Comment 6: At best, retail competition might save a few % on household power bills.
What it amounts to in practice is purely administrative in nature since the choice of retailer has no bearing on any technical or physical aspect of the supply of electricity. It’s the same power, from the same power stations, the same transmission lines, the same poles and wires in the street and even the same person reading the meter. All that changes is who processes the account, sends out the bills and what financial deals are done with whom. Nothing changes so far as the actual supply of electricity is concerned.
Now think about that. How much do you really think can be saved in administration and sending out bills? A few % at most.
Now consider just how much unnecessary spending has occurred in recent years due to a failure to properly understand and integrate the technical aspects of supply.
1. We built Tamar Valley power station supposedly to improve security of supply. We then immediately shut down the larger Bell Bay power station thus fully offsetting any benefit of constructing Tamar Valley. It would have been far cheaper to simply modernise Bell Bay.
2. The Bell Bay open cycle gas turbines were built and not long after we spent $140 million on a new transmission line to Lindisfarne (Hobart). If it were anywhere else then the peaking station would simply have been built somewhere near Hobart thus saving the cost of the transmission upgrade – this approach has long been accepted in Melbourne as an example.
3. We have built a generation system, via Basslink and Tamar Valley, that is able to withstand a drought scenario far worse than any recorded over the past 95 years of large scale hydro-electric generation in Tasmania. Meanwhile 80% of that power is used either by heavy industry or to provide low grade heat in homes and businesses, all of which are price sensitive loads unwilling to pay higher prices to reduce the annual 2% chance of rationing to 1%.
4. A large part of the economic benefit of Basslink comes about through avoided gas-fired generation. We built Basslink, then we immediately built more gas-fired generation that was already obsolete on the grounds that we needed to plan in case Basslink broke down for months on end at the same time as a worst case drought. In other words, we spent a lot of money to guard against an possible but highly unlikely scenario.
5. The Pay As You Go tariff structure has until very recently actively encouraged growth in residential PM peak demand, as have Aurora’s marketing strategies in general. This directly adds to distribution costs (growth in peak is reportedly 50% of distribution cost increases or thereabouts) and also increases generation cost via the opportunity cost of lost exports. It is, of course, also a time of very high transmission system loading. Aurora is perhaps the only electricity supplier in the world to encourage consumption shifting *to* the peak periods.
6. Even if we did need Tamar Valley, who in their right mind builds a high capital cost baseload plant as a backup to a backup? And then builds a backup to that as well? Anyone else would simply have built some open cycle units and left it at that – the greater efficiency of the combined cycle unit will never be recovered in reduced gas costs given that we’re talking about a plant which is a backup to a backup.
There is more than one valid technical approach that could have been taken with new generation development but somehow we ended up doing ALL of them at huge cost which simply wasn’t necessary.
And on I could go. There are many brilliant people employed in the industry, but it would seem that key decisions are being made by non-technical people who simply do not understand the consequences. That plus the separation of generation, transmission / distribution and retail directly results in reduced co-operation between the different areas and consequent efforts by one to increase costs for another.
If we are to have cheap electricity then we need to return to sound technically based decision making. In particular, we need to stop building costly infrastructure which is in the wrong place, of the wrong type or simply isn’t needed at all. No amount of cost minimisation through administration will help when you really shouldn’t be building it at all.
The whole situation is akin to going to great lengths to work out the best and most efficient way of pushing a car from A to B whilst failing to question whether doing so is really necessary at all. A smarter person would first check to see if there is any reason why the car can’t simply be driven there rather than putting all that effort into pushing it.
Comment 7: #6 Shaun thanks for that detailed and informative post.
I agree with you about the lack of substantive benefits arising from retail contestability. My experience as a retail consumer in NSW is that the customer just gets hassled by cold-calling salespersons to churn through the various retailers, all of whom offer virtually the same product. One is induced by something really lame like a “$50 off the next bill deal” to change from one retailer to the next. The product remains the same. Nothing any of the retailers offer makes electricity cheaper, fairer, greener, more efficient or more reliable. It is complete nonsense.
The electricity industry is vital but problematic. You comment:
“…key decisions are being made by non-technical people who simply do not understand the consequences. That plus the separation of generation, transmission / distribution and retail directly results in reduced co-operation between the different areas and consequent efforts by one to increase costs for another.”
I am sure that is all true. But remember our history – when decisions were made by technical people who understood the consequences and there was integration of generation, transmission / distribution and retail resulting in total co-operation between the different areas, Tasmania had … Allan Knight and Russel Ashton and their Hydro Electric Commission … which those with long memories know didn’t work very well either, to say the least.
How to find a balance? That is the question.