Giles Parkinson at RenewEconomy tolls the bell for fossil fuel energy producers pretty much on a daily basis. Recently he posted that Energex’ business model was broken, according to its annual report.
To explain the set-up, Energex is the state-owned electricity wholesaler and distributor for South East Queensland. It doesn’t generate power or retail power to the customers. It services 1.3 residences and other customers in an area with a population of 3.1 million:
Power is generated by power stations and delivered to Energex through a high-voltage transmission network that is owned and operated by Powerlink Queensland, also a government owned corporation. Go here for brief industry structure. The network that delivers power to residences and other customers is owned and operated by Energex.
In our house we buy power from AGL. I’m not sure they do anything other than send us a bill. They probably outsource their metre reading. Certainly they outsource marketing as became clear when I asked a question of a sales representative.
Ergon Energy, also state-owned, is the equivalent company for the rest of the State. Actually it is a cluster of operating companies with several joint ventures, including SPARQ Solutions Pty Ltd, which provides information and communications technology (ICT) solutions and services to both Ergon and Energex. Ergon owns and operates 33 stand-alone power stations in remote off-grid locations selling directly to customers. The shaded area on this map shows the extent of the grid:
According to its website Ergon also retails directly to grid customers (through a separate operating company) at prices determined by the Queensland Competition Authority to provide uniform pricing access for Queenslanders, wherever they live. Ergon has a total of 712,000 customers. To ensure all remote users are charged the same price Ergon receives a State Government subsidy of $596 million (last year) as the Community Service Obligation payment.
Parkinson in this article says Ergon has been told by the troglodyte Qld government not to invest in large-scale solar.
Energex’ residential demand has fallen 10.4% in the last four years, 3.8% in the last year. Non-residential energy grew by 1.1% in the four-year period. According to Parkinson:
The network operator, which manages a $10 billion network, says the number of customers with solar PV has jumped from less than 2,000 in 2009 to more than 221,000 at the end of June, 2013. It made 74,000 new solar connections in the last financial year, and had 675MW of capacity as at June 30.
Solar is certainly chewing into the market. Some household customers were now “zero net energy”.
What Parkinson does not say is that solar cuts in during the shoulder period in SEQ, it does not reduce the peaks, and the peaks are continuing to rise. So the network continues to need enhancing to cope with the increased peaks, an investment that must be paid for by a shrinking consumption base.
Parkinson says that the State may have no alternative than to write down the value of its networks. I’m struggling to see how that would help if debt remains the same. On the other hand households do use the network to export energy and perhaps there is logic in charging for that facility.
When battery storage becomes viable for households then peak loads should be reduced. Nevertheless the question remains as to whether households could ever be energy independent in the face of several days or more of rain and cloud.
Ergon also reported at the same time (go here for their five reports). In the Ergon article Parkinson tells us that Ergon’s average household demand from the grid fell 5% in the past year alone, and by 15% over four years. Overall demand has fallen slightly as has peak demand, he says. Yet in the report Statement of Corporate Intent (see reports link above) on page 17 Ergon describes the same pattern as does Energex: a decrease in consumption during the shoulder period but increasing peaks. Moreover, Ergon states that the two-way electricity traffic is testing the network which must be enhanced in order to cope. Furthermore Parkinson doesn’t mention three large CSG gas liquefaction facilities which are due to come on stream in Gladstone over the next few years providing an increase in consumption.
Parkinson takes the stance Ergon ‘good’ and Energex ‘bad’ in their response to changing circumstances. When private retailers intervene between customers and the supplier it is hard to see how Energex can work constructively with customers in meeting their energy needs as Ergon seems to be doing.
Parkinson mentions at the end of that article and in this one that the Qld Government wants to merge Energex and Ergon and install a single management. Consequently a decision has been made to establish a single holding company.
On the face of it this makes no sense. Both are essentially monopolies which are not competing with each other. The two organisations are rather different in their relation to customers and the contexts in which they operate. Cost savings are likely be minimal in the context of two large companies, where the majority of functions seem to be decentralised and spread across the networks. However, such a merger would almost certainly introduce internal cultural conflict, or at least dysfunction between management and operations.
It’s difficult to know what’s going on. You can read accounts from the Qld Government, the Rockhampton Bulletin, the Fin Review, the ABC, the Services Union and Brisbane Times.
I suspect there is a mixture of privatisation ideology, put on the table by the Costello report, but initially resisted by Newman, and panic over a 22.6% electricity price increased after an initial government-mandated freeze. They need to look as though they are doing something. In fact there has already been a significant pruning of staff resources and a review of capital expenditure plans.
It sounds to me, but I don’t know, that Energex was been constrained in it’s scope and mode of operation by National Competition Policy. Ergon may have negotiated some exemptions because of the size and remoteness of the state and the fact that it is subsidised by the taxpayer to the tune of $600 million pa.
