Peak demand for profits is rising

by Michael West | Aug 3, 2013 | Business

Illustration: Michael Mucci

If you ask the body that forecasts electricity prices, the Australian Energy Market Operator, it will tell you, and we quote, ”peak demand is still rising”.

This is why more has to be spent on power networks, apparently. This is why prices still must rise.

If you ask the industry peak body, the Energy Supply Association of Australia, it will tell you ”peak demand levels have continued to rise”. This is the outfit whose charter is to ”positively influence government policy decisions”.

Today we shatter the illusion of peak demand. Peak demand, in reality, has been falling for two or three years – both winter and summer peak demand. General demand is also in decline. Nonetheless, vested interests persist with their myth, clutching to this one last straw of rationalisation for gold-plating their networks and raking in the cash from their regulated returns.

After a week or two of testing the industry claims, emailing back and forth, we are yet to see a shred of evidence to support the claim that peak demand is still rising.

It may be that the only place in Australia where peak demand is still rising is Manus Island.

And that is in PNG.

The number of customers who were disconnected because they did not pay their electricity bills rose 25 per cent last year. The proportion of pensioners among those disconnected rose to 22 per cent, from 14 per cent the year before.

There are a lot of cold pensioners out there this winter. Indeed, rampaging electricity prices are a drag on the entire economy.

And they are predicated on the logic that, since demand for electricity is rising, more money has to be spent on networks to cater for this demand. Ergo, higher power bills.

Bear in mind that, despite all the fuss, the carbon tax is responsible for less than 20 per cent of the increase in power bills over the past five years, and network costs (poles and wires) more than 50 per cent.

When the myth of rising demand was finally exploded last year, the rhetoricians of the electricity world fell back on peak demand – to wit, that the grid still required capacity to cater for the maximum demand on the hottest day of summer and the coldest day of winter.

In real terms, peak demand hit its peak a couple of years ago and now exists solely in the minds of the peak bodies, and their forecasts. We attach the numbers from the Australia Energy Regulator online for your perusal.

Why then do they persist in propagating the myth? The logical explanation can only be that company budgets and profits are struck on network spending. And money can only be spent on networks if higher demand is forecast.

Once the industry concedes that demand is actually falling, the party is over. Lower spending, lower bills, lower returns. And so, when the Australian Energy Market Operator and the Energy Supply Association of Australia and the others say peak demand is rising, they mean it is rising in their forecasts.

So doggedly has the power industry pushed the chimera of peak demand that the previous forecasters (AEMO inherited the job last year from the transmission companies) even threatened to drag one of their critics through the courts to muzzle him – the farmer and analyst, Bruce Robertson. Robertson’s story, incidentally, is on the ABC’s Australian Story program on Monday night.

Still on electricity, there is a new synonym for the phrase ”having your cake and eating it”: AGL Energy.

In the most brazenly testicular cry for corporate welfare in living memory – if you do not agree, please email a better one – AGL managing director Michael Fraser has called on government to compensate the coal-fired power generators.

Fraser reckons there is too much electricity about and therefore 9000 megawatts – a third of the country’s capacity – should be cut from the baseload of the National Electricity Market. Correct – he is saying there is too much supply, not too little, as one may have construed from industry claims elsewhere.

Lending some context: AGL splashed $1 billion last year to buy out Australia’s dirtiest power station, Loy Yang A in Victoria. Nice deal, got it on the cheap, should have been blocked by competition regulators.

Now Michael Fraser is breezily submitting that taxpayers compensate the industry, again, via a ”contracts for closure” scheme to help the generators shut down early.

“Maybe society would be prepared to pay,” he said on Wednesday. “You could get an improvement in the local environment as well as lowering the carbon footprint.”

Simply breathtaking. Taxpayers should fork out so Michael can get his prices up. Tally-ho, privatise the profits and socialise the losses. Michael’s pay was up 85 per cent to $6.3 million last year and if there are hurdles in his long-term incentive scheme for chutzpah, he will leave that for dead.

Let’s not forget that the government has slung the likes of Britain’s International Power, Hong Kong’s TRUenergy and the Japanese TEPCO a tidy $1 billion in its carbon compensation package. And there is still no clarity as to whether they keep the handout if Tony Abbott gets into office and rescinds the carbon tax.

What the AGL pitch confirms is that the dynamics of this market are changing radically. Rooftop solar and renewables are working and things like a new generation of LED lighting will further lessen baseload demand.

Michael West established Michael West Media in 2016 to focus on journalism of high public interest, particularly the rising power of corporations over democracy. West was formerly a journalist and editor with Fairfax newspapers, a columnist for News Corp and even, once, a stockbroker.

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