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The future of energy generation and storage

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Public versus private ownership?

Well we had privately owned gas utilities in the past and they did supply gas quite economically and reliably. AGL wasn't simply another name selling gas in Sydney, at one point they were the entire gas industry and even when natural gas replaced town gas AGL was still the network operator and sole retailer. Likewise there were privately owned gas utilities in Brisbane and in Tasmania.

Now, if we compare AGL's gas pricing 30 years ago, that is just a few years before all the "reform" talk started, you'll find that AGL and their gas monopoly did indeed provide an economical supply of gas to homes and businesses in Sydney.

30 years later and there's at least 7 companies selling gas in Sydney, all of them at prices higher in real terms than that which AGL charged in the past.

The same pattern pops up everywhere. Competition's a great thing where it naturally exists and drives business efficiency but it's a real bitch when it adds an entire suite of additional costs to implement it with no prospect of getting back to where you started. That's the crux of the problem with our gas and electricity industries - SA for example isn't big enough for one electricity company to achieve optimum scale and yet they've got half a dozen. No prizes for guessing it's not working too well.

The problem isn't who owns it as such, the track record in Australia is that proper utilities can operate economically under either private or government ownership. Where it went wrong is when someone came up with the grand idea of slicing and dicing the entire industry to the point where each piece is far too small to be efficient and with a hefty cost overhead to make that whole approach at least function.

It's a case of missing the point really. The point of having competition in the supply of an undifferentiated product or service is to drive down costs, that being the only possible advantage to consumers. It's pointless if implementing it costs more than it saves but thus far our political leaders seem incapable of getting their minds around this.

For the record, the state with the biggest jump in residential and small business gas prices over recent years has been the one with the least scale - Tasmania. Yep, the very same state that the ACCC and government thoughtfully "saved" from the electricity industry's idea of reticulating gas to an area 150% larger than the actual present network in order to increase scale and drive down costs in the gas industry. But no, we can't have the electricity industry also owning gas and so the end result is that only about 15% of the state's households even have the option to use gas, supplied by a company that has nothing to do with electricity of course, and two thirds of those aren't using it anyway because it's just too expensive.

Who owns it is less important than achieving scale and efficient operation. Both government and private ownership have done it cheaper in the past than the present "sliced and diced" structure and that's a national problem not confined to any one state or owner.
 

AGL was in fact the second company to be listed on the stock exchange, and has been a privately owned energy company since 1841, so yes private ownership can provide cheap power.

However I think you are wrong if you think it was adding more retailers that has raised the price of gas.

In fact, it was two different things.

Firstly, AGL spun off their gas transmission business, into a new company called APA (as I said before I have owned for 17 years)

Then apa transformed over time from a company that owned one main pipeline connecting 1 producer to 1 market/customer, to a company owning an east coast grid connecting all major suppliers to all major markets, including export markets via the lng terminals.

If anything has increased the price of gas in Sydney, it's that there is no longer a single market holding a single producer hostage, due to apa's network producers can move their gas anywhere in sa, Vic, nsw, qld and even internationally.

That's just natural market action, nothing about public vs private.

It also allows a much greater utilization of gas for electricity.
 


Well for all the lessons we had in the 80's and 90's about the benefits of vertical integration, the govts saw fit to break it apart and add profit on profit oligopoly stages of production. I'm guessing they had external advisers who stood to gain financial advantage with a such a plan.
 
What was the price of a Kilowatt Hour in 1997 vs 2017.

Has it really outpaced inflation that much over that time? I mean a Big Mac was $2.25 in the 90's, now its $5.65, has the price of electricity outpaced the price of Big Macs?

I remember a kilowatt being 12 cents in QLD in the 90's when I was growing up, now my parents are paying 26 cents, am I missing something or is the price inflation no that much more than inflation in most other things?
 

We were never in a position where businesses were going broke over power prices and pensioners can not afford to pay power bills untill now.

Power prices are an input into everything the economy produces or consumes and they need to be controlled before the economy is wrecked.
 
SirRumpole said:
We were never in a position where businesses were going broke over power prices
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Are you sure about that? electricity is one of the smaller costs most businesses face?

What data do you have that suggests power prices are causing more businesses to go broke now than they have in the past?

and pensioners can not afford to pay power bills untill now.
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Why is that?

Could it be that pensioners have always struggled to Mae ends meet?

Could it be that maybe pensions in general have not kept pace with inflation?

Is it possible that pensioners now live houses with more modern conveniences such as air conditioning are consuming more power?




Power prices are an input into everything the economy produces or consumes and they need to be controlled before the economy is wrecked.
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Didn't really answer my question, have they increased at a rate faster than inflation?

If so, what has been the rate of increase over the last 20 years compared to the general price level of everything else.
 
