford it. So far, despite the hiccups, it's still looking like it was a good bet.

[AndrewJ]

As an economist knowing these things allows us to generate risk models and expected rates of return that need to be achieved before a project becomes viable.

But what is the definition of viable, economic or societal?????
If we used pure economics, no one outside the major cities would have electricity or a postal service, or paved roads, as to a small "for profit" company, its just not going to give a return.???
The Govt owning and in some cases propping up certain areas is the only way a lot of Australia could get a service.
I fully agree that if we dont address overpopulation, then coal needs to be phased out, and costs will go up, but maybe if it was done in a controlled manner, vs the current selfish money grubbing "fish market", it might not be having such a large impact over such a short period.

Andrew

[Kunama]

We are saving by not turning on the TV, not only does it save power but also reduces stress when we are no longer bombarded by these 'bad news'.

When it gets bad enough I will move into the motorhome and rent out the house.

[LewisM]

Volunteer for Mars mission...

[stanlite (Grady)]

Originally Posted by AndrewJ

But what is the definition of viable, economic or societal?????

In this regard it depends upon who you ask. I for one would say the are one in the same thing. If its not viable on an economic level it can't be viable on a societal level and visa versa (unless there is some major unknown cost). The costs you speak of (eg. people going without services) presents significant social cost and these are by the very definition economic costs that must be accounted for when performing cost benefit analysis. Social, Environmental and Economic (monetary) all get equal weighting in economics (as apposed to business decision making).

Building power plants (at least when the government does so) to lower prices for power must be weighed against the alternative uses for the money (since even government has a limited pool to draw upon). If the case for building plants stacked up I have no doubt that some polly would be doing that right now. The fact of the matter is at the moment NO option makes certain sense and no one wants to be left holding the white elephant of a plant that was built in a time of crisis that wasted billions of dollars of public funds when in 10 years it loses money hand over foot to solar. (think desal plants from the drought years that now sit unused costing millions.)

You are right without government interference much of Australia would have no access to basic services. Although in terms of power the new technologies of renewable coupled with on site storage could provide this service at a substantially lower societal cost then today's current system (eg. no 1000km of wires that need the maintained for 300 people to get power).

[AndrewJ]

Gday Grady

If its not viable on an economic level it can't be viable on a societal level

If we deal with each individual part of society on its "economic" merits, then that gets rid of child care and hospitals etc pretty quickly.
I once heard a saying that the graveyards are full of indispensible people.
Im sure it would be more economic to just let people die if required than spend trillions on health and research. It also reduces population growth thus removing the need to keep building more and more supply. Win win.
Not sure if that makes for a good society at present.

Andrew

Ed
And then i remembered a show on last weeks idiot box about great aircraft, that parallels what we are seeing.
It was about the development of the DC3. It started out with Donald Douglas and his engineering staff trying to find a way to fullfill an order to provide a product. At the end of the show it mentioned that one thing that saddened Donald was that when he started out, the room was occupied by the buyer, himself and his engineering team. Just before he retired, he went into the room and it was full of lawyers and accountants.
If pure economics is the answer, why are we still in the poo???????????

[stanlite (Grady)]

Hi Andrew,

I don't disagree with you ... if you look at what I said I said

" If its not viable on an economic level it can't be viable on a societal level and visa versa"

True economics (the stuff i studied at uni anyway) gives equal weight to the social, environmental (Non monetary) and monetary costs and benefits of any decision. Therefore a decision doesn't make economic sense if it doesn't provide a net benefit to society this benefit can be in either monetary or non monetary form, Economists should not care from a scientific point of view (since Economics likes to think of itself as a science). Politicians and Businessmen prefer the monetary form and are driven by different motivations.

[AndrewJ]

Gday Grady

Part of me agrees with you, but reality has to be taken into account, ie the self interest of politicians and "businessmen" will always be there, and needs to be factored in.
I cant remember who quoted it but it was something like
"In theory, practice and theory are the same. In practice, they arent"

I'm just a dumb engineer, who isnt skilled in the arts of how to make a buck at the expense of someone else. But i am smart enough to know that a lot of what we have now isnt working, and is worse ( in many ways ) than what we had.

Andrew

[Orionskies (Julian)]

20% WOW that's some price increase I feel sorry for the elderly and sick, they will feel this hike the hardest.... as usual.
And especially the fact you only get about 10 days to pay what is a very large bill. At least rego or insurence you get about a month and you know what to expect.

Poor politics = Poor policy outcomes.

I think the Berejiklian/Baird govt will pay dearly for selling those poles and wires.

