Quote:
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.
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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.