• Australian (ASX) Stock Market Forum

Hello and welcome to Aussie Stock Forums!

To gain full access you must register. Registration is free and takes only a few seconds to complete.

Already a member? Log in here.

Electricity: Gillard's plan to 'save Australians $250 p.a.'

Discussion in 'General Chat' started by Julia, Dec 8, 2012.

  1. Julia

    Julia In Memoriam

    Posts:
    16,986
    Likes Received:
    1,857
    Joined:
    May 10, 2005
    I'm hoping Smurf might be able to comment on the Prime Minister's latest thought bubble.

    Mostly I'm concerned that the frequent references to unnecessary gold plating, as she describes it, and the subsequent conclusion that we do not need such reliability of supply, will mean once again blackouts on hot days. This used to be a regular occurrence at least in this part of Queensland, but for the last two years there has not been any loss of power that I can recall.

    I may be atypical, but I'm happy to pay more for not having to experience the power going out just when I'm cooking for a dinner for several people.

    Then there's the idea that people will have options to use electricity more at non-peak periods, while conversely being charged more for those peak periods.

    This sounds pretty unreasonable to me. Much of electricity use is non-discretionary in that families need to have dinner cooked, computers going for homework, someone watching television, maybe a load of washing going during the period 5 - 7pm or so. You can't expect mum to say "well kids, you'll just have to wait until 9pm for a meal tonight," in order to use electricity at other than a usurious rate.

    I gather smart meters are in use in Victoria. Can members from there comment on whether these actually benefit the consumer?

    Would be appreciative of comments from anyone who has some understanding of this field.
     
  2. qldfrog

    qldfrog

    Posts:
    4,166
    Likes Received:
    2,650
    Joined:
    Jun 8, 2008
    For power blackout, a few things have changed a lot in the last few years:
    the solar PV on the roof are reducing a lot the usage up to 4/5 PM , , power which potentially could be used to cool the home before the owners come back from workand so avoid quite a few power plants to be started.
    Things like pool pumps could very well be switched on during off peak; in brisbane now, I have no incentive running my pool pump during the middle of the night and only do it as a good will gesture,
    So smart meter could be a helper but

    Sadly I expect smart meter to be used as another way to charge us a few dollar extra:
    look at solar on roof, based on a recent NSW report, this has saved that state the construction of a few $Billions of power plant units,
    Yet you will read any paper and it is the worst of the evil slugging surcharges on your poor neighbour
    Here in qld, state has even lower the buy back price to 8c; which is the subsidized (via fuel excise, free water, etc) cost at the power plant, not after loosing 20% on a 500km transport network, some more in the transformers and delivering it to your neighbour house;
    in short, if there is a way to get more $ from you, there is no science or common science which will prevails.
     
  3. Logique

    Logique Investor

    Posts:
    4,233
    Likes Received:
    707
    Joined:
    Apr 18, 2007
    Smart Meters thread: https://www.aussiestockforums.com/forums/showthread.php?t=22787&highlight=Smart+Meters

    I thought the purpose of the carbon tax was to make mains electricity prohibitively expensive. Now the Fed govt wants to big note about magically making it cheaper? Something doesn't add up.

    QLDFrog is right about smart meters, it's just "..another way to charge us a few dollar extra..". Most people will have little capacity to change their consumption patterns, and will be slugged at a higher kWh rate in peak hours.

    Oppose mandatory smart meters.
     
  4. prawn_86

    prawn_86 Mod: Call me Dendrobranchiata

    Posts:
    6,637
    Likes Received:
    4
    Joined:
    May 23, 2007
    +1.

    Seems like a great con to me as for a way to the power companies to rip out more money. I might support htem for businesses, but not for personal homes.
     
  5. Calliope

    Calliope

    Posts:
    7,102
    Likes Received:
    3
    Joined:
    Jul 2, 2008
    Yes, and at the time a majority of Australians said they were prepared to pay more for for electricity in order to reduce emissions from coal-powered generation. It is one of Gillards few successes that the consumers are now paying through the nose. But the consumers are having second thoughts and Gillard is back-flipping.

    What's more the poor suckers in Queensland who neglected to install solar systems are subsidising the solar powered homes rebates and refunds to the extent of $240 p/a. each.

    AGL pays me 52c for every Kw of power I return to the grid and this cost is passed on to other consumers.

    It is so sad. I am crying all the way to the bank.
     