[Allan_L (Allan)]

Originally Posted by stanlite

For example the wholesale price of power at the moment is approximately $120 a MW/h or $0.16 a KW/h is is up from $80 perMW/h or $.08kw/h last year before the VIC and SA plants closed.

With an Economics degree, and working in the finance department of a generator, 10 years ago the cost of production approximated $40/MWh.
That did not stop them supplying to the grid for up to $9999/MWh when they could (agreed not often). But the point is the prices charged had nothing to do with cost, but only profit maximisation, once they had to compete. When the whole system was owned by Govt. there was no competition. Privatisation introduced competition - the incentive needed to attract buyers.

If the price was $40/MWh back then, and since privatisation they have reduced the labour force and curtailed periodic maintenance, how could the cost now be $160 ($0.16 x 1000).
Is the reason because they are amortising the cost (that they paid to purchase it from Govt) over a short period? If so, again the answer is due to privatisation.

And Astrophe, there were protests in NSW at least, and these delayed privatisation by over a decade. But they eventually brought it in, bit by bit.

[pmrid (Peter)]

There is a strong perception (if not reality) of collusion between the electricity distributors and government. Putting aside the fact that governments seem to own significant slices of them.

One area in which that seems to be most apparent is in the way so-called price control bodies year-on-year set power prices including what are called access costs - i.e. the daily charge for the privilege of being connected to the grid. Our fee has increased by roughly 300% in 4 years from 55 cents/day to $1.55/day.

The consequence of this $1 a day increase in that whatever benefits I derive from my grid-connected solar are stripped away almost entirely.

I would love to know but just cannot find out whether this increase is the same for all consumers or whether it is a special rate for those with solar who are benefiting from their grid-connection contracts.

Does anyone in Queensland have the answer?

Peter

[glend (Glen)]

Allan i think inflation has had a role in increasing the cost base over the last decade. Despite reducing the workforce, there is a cost associated with redundancies which stretch out any realised savings. I used to cost outsourcing bids for an IT company, and people costs were usually the only savings that could be realised once economies of scale were exhausted, especially where increasing cost of maintenace of aging equipment, or equipment refreash was involved.. Outsourcers, or buyers of electricity assets, have to look at the net present value of the deal and factor in their profit margin. Outsourcing is never cost effective in the short-term because so many of the fixed costs are upfront. As you would know, changes to the assumptions made in the deal, can easily destroy the profits, and that includes governments changing the rules, and introduction of new regulations, which if out of scope to the original deal can trigger penalty payments. Simply, it will never get cheaper, and it does not matter who owns it, public or private. Governments cannot really promise anything in relation to future costs.

[sharpiel]

Originally Posted by stanlite

The issue of higher prices are far more complicated then just the government selling the ownership rights it has to do with the disruptions being caused surrounding the entire economics of Electricity.

the recent spikes in power prices are mostly due to the closure of large base load power stations in SA and VIC (as they reach the end of there working life) and the lack of sufficient base load replacements. eg. demand is greater then supply = prices go up 20% in a year.

Now the simple answer is we sold it and now the companies don't want the expense of building new ones because they can take us for a ride (profit wise) sounds right but there are deeper issues at play (which the finckel report is trying to address). Primarily the issue is one of the return one can generate on investment in a power plant. It doesn't matter who builds it (gov or private) it only makes economic sense to build a power plant if it can cover its costs of construction and running (gov) and turn a profit (private). Given the expense of building these things the return profile is stretched out over 20-50 years (otherwise the prices charged to get a decent return would be huge ... think paying of a house over 3 years as apposed to 30). This means that before you even commit to building you need to be sure that the Demand for your product (greenhouse power in this case) needs to be there pretty much a full capacity for the next 20-50 years.

As an economist knowing these things allows us to generate risk models and expected rates of return that need to be achieved before a project becomes viable. In the case of Coal fired power plants in Australia (different profiles for different markets/countries) the expected/required rate of return needed at the moment is around 10-15%pa. This actually means that renewable power options are making more economic sense (even without subsides) because they currently attract only a rate of only 7-10% (this is what i have heard I need to do more research). This essentially means that the age of building profitable coal (and even some types of Gas) power plants is over. The almighty dollar and economics markets have decided this and no amount of government intervention can change this (beyond delay of the inevitable)

For example the wholesale price of power at the moment is approximately $120 a MW/h or $0.16 a KW/h is is up from $80 perMW/h or $.08kw/h last year before the VIC and SA plants closed. So wholesale prices are currently up 100% (prices should fall during winter as summer demand dissipates). This means you need to be able to build a power plant that can generate power for $.16 or less (if you want profit). At this rate no coal plant can compete long term, Gas can but there are other issues at play and renewable are fast approaching this level. Given the uncertainty (mostly caused by the continuing fall in cost for renewable) no sensible company (or government) is game to build a plant based on coal (and soon gas). Because as the cost of renewable continues to fall the fast approach the point at which they not the base load generators set the market price (think 2 years for solar before its cheaper then coal per kw/h its already the case with wind). This will only get worse as storage prices fall also. Eventually electricity prices will regain some sense of normalcy and may even fall but not until the disruption caused by the biggest shift in how we produce and consume energy is complete and the invisible hand of economics has had its way with us.