It is commonly thought that states are ‘gold-plating’ the networks and making excessive profits. Energex made a profit of $361 million last year after paying $155 million in tax. Ergon made $434 million after paying $177 million tax. After the subsidy Queensland made around $200 million on assets worth close to $20 billion. I make that a 1% return on assets. The Commonwealth made $332 in company tax, plus the income tax from around 8400 employees. That’s by owning nothing and doing nothing noticeable.
Parkinson keeps saying that energy storage is the new big thing with:
“smart” technology that will link storage devices and renewables, and lead to what [cleantech investor Vinod] Khosla describes as “cost-effective, intelligent, decentralized power grid solutions.”
By localised he means multi-street, suburban or single town.
Meanwhile at the production end of the business:
Stanwell Corp, the Queensland government owned electricity generator, has failed to make any money in the past year from its 4,000MW of coal and gas fired generation because rooftop solar has taken away demand and pushed down wholesale electricity prices.
There was some hope “from the giant LNG plants being built in the state’s north”. (He means Gladstone. That’s Central Queensland, Parkinson, mate!) The article goes on to say that Queensland “has argued strongly for the renewable energy target to be discontinued.”
This demonstrates that fossil fuel interests don’t have to be private to cause problems.
So what to make of all this?
I’m not informed or clever enough to nut out the best solutions, but I’d venture that demand is going to be lumpy across time and across the landscape. On the supply side Qld is not a premium wind area, but has plenty sun, especially from about 150km inland. But it can pour raining for weeks at a time. To me the solution still looks like a larger network, smart, with multiple inputs from renewables and storage capacity, but backed by fast peaking gas. That will cost.
And please get the useless private retailers out of the way. We need networks and suppliers that are directly in touch with and responsive to the customers.
Elsewhere Wallerawang coal fired power station in NSW could be closed in 2014, the biggest baseload closure so far. Whatever the role in solar some of thee aging plants have been hanging on waiting for Greg Hunt and the LNP Direct Action program to offer them a fist full of money to do the inevitable.
The biggest mistake made when it comes to electricity distribution was to sell what was a natural monopoly and then insist to the people that to do would result in lower retail power prices. Its the Peter Beattie government we have to thank for that piece of “genius” and we pay for that piece of bullshit every time we get a bill for our power.
In today’s Courier Mail, Exclusive: Sneaky power price tactics catching thousands
So the Tories’ “Direct Action” thought bubble will turn into a renter seekers’ feeding frenzy.
Hoodathunk?
Brian, thank you for your fascinating survey of the political economy of Qld power generation and distribution.
“To me the solution still looks like a larger network, smart, with multiple inputs from renewables and storage capacity, but backed by fast peaking gas.”
I agree with this comment with some reservations about the last 6 words. A number of inputs from different forms of renewable energy generation are needed.
Wind generated energy seems to have been dismissed too early by the author. Today’s horizontal-axis generators with their lofty pylons and large, slow moving blades should be seen in the same light as the internal combustion engine between 1900 and 1913: large, heavy, low power to weight ratio, and cantankerous. Today’s wind generators will ultimately be replaced by smaller, more efficient, vertical-axis generators capable of being mounted on a house roof and able to meet the energy needs of that house or small cluster of houses.
Another form of renewable to that seems to have vanished from our collective memories is the closed system, small scale methane generator which processes kitchen scrap, lawn clippings and human waste producing methane by anaerobic decay. This seems to have all the answers: reduction of the amount of sewage leaving the house, reduction of putrescible waste going to landfill and on-site gas generation for cooking and heating.
We are in the early days of renewable development. Eventually we will be able to get all our, hopefully diminished, energy needs from a combination of different types of renewable generation. When that happy day arrives, we will be able to stop burning coal, oil and gas and instead use then as feedstock for a low pollution petro-chemical industry.
Says Iain Hall:
“The biggest mistake made when it comes to electricity distribution was to sell what was a natural monopoly … Peter Beattie government we have to thank for that piece of “genius”
Except that electricity distribution in Queensland is still government-owned!
Doh!
“In our house we buy power from AGL. I’m not sure they do anything other than send us a bill.”
They also buy electricity from the generators and take the risk that the price they buy it for will not be less than the price at which they sell it to you.
That sounds like nonsense to me. The main impediment to small rooftop wind generators in urban areas is turbulence created by the large number of obstacles (i.e. buildings and trees). Also, large wind turbines are vastly more efficient than small ones – that’s why they keep getting bigger. It really doesn’t seem likely that technological improvements will change this.
Tim @ 7. “That sounds like nonsense to me.” I don’t know your background and you don’t know mine: shall we agree to be more gentle with each other?
