The facts they say: About the poles and wires selloff.

The facts they say: About the poles and wires selloff. Revenue is a weird thing and it is all about your plan. That is short term gain verses long term revenue. What can get missed on that point is what is changing around you can be a bigger factor than the emotion around the change. That factor is technology and the transition strategy to survive – to survive you need to transform how you do your business or get pushed aside. The other issue is not only the technology challenging you it is the skill required to understanding how to take the opportunity to exploit the rise of the technology. These comments are as important for Energy Network companies as they are for banks, the financial services industry, sales, commodities traders, agribusiness and manufacturing. Dare we also say, political response, too.

One group we know of, http://www.solarcitizens.org.au has been active in seeking “to change the game”. They are referring to the practices and the behaviour of companies that run electricity networks. They are targeting those that control how we get our electricity and are encouraging concerned parties to participate, by way of a submission into the Australian Senate Inquiry, and submissions closed 18 December 2014.

The Senate is looking to spotlight whether it is fair that power prices have surged across the board in Australia. Whether it is because of the unnecessary upgrades to the electricity network, known as ‘gold-plating’ of the grid. What is being investigated, and you can see the full terms of reference for the Senate Inquiry here:

  • Whether energy companies have misrepresented information to the energy regulator for their benefit
  • Allegations of price rorting by companies
  • Whether current network arrangements discriminate against homes and businesses who generate their own power, and
  • The possibility of establishing an independent body to investigate and prosecute poor behaviour.

Those that say the plan to sell off the poles and wires claim privatization leads to higher prices, reliability of supply declines, maintenance is avoided with disastrous consequences, and what could the most persuasive of all: Once it is sold that revenue source is gone!

Then we read ABC News 21 December 2014 the story headed New Tas energy plan will drive down power prices: Government.

“A new energy plan for Tasmania will result in lower power prices, the state’s Energy Minister says.

The Government is inviting Tasmanians to have their say on its new draft energy strategy.” Public submissions are open until mid-February.

This is said to be an opportunity to attract new business to Tasmania and for better ways to utilise the state’s existing energy assets.

They also moot the possibility of a second Bass Strait to the mainland interconnector and expanding their hydro generation output by 10 per cent.

They also quote the Energy Minister Matthew Groom:

“This is about a mindset shift, this is about recognising that the energy businesses are primarily there to deliver energy advantage to Tasmanians, and central to that will be the lowest possible power prices that are genuinely sustainable……………..We saw power prices increase by more than 65 per cent over seven years……..That’s unacceptable and under this new strategic direction, it cannot happen again.”

The strategy includes more work on encouraging competition, with the Government still open to selling Aurora Energy’s customer book.

We should say the truly progressive part is the commitment to investigate the potential of using forest residue for biofuel.

CO2Land org has empathy with the cause. That said we should realize the poles and wires (Electricity Networks), historically are a 130 plus years old system. Some did not have the network system for some times after that, and some still do not have access. It also follows that regulators and those consulting to the companies were constantly expecting continuous load growth on the network. The evidence is that is not now happening and predictions are it is now a very different market. In our opinion anything that can be gamed is a market and will be treated as a commodity by the players. The selloff of the networks is evidence also that the predominately state owned utility companies want to divest themselves of ‘services’ and the new owners will have the reign to treat all as a commodity. If you do not believe us – think of the new rules coming into play referring to ‘Cost reflective’ for network charges.

Are the rules setters correct? One argument that has gone for some time – at least since 1996 that we are aware of, is the fairness of cross subsidies within the networks charges being to transfer cost burdens from the sparse population region to the concentrated population region (country and city users). If you think of what the Australian Energy Regulator (AER) is saying and the Australian Energy Market Commission (AEMC) is saying it now it is enough it must change. Where it gets ugly is when you ask is the issue a question of to whom is the favour for – Business as usual and the rent seekers, or those that are bold and go forth with the transition to change.

Again, that all leads to the need to develop new business models and that need will be regardless for the reasons we started in para 1 of this discussion – the factor of technology.