  6. drsmith

    drsmith

    Posts:
    8,609
    Likes Received:
    35
    Joined:
    Oct 28, 2008
    What this government says and what this government does is what doesn't add up.

    They're banking on the electorate remaining sufficiently foolish to remember their words over their actions.
     
  7. drsmith

    drsmith

    Posts:
    8,609
    Likes Received:
    35
    Joined:
    Oct 28, 2008
    In a broader context, the increase cost of electricity can only be a drag on economic perfoemance as it increases the cost of energy for the vast majority of users. The above cost of subsidising solar powered homes is in effect a carbon price. For electricity, we effectively have a carbon price and a carbon tax on top.

    At a personal level though, it was hard to look a gift horse in the mouth and I had 1.5kW installed in 2011. In the West, the feed in tariff is about 48c/kWhr fof systems installed at that time.
     
  8. Smurf1976

    Smurf1976

    Posts:
    10,191
    Likes Received:
    4,390
    Joined:
    Feb 14, 2005
    Electricity is an inherently high capital cost and, in most cases, low marginal cost industry.

    In layman's terms, that means it costs an outright fortune to build power stations, transmission lines, switch yards, the distribution network etc. But once they're built, actually using them costs very little.

    The industry has 3 "natural" components and another "artificial" one created in recent years.

    Natural components:

    1. Generation (power stations and associated fuel supply).

    2. Transmission (big power lines usually on steel towers which connect power stations to sub-stations and major industries).

    3. Distribution (the poles and wires that run from sub-stations to homes and non-industrial business).

    The "artificial" component is "retail". In layman's terms, it's what you pay for someone to send out the bill, take your money, and engage in an assortment of financial contracts which have practically nothing to do with the actual supply of electricity. This is where the "choice" and "competition" bit comes in. The trouble is, you are getting suppliers to compete on cost for a service you don't really need to start with. Hence the "artificial" nature of it. It's still the same power coming through the same wires no matter who you buy it from.

    In terms of how the industry actually works, in short it has been financialised. Power stations are dispatched (switched on or off etc) not according to technical factors, but according to a market that operates very much like a stock market, albeit with huge price swings being a routine event. Looking at Queensland as a specific example, prices have ranged from about 3.8c per kWh to about 6.4c per kWh over the past 6 hours and that is quite stable compared to how it often is (prices hit well over $10 per kWh recently in Victoria).

    So as far as generation is concerned, the basic concept of smart meters is to pass through these variable prices to consumers. This can either be directly, via direct pass through of wholesale costs, or an averaging process (Eg prices are typically higher at certain times of the day and this can be passed through as an average rate).

    For transmission and distribution, you don't have a pricing market as such. But it's a fact that investment in these assets is driven by two considerations:

    1. Connection. That is, physically providing a link between a source of electricity (power station) and a customer (house or whatever).

    2. Capacity. That is, how much electricity will a customer (or customers collectively in the case of small loads such as houses) use at any one time? This is the "peak demand" you hear so much about.

    Looking solely at non-heavy industry businesses (that is, everyone except big factories which don't use the distribution network, being directly connected to transmission lines) and households, here's some actual data for Tasmania. All time peak load was about 1140 MW for these customers. Current load right now is about 400 MW or roughly one third of the peak. And the average load of these customers is about 500 MW.

    So, we've built sufficient capacity to cater for that 1140 MW peak (plus some extra in case of more severe weather etc driving the load even higher) but most of the time it sits largely unused. It's even more extreme in places such as South Australia although I don't have the precise figures handy.

    Roads are a good analogy for this. Building a gravel road with one lane each way and a few guide posts at the side satisfies the "connection" requirement. It gets you physically in and out of your property and could be considered an essential, unavoidable cost regardless of the actual traffic volume on the road.

    But as soon as you start building bigger and better roads, well now you are investing in "capacity". You don't build a 6 lane highway for 10 cars a day to travel on. You build it because a far higher volume of traffic wants to use it. By building the bigger road, you've spent money catering for "peak demand" on the road system.

    So it's the same logic with either roads or electricity. Discourage use at peak times thus reducing the need to invest in peak capacity. Move that demand to any other time when the marginal cost of using the assets already built is close to zero (transmission lines don't wear out more quickly due to use, they wear out simply by being there in the weather etc).

    Is it a good idea? In theory I'd say yes. It makes some sense to discourage people from, for example, running their clothes dryer at 3pm in the middle of Summer (when electricity supplies are extremely stretched as it is) when most people could do it a few hours earlier or later (or just use the clothes line, but that's another story). Building more power stations and transmission lines etc just so that we can heat water or dry clothes electrically on a hot Summer afternoon has to be the height of madness I'd think.