I do know that a Google search on vertical axis wind turbine (or wind generation) produces a number of very interesting looking designs, most in commercial production and most said to have been designed for installation on houses and building rooves.
The interesting thing about vertical axis turbines is that they don’t take up as much space or generate as much down-wind turbulence so they can be installed a lot closer together. The gearbox/ generator is closer to the ground so servicing and maintenance is both easier and cheaper. As well, a turbine farm is not as visually intrusive.
Daylight savings might help at the margins here?
Does QLD have time of use charging for electricity? That is something that would reduce peak usage. I think the other approach that the networks/retailers are going to have to take is to charge higher fixed connection charges. Maintenance of the network is fairly independent of how much electricity you use (except for perhaps peak periods and TOU tarrifs address that). And most people will be fairly adverse to disconnecting from the grid, “just in case”.
Tim/Brian – I think there was a study done a while ago that measured wind speeds in a couple of Australian cities. IIRC it concluded that in most cases there simply wasn’t enough wind to make suburban roof based wind systems viable.
If small suburban based wind turbines were produced in sufficient quantities they would be viable but at present they are extremely expensive for their effective output.
If I built my own it would be viable. Produced in the millions they would be even cheaper except for the profit motive. It seems that PV technology is advancing too quickly for small wind to ever become widespread. Time will tell.
I remember someone, I forget who, making a point by saying “let me know when you see wind generators in Fitzroy.” I keep forgetting to take my phone with me when I walk past the Catholic University with its multiple wind turbines on the roof, in Victoria Parade.
Heh.
One of Perth’s super wealthy women has recently built an environmentally-friendly mansion and has a vertical axis wind generator in the backyard – I cast an envious glance at it each night as I drive past.
Brian @8:
The remark wasn’t personal and no offence was intended. I’m sorry if any was taken.
Russell @ 12
“environmentally-friendly mansion” LOL
I know the one you mean. I doubt the wind turbine produces more than a fraction of the mansion’s electricity supply, though. The Peppermint Grove library also has two of them, which in theory should produce up to 2400kWh per year. Unfortunately they are poorly located, so the actual output is likely to be a small fraction of that.
Brian @ 8. I’m not a wind turbine engineer. However, I have heard such engineers speak on this topic (and have double checked a variety of internet sources) that vertical turbine wind turbines are simply not as efficient as horizontal turbines and probably never will be.
Not to say that horizontal designs may have some application for backyard DIY or sites where vertical turbines are impractical.
Tim @ 13. If none was meant, none can or will be taken.
The point I am making here is that development is continuing and that, given enough time and work, a VA wind turbine can be made that will produce electricity efficiently and cheaply from sub-optimal locations.
Excellent technical piece, Brian. Copied and filed.
Brian in your post you include Powerlink as the operator of high voltage transmission line and mention of the LNG plants being constructed at Gladstone but there has been one factor not included in this calculation of Qld power generation. That is the construction of multiple Powerlink high voltage transmission lines and substations that will create a network supplying electricity for the sole purpose of coal seam gas infrastructure in the north west Surat Basin; an area between the towns of Wandoan & Injune.
An outfit called Energy Users Association of Australia in August 2011 predicted significant rises in the price of electricity in Qld 18 months before the 22.6% electricity price rise as recommended by the Qld Competition Authority. A major factor pointed by EUAA for these rises will be Powerlink’s involvement with coal seam gas projects.
Queenslanders,do not be over critical seeing the prospect for cyclone activity is at least for the coming season is normal to extreme.Adding that, that behaviour has by correlation determinants with the Sun’s activity possibly even further extended to influence in land events.KeelyNet2013 last look, showed a storage battery system ready up and able to be sold into the Chinese market.Perhaps engineers in these corps,are being given the wide berth,as some may in executive ranks don’t want them suggesting anything re the problem[as a similarity] of the dam matter that busted the ALP out of office.Be ready for the worst and source even yourselves for whatever reality.To decide to volunteer your own skills for the grid under extreme conditions,rather than to undermine existing workers,may also mean with cooperation with experienced workers,disconnect before the cyclonic behaviour does.Local ownership of power lines,as government can do that,would be a worse result,unless it is done by a convenient for all increase in citizen ownership as right,and a form of civil and community defence.More extreme earth happenings could make the grid a saver carrier of electricity than the blown away standards of adhering between cycles of harsh cyclone activities the solar panels to anything,in conditions that make large trees almost bury themselves where they grow. A standard engineering approach there will not be able to assess what actually will occur,if it is a very fine and acceptable guide .
Chris @ 9, we have a standard tariff, independent of time of use. I believe it’s set by the Queensland Competition Authority, which is what Ergon charges, no matter where you are. The Ergon annual report said that private operators can charge what they like. I imagine the same applies in SEQ, but I’d be surprised if the charges vary much.