Value Collector said:
Didn't really answer my question, have they increased at a rate faster than inflation?
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Yes, the average compound annual growth rate of Australian wholesale electricity prices is twice that of CPI over the past 20 years, 5.1% compared to 2.5% and that doesn't allow for the additional ever increasing access fees, way above that of CPI for domestic users.
 
Value Collector said:
What was the price of a Kilowatt Hour in 1997 vs 2017.
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I think you have to factor in consumption increases due to lifestyle changes e.g 20% over that period. There is also comparative pricing on a global scale then and now..., but

 
The crux of it is that the delivered cost of electricity in Australia to consumers has increased both in "real" terms relative to inflation and also relative to other countries.

We used to be third cheapest in the OECD but we're a long way down that list today.

So far as gas is concerned, well it's approaching the point that those running boilers would be better off ditching gas and converting to oil. That's an unheard of concept just about anywhere but it illustrates just how incredibly expensive it has become.

It's not all about wholesale gas prices either. Looking at Sydney as an example, well even if you completely remove the wholesale gas price from the retail price then the retail price today is higher in real terms than it was including the cost of the actual gas in the past. So in other words the total of transmission + distribution + retail is costing far more than it used to and it's much the same elsewhere too.

As for whether or not it matters, for pensioners and lower income earners it most certainly does. Wealth redistribution could fix that but that only passes the cost onto others.

For business the significance of energy varies. There's a few for whom it's the single largest cost but quite often it's between fifth and third. So for most it's more important than (say) communications costs or insurance but it's less than wages for most. For a few big industries though, well given the choice they'd take a 10% pay rise over a 10% power price rise any day since wages are a smaller cost than energy for those operations.

So I ask a question: Does Australia need to compete economically with other countries? If we do then we've got a pretty big problem given that energy was one of our few competitive advantages until we blew it. If we don't need to compete, because we're going back to trade barriers etc, then arguably it's not so important.

Something that cuts across all of this but is usually missed is a simple term. "Resources and energy". Yep, there it is - Resources and energy are two different things. That our politicians failed to grasp the difference is where it all went wrong. Energy is the enabler of all other resources - take that out and the rest is for practical purposes completely useless.

My personal opinion is that with Australia now being economically uncompetitive at just about everything it won't end well in the longer term.
 
Smurf1976 said:
As for whether or not it matters, for pensioners and lower income earners it most certainly does. Wealth redistribution could fix that but that only passes the cost onto others.
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Well unfortunately, that was the excuse for going to a cost for electricity that reflected actual cost, as opposed to the old model.
The old model was a reasonable cost for elecricity, that was subsidised by the taxpayer, well wouldn't that be the ideal model?
The taxpayer, is someone earning enough to pay tax, the needy don't pay tax?
Where was the problem?
Now we have a situation, where the cost isn't subsidised by the taxpayer and the poor can't afford it.

We certainly have lost our way.
One could say, we are a bunch of dick wits.IMO
Christ knows how politicians get elected, it certainly isn't on an I.Q test.
 
sptrawler said:
The old model was a reasonable cost for elecricity, that was subsidised by the taxpayer
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That one might vary between states.

Certainly in Tasmania the industry has always paid its' own way in full, the only exception being King and Flinders Islands where electricity has long been sold at a loss as a form of community service given the very high cost of supply there.

For the other 99% of the state the power industry has always been self funding. Indeed I could point out that over the 103 years of its existence thus far the Hydro has at any point in time been either neutral or a contributor to government revenue. It never was funded by the taxpayer.
 
What about retail price though, as I said I remember the price in the mid 90's being 12cents, and that puts it bang on inflation rate.
 
Tisme said:
I think you have to factor in consumption increases due to lifestyle changes e.g 20% over that period. There is also comparative pricing on a global scale then and now..., but

View attachment 71984
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Yeah I think that's why people feel it more, because they all have air con now, so it's more to do with using more.
 

Yes, sorry smurph, only talking about W.A's sad excuse for going to reflective pricing.
Now that they have moved to reflective pricing, they are now talking about not cross subsidising regional W.A.
Well when I was installing generators in the mid 80's, regional diesel were costing around a $1 a Kw to run, christ knows what they cost now.
 
Value Collector said:
What about retail price though, as I said I remember the price in the mid 90's being 12cents, and that puts it bang on inflation rate.
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Read my post, W.A has moved to a cost reflective of supply, not a taxpayer subsidised model.
One would assume other States have moved to the same model, to justify privatisation, private operators aren't going to enter the market, unless they make money.
Therefore the old cross subsidisation model had to go, therefore the old people and the people without money have to pay more, so the private operators can make money.

I can't type it any slower than that.
 
I was wondering if any one had some actual data about how much the average person pays per kilowatt now vs 20years ago, and whether this price has outpaced inflation, and it so by how much.

I know electricity prices have gone up, but so has everything, e.g. No more $2.25 Big Macs.
 
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