    But in practice, the way the industry runs these days has practically nothing to do with cost reduction or even technical efficiency. It's all about the casino-like National Electricity Market and how to best exploit it. That's why, just a few days ago, we had diesel generators running to feed the grid (expensive and polluting) whilst far cheaper and more efficient gas and coal generation was running well below capacity. That's just one example of the great game that the NEM really is.

    So in practice I am opposed to smart meters. They will not benefit ordinary household or business consumers in my opinion. A few benefits here and there maybe, but a lot of pain and misery will be caused. Your grandmother shouldn't need to check how many units are online at Loy Yang or whether or not the pumps are working on the Tarraleah No.2 canal before cooking dinner. Nor should your hairdresser in Sydney be checking the weather in Adelaide to decide what price to charge for blow drying your hair. Etc.

    So overall, my view on smart meters is essentially the same as my view on having a national (Qld, NSW, ACT, Vic, Tas, SA) grid in the first place. It makes sense in an engineering sense certainly and it does reduce the actual cost of electricity supply if all other things are equal. It makes perfectly good sense that electricity can be sent from NSW and Tasmania into Vic and SA during a heatwave. And it makes perfectly good sense that otherwise unused capacity in the Latrobe Valley (Vic) can be sent to Tas overnight to save water if there's a drought or to SA where fuel costs are relatively high. There's a huge amount of rational logic in that.

    Where it goes wrong however, from the consumer's perspective, is that rational logic has been displaced by something which looks awfully like a casino. It's not about step generation and efficient loading these days. Now it's all about bid prices, offer prices and gaming the market. Smart meters will almost certainly be used in a similar way, and consumers would be better off without them for this reason.

    In the case of very large businesses, those which use enough electricity to run 50,000+ houses, in general they already have complex pricing arrangements in place such that smart meters aren't an issue there. Something the general public is unaware of, is that supply to such customers is quite routinely interrupted (generally at zero notice) in order to everyone else when faults occur. That plus with their constant 24/7/365 load (which in most cases they pay for even if not used), they don't actually have a "peak" in demand as such. Discussion on smart meters is thus relevant to non-major industrial users only.
     
  9. Logique

    Logique Investor

    Posts:
    4,233
    Likes Received:
    707
    Joined:
    Apr 18, 2007
    Upfront, I admit to cherry-picking Smurf's valued (and as usual, comprehensive) response. Sadly, NSW is likely to follow Vic down the path of mandatory smart meters.

     
  10. Julia

    Julia In Memoriam

    Posts:
    16,986
    Likes Received:
    1,857
    Joined:
    May 10, 2005
    Thanks, Smurf. Helpful and interesting as always.
    Are you able to comment on the Prime Minister's 'plan' with respect to reducing the so called gold plating and whether as a result we should expect more black outs?
     
  11. Smurf1976

    Smurf1976

    Posts:
    10,191
    Likes Received:
    4,390
    Joined:
    Feb 14, 2005
    So far as "gold plating" is concerned, it's more a case of "wrong plating" than gold.

    A few examples from Tas but it's essentially the same nationally.

    There was an accepted (real) issue with peak supply into Hobart from a transmission perspective. This includes the zinc works and the paper mill as well as the actual city and suburbs. Like most transmission constraints, it only arose on the highest demand (coldest in the case of Tas) days of the year and then only for a few hours.

    Various options were considered as a fix, among them being:

    1. Load shedding at the zinc works at times of extreme demand (noting that this factory accounts for about 20% of peak load, and 30% of average load in the area). The nature of electrolytic refining is that "stop and start" isn't overly difficult within reason.

    2. Just run the generation side of the industry so as to get around the transmission constraints. Gordon Power Station, the largest power station of any type in Tas, effectively connects to the Hobart city area (since there is nothing connected to the line between that and the power station 160 km away). The trouble with the NEM is that with the separation of generation, transmission and distribution, the network needs to be built on the assumption that this (or any other) particular power station may not be operating when it's most needed.

    3. Build a gas turbine peaking plant in the Hobart area, probably at the zinc works site. There's already a major sub-station there etc and it's also close to the main liquid fuels depot should this be required for backup fuel supply.

    4. Implement a hot water load shedding scheme similar to that used in Qld, NSW or NZ noting that 90% of homes in Tas have electric continuous storage (not off-peak) water heaters.

