It has been more than a century since Australia began supplying electricity to its local populace. Melbourne was the first city to build a power station, illuminating the city’s streets. At the turn of the century, nearly all streets in Australia were supplied with electric power. And by 1927, Australian households were finally connected to an electric power grid, to step out of the darkness, so to speak, and into the light.
Today, Australians rely on electricity not only for lighting but to power nearly every aspect of their daily lives.
Electricity Price Determinants
The Queensland Competition Authority (QCA), who is responsible for setting electricity prices in Queensland, uses the Benchmark Retail Cost Index (BRCI) mechanism to calculate the regulated retail cost of electricity prices. The yearly BRCI is a function of the change in electricity supply costs over the load costs for the State.
Translated to actual consumer pricing, this means that consumers pay for four (4) electricity price components:
The cost to create electricity
The cost to build and maintain the power lines (transmission cost)
The cost to build and maintain the network of poles and wires for electricity delivery to consumers (delivery cost)
The cost to connect, bill and manage electricity consumers’ accounts (retail cost).
In 2009, the Queensland Department of Mines and Energy reported that the combined costs of transmission and distribution (network cost) In Australia accounted for nearly half of consumers’ electricity bill (47%). Power generation is lesser at 44% while retail costs are only 9% of the total.
Despite these costs of electricity, Queensland’s regulated electricity pricing spares consumers from paying the full amount, and remains one of the lowest prices in the nation. However, Queensland’s electricity prices are poised to rise in the next few years due to an unprecedented change in industry conditions.
Today, the power sector is facing unique challenges. Global fuel prices are at a record-high. The demand for electricity is growing by leaps and bounds. Add to that the increasing environmental adversities faced not only by the nation but by the entire planet. These factors easily compound an industry already beset by capacity demands, infrastructure reliability, transmission and distribution requirements, and better environmental performance.
As early as 2009, Ergon Energy Corporation Limited (Ergon) and ENERGEX Limited (ENERGEX), Queensland’s two distribution companies, had indicated their plan to increase their infrastructure investments over the next five years. They propose to invest around $11.9 billion to upgrade their distribution network infrastructures, to meet current and future demands. Approximately $3.7 billion more will be invested to maintain the existing networks and other operational expenditures. These new investments will maintain the security and reliability of power supply and delivery to customers. However, this means that a portion of these costs will be charged to customers through increases in the cost of distribution services.
On the other hand, if the industry hesitates to spend money on these investments, the end result is the inability of the power industry to meet growing demands for reliable and quality power, driving costs up and impacting local consumers all the same.
Drivers of Electricity Increases
The planned network expenditure by ENERGEX and Ergon are aimed to address high electricity demand and consumption in Queensland.
Approximately $15.6 billion is targeted in the next five years and allocated for the following purposes:
Replacement of aging network infrastructures
Maintenance of vegetation along power lines
Repair of infrastructure from seasonal storms and weather changes
The electricity demand curve grows upward as dictated by:
1. Increase in population
By end of 2009, Queensland’s population sustained a growth rate of 2.4%. Overseas migration accounted for 50% of the population growth, natural population increase was noted at 37.3%, and interstate migration accounted for the rest of the 12.7% growth. The trend will be on the rise over the succeeding years.
2. Change in customer preferences
Customers nowadays prefer the use of energy-intensive electronic appliances such as mobile cellular phones, water heating systems, air-conditioning units, to name a few. The adoption rate of information technologies in the household has increased by 5.9% in 2009, and is expected to continue its upward trend as more and more households gain access to Internet broadband connections.
The actual impact of the changes in transmission and distribution pricing has a potential effect on the electricity prices charged to consumers. The QCA finally announced in May 2010 that the notified prices for the next two years will increase by 13.29%.
The Queensland government is offering rebates and incentives to help consumers manage their electricity bills. Up to $1000 in yearly rebates can be gained by households that adopt other sources of energy, such as the use of renewable solar-powered appliances and the practice of energy-saving methods.
Renewable energy from the sun, wind, geothermal vents, biomass production, hydro-electric sources, to name a few, dovetails with the Queensland Renewable Energy Plan (QREP) launched in 2009. The plan aims to promote a low-emission future for Queensland, by reducing greenhouse gasses released by conventional power generation infrastructure.