The same forces that give us ever cheaper astro/electronics gear is biting us on power.

This is the problem with private industry. Everything needs to be justified on a return for investment basis. Of course prices rise. Only governments can look at a longer term.

shareholders = justifications for profits (or greed).

And yet I bet if the "government" tomorrow said it's nationalising the banks and power companies the cries of "communism" and "restraints on trade" would be deafening.

[drylander (Peter)]

I wonder if the subsidies being paid to wind farm operators was removed would that reduce their popularity as they don't seem to be keeping up with the coal fired units as far as production of power goes as they can only work when the wind is in the goldilocks zone whereas coal or gas fired units work day and night, rain or shine.
Pete (The devils advocate because he's a mate of mine)

[Nebulous (Chris)]

The key part of Glen’s question is of course “What are you going to do about it?”. Often the answer is just moan about it for a while but not do anything. Alternative methods of generation have already been discussed but they’re not necessarily practical or affordable for everybody. For instance, if you live in a block of flats you may not have a roof to fit your own solar panels on, and so on.

But, in most cases, it should be possible to do a power budget.

In other words, re-assess your power use and see where the money really goes and what you can change. Check how much each appliance uses. For instance, LED lghting is becoming more widely available and the prices are dropping. It’s cheap to run, but on its own it won’t make a major difference to the bill. Tumble dryers, irons, toasters, certain type of aircons, stoves, electric heaters, etc can all suck it up. But unless you check their individual ratings (or better still, monitor them separately) you won’t know which ones that are worth cutting down on or replacing.

Some wired-in items like stoves or aircons require you to monitor your meter, but you can buy a gizmo that will tell you what plug-in items are using. Like this one:

https://www.jaycar.com.au/mains-power-meter/p/MS6115

It shouldn’t be a surprise to anybody, young or old, that our bills will continue to rise. If you have a stab at doing a power budget, and assess the real cost of using all your appliances, you’ll then have some data to inform decisions on what to keep, what to cut back on and what to ditch altogether. We have ditched an electric heater, and cut down on our use of a number of items (e.g. tumble dryer). I have also nobly decided never to use even a single watt on ironing any of my clothes….

Small savings do add up over time. Using Allan's example of the kettle that uses 2,400 watts, it's clear that it wastes power and money to keep filling the kettle right up. Only boiling the amount that you're about to use and not heating water that will simply stay in the kettle and then cool back down again makes sense and does save money. And so on.

But when we looked at all the alternatives (e.g. using hand tools instead of power tools, candles instead of electric light, hand washing clothes, cutting down on toast and hot drinks, etc) accepting the cost of buying a certain amount of power has always seemed worth the cost to us. once we knew more accurately what that cost was.

So far anyway!

Cheers,

Chris

[AussieTrooper (Ben)]

Originally Posted by glend

Trooper, Re that Victorian situation, the reason the power was so cheap was the old Hazelwood brown coal plant was supplying power to Victoria, at $40 per megawatt hour. Those days are long gone, it could not be replaced today.

Hazelwood wasn't really supplying Victoria per se. By that I mean that they didn't really supply domestic consumers. They had a contract with Alcoa to supply subsidised electricity to the smelters. It's why Australia's first 500kV line went directly from Hazelwood to Portland.
That said, as soon as you remove Hazelwood from the equation, Portland start buying what was previously residential/industrial supply.
Loy Yang are now vastly more profitable than they were previously.

Agree that the cost to build a new one would be far higher than constructing the original though.

[AussieTrooper (Ben)]

For me, I have installed a wood heater. Started using it this winter.

[UniPol]

Originally Posted by AussieTrooper

For me, I have installed a wood heater. Started using it this winter.

http://www.health.nsw.gov.au/environ...ood-smoke.aspx

[Exfso (Peter)]

Dunno why the states don't buy chinese power, we get everything else from China
Tongue in cheek of course

[raymo]

I refuse to use my wood heater; in Launceston they used to give anybody who
bought a different form of heater $750 toward the new one. In many
places wood is more expensive than other forms of heating fuel anyway.
I HATE the smell of wood heaters, and also all the dust that gets on
every surface in the house.
raymo