Most Australian’s draw their power from the National Electricity Market, or NEM. All the states and territories in Australia are connected to it, except WA and NT. This means power can be fed from one part of the network to another because all our power stations are linked.
The body responsible for operating the market is the Australian Energy Market Operator, or AEMO. Not to be confused with an emo, a teenager who sports black eyeliner and melancholy. AEMO is also the body responsible for predicting how much power Australian’s will use. Forecasting is important because it tells us how much infrastructure needs to be built to meet future demand. So every year AEMO consults its magic eight ball to let us all know what our future will hold.
- Historical data like usage, income, price, weather and population;
- Key drivers they think will impact future consumption like emerging trends, or the presence of power hungry industries in Australia; and also (apparently)
AEMO have predicted, since 2009, that our demand for energy would be so huge the network would need $45bn worth of upgrades to cope. There was only one problem with this – their forecasts were so fanciful they could have won the Miles Booker Prize for fiction. Since about 2007 demand has been flattening and in 2009 it began dropping, consistently and rapidly.
So they considered emerging trends, just not any trends that predicted demand would go down. Like increasing power prices. Or solar panels.
While it is unclear how AEMO manufactured these wildly overblown forecasts it is perfectly clear why they manufactured them.
How power companies are paid
Network energy providers (the people who own the power poles that deliver electricity to your house) are paid based on how many assets they own. Not how much power they deliver, or how efficient they are, or how good their safety record is. But how many poles and wires they can stick in the ground. So the more assets they have on their books the more money they make. That’s like getting paid at work by the number of shirts you own.
AEMO’s predictions have been so high because they anticipated peak demand was going to skyrocket. Peak demand is everyone using power at the same time; when we all get home and turn on our lights, showers and air conditioners. AEMO predicted our Godzilla appetite for power would never slow and as a result our consumption would reach almost 250,000GWh by 2020.
To illustrate how far their predictions are from reality check out the graph above, prepared for us by Bruce Robertson. If consumption continues to fall at it’s current rate it’ll be sitting more around the 130,000 – 150,000GWh mark by 2020.
The networks use AEMO’s prediction data to figure out
how much money they can make how many assets they need to build in order to meet demand.
If forecasts say demand is going up they get to build more. And they have the right to charge this back to customers, which is exactly what they have done since 2009 when they spent $45bn upgrading poles and wires. As a result power bills have risen by around 51% across the country. And these are fixed charges. So it doesn’t matter how much power you save, your bill will still rise.
Experts we’ve spoken to estimate between half to three quarters of this $45bn spend was unnecessary.
The death spiral
What’s happening in the power industry now is affectionately called ‘The Death Spiral’. Cute, isn’t it? Here’s how it works:
Power companies have so severely gouged customers on price they are now
- Looking for ways to save power (by turning lights off, for example)
- Trying to use less power during peak times (like using timers on appliances)
- Upgrading to appliances with better efficiency ratings
- Investing in renewable technology like solar
- Trying to get off the grid altogether
- More conscious of climate change and the need to save energy
All of these factors mean less people are using the grid. This means power companies have less customers they can recoup their $45bn from. Which means it’s more expensive for existing customers to stay on the network, which means they too look for ways to save or leave. And the cycle continues.
‘We can all exist off the grid!’ I hear you say. Maybe, but it doesn’t help people who can’t afford to install solar, update their appliances or get off the grid. Saving money on your power bill in the long run costs money upfront.
In the two years between 2009 – 2011 when the huge $45bn spend was kicking off electricity disconnections in South Australia alone rose by 38%. There were reports of people using candles for lighting and storing perishables in eskies. And these aren’t hipsters who believe tungsten lighting ruins the complexion of their beards. These are ordinary people. In case you were wondering, electricity supply began in Australia in about 1880.
It’s not just impacting us at the household bill level, it’s impacting us at the overall economy level too. Power hungry industries that create jobs are moving offshore. Take aluminium smelting for example. Power prices are so high it’s no longer economically viable to make aluminium in Australia. We have the raw materials needed to produce it, the capital investment has already occurred (we have the smelters) and the human know how to get it done is in our current workforce. Instead we export the raw materials and buy it back as processed aluminium.
While energy companies are their own worst enemy they’re also facing threats from new predators; renewables. Solar panels are at their most productive during that time of afternoon peak we mentioned earlier. So not only is energy consumption going down, but the most profitable time of day for energy companies is being decimated. Stats show that energy companies make around 25% of their yearly profits from 36 hours of power generation.
There are 8766 hours in a year. So 25% of their yearly profits come from just 0.4% of the year.
Imagine if you could earn 25% of our yearly salary in just 0.4% of the year. Would you even go to work for the other 99.6%?
It’s not over yet
That $45bn has already been spent. But it’s not a one off. Companies are now seeking permission from the regulator for their next round of infrastructure upgrades. And they’ll charge all that back to us too.
Where to now?
The future of energy provision is a decentralised model. Instead of having thousands of km’s of poles and wires linking a few big power stations, we’ll be crowd funding renewable projects that generate power at a local level for distribution among our communities.
Developers are starting to see the benefits of embedding renewables into large projects. So keep an eye out because you can get involved or start one yourself. Investors are also putting money into large scale renewable projects and technology that will help people get off the grid.
Also, make sure you’re getting the best deal for electricity . If you have an issue with your provider, or are having trouble paying your bill, talk to them. They are obliged by law to help you find a solution like instigating a payment plan. If you can’t get it resolved by talking to them or complaining sounds too much like hard work then download this app, which will help you resolve your issue in the best way – by getting someone else to do it.
Head over to our forum where we are analysing the fictional qualities of the AEMO forecasts and wondering how that job might be done better.