    5. Spend $140 million on a new transmission line from somewhere in the Central Highlands (where numerous power stations are located) to Hobart, plus an associated sub-station upgrade.

    No prizes for guessing that we ended up with option 5 as the "network" solution. When you allocate a "zero" value to the actual generation of electricity (option 3) and dismiss all the others as either not part of what a transmission company ought to be doing, or requiring the involvement of external parties that's what ends up happening. You build transmission lines and sub-stations.

    Now, it would be bad enough if that was the full story. Sadly, it's not.

    1. Hydro (which generates electricity but does not transmit it), has since entered its' own load shedding agreement with the zinc works. It's a variation on what they've been doing since the smelter opened in 1917 so nothing particularly new.

    2. Hydro has also spent a lot of money at Gordon power station to make sure it operates reliably for many years to come. It's not worn out, far from it, and should still be running 50 years from now.

    3. The really sad bit. A new gas turbine plant has in fact been built at Bell Bay (other end of the state) right next door to the existing Bell Bay power station. It was built for no particular reason (at a cost of $350 million ultimately paid by taxpayers) and is now owned by Aurora (which distributes and retails electricity but, prior to this, didn't generate it).

    Now, it just so happens that Aurora and Hydro are both 100% government owned, and Aurora is close to broke (buying an over priced power station has a lot to do with this). So we're about to see the unnecessary power station transferred to the Hydro it seems whilst Aurora will disappear altogether (the transmission company will take over the distribution network and retail will be privatised).

    Now back to Bell Bay where Hydro is trying to sell the old power station is has there. Trying to sell it because the new one is using the same transmission lines and gas supply, thus leaving the old one "stranded" with no gas, and no means of actually getting electricity into the grid. Hydro is thus trying to sell it for physical dismantling and re-erection somewhere (anywhere) else. Either that or sell it for parts etc.

    So we've ended up building the gas turbines, just in the wrong place. That's one way to get rid of $350 million I suppose.

    For the record, it was Alinta which started construction in an attempt at "competition" and then they sold the under construction project to Babcock and Brown who ran into financial troubles. Why on earth the state government bailed them out rather than letting them sink I'll never know, but it wasn't to save money that's for sure.

    As for the "competition" bit, well suffice to say that it's public knowledge that the new plant has higher costs than what Hydro sells for (wholesale) anyway which makes it all a bit pointless. Household power charges were increased specifically to make this plant viable - that's the "wonders of competition" it seems.

    4. Nothing has actually happened with hot water load shedding as such. That said, the soaring price of electricity means that there are now more households using gas and/or solar than ever before so that's a sort-of form of load shedding.

    5. And that new transmission line? Well it's been built but, thus far at least, peak demand has never reached the levels supplied prior to it being built. That's what happens when it gets too expensive and consumption falls as is now happening.

    So overall, there's the "gold plating" in action. No gold as such, but we've fixed the same problem several times over thus spending an outright fortune that wasn't really needed. It's even more ridiculous when you realise that both the zinc works and the paper mill are highly conscious of cost, and would never choose to have transmission costs go through the roof rather than face occasional reductions in their supply as has occurred ever since they opened (1916 for the zinc works, 1944 for the paper mill).

    It's not quite as comical in the other states but it's a similar overall pattern. Simply building things that don't really need to be built in order to keep the lights on whilst failing to build things that are actually needed.

    I can't be the only person to have noticed the increase in "mishaps" at Latrobe Valley (Vic) plants in recent times. There's some under-investment staring us in the face but not much is likely to be done until something drastic happens and we actually see Hazelwood or Yallourn (and the city of Melbourne!) grind to a halt. THEN you'll see panic, big time!

    All that said, I don't doubt that some investment in transmission was certainly needed in recent times. But there has certainly been considerable waste and money spent on the wrong things.

    In terms of "saving" money, it's too late for that now. The money has already been spent on a high capital cost, very low operating cost asset. It's an unrecoverable expense that we'll just have to keep paying for over the life of the asset - which is decades. At best, reform could avoid "more of the same" but most likely we'll just see the money wasted somewhere else instead (smart meters aren't exactly cheap and they have a relatively short life expectancy too compared to conventional meters).

    You won't see efficient investment so long as the interests of generation, transmission and distribution are separate. Each will do whatever benefits themselves, not what benefits the industry as a whole or consumers. :2twocents
     
Loading...

Share This Page