A very likely model is that energy networks will adapt and change, and part of our believe of this is there will still be a need for some form of infrastructure to deliver the power. It will not matter is it is micro grid or long runs of poles and wires. The infrastructure will have new build, maintenance and upgrade needs. And, who pays? You do no matter what is the model.

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Links to customer value – Future Energy Supply Strategies

Regulatory tests and security of supply –Sounds so elegant so simple when it is a strategic position statement or statements. Queensland gives some very good examples in recent times.

The first being the effort Ergon Energy put into the work to secure power supply upgrades to the ‘Granite Belt’ and that process started in 2011. It was abandoned 17 September 2014. What changed?

Then there is biofuel potential in Queensland. Why the focus on non-fossil sourced fuel now?

Then there are the Coal industry woes – China does not want the Galilee Basin coal type – it is too dirty for its cities!

Back to Ergon: After the Warwick Daily News headlined its story, 15 September 2014, “ERGON pulls the plug” – The story was quoting the Qld Energy Minister – Mark McArdle, as announcing the end of duplication of the Warwick to Stanthorpe power line and the controversy over the routes being selected. Ergon Energy then in a letter 17 September 2014 wrote to the landholders that were to be affected by the proposed duplication of the power line and formally advised they will no longer be effected. Clearly indicated for making the decision were the outcomes of the regulatory test(s). How could the regulator test find as it did to stop the project, even sway the politics of the project? Well, the key findings were:

  • The reliability standards changed on 1 July 2014. There is a heightened need to weigh the costs against the value to customers.
  • Existing demand is slowing and the evidence future demand will continue that trend if not further reduce. Certainly not inside the regulatory forecast periods.
  • Rising costs can no longer be blamed on rising demand predictions, that waste and excess must now be addressed for efficiency dividends.
  • There was very little to be concerned about with the reliability of the network as it stands now.
  • There is an edit the focus should be on affordability. That capital expenditure must be justified as needed.

Another way of putting all this is – Ergon Energy or any other supplier cannot get away with gold plating and excessive redundant equipment and infrastructure just because it gives them comfort – it must give value. How can you get value? You can improve the technology offering better monitoring, performance and be ‘smart’. The later is as simple as balancing the demand supply equation with incentives and/or implementing demand management strategies.

And, yes there is more: alternative energy supply is opening being touted as ‘planned initiatives’ What alternative energy? Call it what you like – clean, green or whatever. But what will stick is not only ‘proven technology’ as the descriptors now includes ‘likely technology’ of distributed type and ‘battery’ storage.

As an aside did you know as ‘battery’ can be a physical volume exchange as well as an electron store!

Does this mean technology will save coal? It is possible – but at the end of the day it will get down to the economics and it is not looking all that bright for coal as sustaining its position even for baseload demand.  Even our world partners are turning their backs on coal – it is now seen as too expensive in terms of the outlook, and the economics, the environment and the cost of the process to make it ‘clean’. Recent Chinese regulatory changes are testimony to that issue. Then there is the story -AngloAmerican boss sees coal mines closing at a rate of one a fortnight http://www.goulburnpost.com.au/story/2569015/angloamerican-boss-sees-coal-mines-closing-at-a-rate-of-one-a-fortnight/ … – no a good look is it!

Yesterday, 22 September 2014, in Canberra the Minister for Industry Ian MacFarlane addressed a biofuel forum on the strategy for Queensland to take the lead on bio fuel production. This follows a paper released through the Queensland University of Technology prepared by Corelli and Deloitte Access Economics. The paper called “Economic impact of a future tropical bioenergy industry in Queensland”. It talks of the ‘potential’ of new manufacturing facilities, and how biofuels can be used as an area of increased focus in agricultural strategy.

What all this means is that traditional energy is heeding a need for a strategic change of heart. Despite what is being said about business as usual, that is not the behaviour behind the scenes and increasingly it is coming to the fore that change is inevitable. The EUAA calls it a paradigm for the industry. The question is what part of the pack are we to become. Australia has always been world renown for finding solutions. What we have not been good at is getting things done, besides talk about it that is.

And, there is more: some government facilitations would assist in industry establishment. Not our quote, it is taken straight from the above papers key findings.