On daylight saving, we don’t have it, of course, and possibly never will. Actually Brisbane is on longitude 153°E. I believe Eastern Standard Time is based on 150°E. Melbourne is on 145°E, which puts us about half an hour ahead of them, without daylight saving. Apart from that the hottest time of the day is actually about midday, compared to about 3pm where I grew up about 400km to the NE.
Katz @3, no probs, and BilB @ 16, thanks. I need to disclose a little story.
I showed the draft of the post to a certain person who is working on mathematical models for electricity pricing with Energex. He asked me whether all the information was from annual reports and the articles I’d read. I said, yes.
He then told me he thought the article rather opinionated and said he couldn’t comment further for reasons of confidentiality.
So I took out the word “troglodyte” before “Queensland government” and the word “ridiculous” before the bit about initially trying to fix electricity prices. Then instead of “So what to make of this bugger’s muddle?” I put “So what to make of all this?”
That probably improved the article’s objectivity in terms of tone, but I still don’t know if the information is accurate. I suspect it is, except perhaps for the role of the private retailers.
Speaking of which, Sam @ 6, I’m not sure who the retailer buys the electricity from and who is taking the price risk. Energex is called a wholesaler. Does this mean that the cost of electricity goes through their books? If not they can’t be a genuine wholesaler, surely.
My larger point is that there should be a direct commercial relationship between the consumer and the network owner/operator.
Brian of Buderim, the article was already long so I didn’t go into other electricity sources. The point about this place not being a good wind province stands, however. I think there are some wind installations in MQ, possibly on the Atherton tableland where they get a better flow from the SE trade winds. This morning we had a blustery change in Brisbane. Tonight all is calm.
I read that Energex trialled hydrogen cells in Cairns and they have Australia’s only thermal power plant in Birdesville. It operates on hot water rather than hot rocks. The usual fuel in remote places is diesel, I gather.
still@downfall @ 17 I guess we poor mugs don’t really know what’s going on.
I once flew over that area. More precisely it was from Arcadia Valley to the aerodrome south of Taroom. What I saw was pretty wild country, broken hills and ranges. I assume the CSG is a bit further south on more even grazing land.
Brian @ 23. No you or any other LP regulars aren’t mugs. It is so frustrating that the urban media doesn’t pick up on these issues that are having a major impact on the locals but also a lesser impact on those in metropolitan areas, in this case by increased electricity prices.
The alignment you flew along would be the northern extent on the Injune end and further north on the Taroom end of the CSG developments. It then extents much further south across the better grazing and cropping land to south of the Warrego Highway.
Some links from the rural press about these Powerlink developments:
Cattle producers launch petition against CSG powerlines
Powerlink project sparks concern
Powerlink approach slammed
Wallumbilla north residents’ unequal battle with Powerlink
Brian 21, if Energex is just a distributor, then it is not a wholesaler of electricity. A distributor neither buys nor sells electricity. It just transports the electricity along the poles and wires between the transmission lines and your house. That electricity has been sold by the generator to the retailer, who sells to you.
“My larger point is that there should be a direct commercial relationship between the consumer and the network owner/operator.”
Why? The only time you need to talk to the network owner/operator (that is, the distributor) is when there’s a blackout and you want to know when the power will be restored. Other than that, it is only the retailer that is of interest to you.
Hi everyone,
This is a bit of a long one, but I think I can help clarify a few things:
if Energex is just a distributor, then it is not a wholesaler of electricity. A distributor neither buys nor sells electricity. It just transports the electricity along the poles and wires between the transmission lines and your house.
Energex does provide demand-side management services, such as peak-load interruption, which are sold into the NEM wholesale spot market, so I guess you could call it a wholesaler. I don’t know that it owns any actual generation capacity, though it could have invested in some small generation to help it maintain network stability at peak times.
That electricity has been sold by the generator to the retailer, who sells to you.
Yep, the retailer takes the risk on the wholesale market price, plus is charged “use-of-service” (TuoS and DuoS) fees by the transmission and distribution companies for moving power around, all of which adds up to your final bill. Oh, plus the healthy margin they add on for themselves.
I’m struggling to see how that would help if debt remains the same.
The legislation around the distribution (and transmission) companies implies that they earn a profit based in part on the value of their capital (the other part is a premium on capital investment). So a write-down in the value of the distribution network would reduce the amount they earn, and reduce the cost passed on to consumers. Since the DistCos and TransCos are state owned, this also means the Qld Govt would face a capital write-down and treasury dividends would be reduced. Hence the Govt’s reluctance.
This all comes back to the fact that the network companies are proxy tax collectors for the state Govt. I’m not saying that the alternative is a good thing, where a private company gets hold of the revenues (as in Vic and SA), but it has to be remembered that the Govt’s aims are not completely aligned with that of electricity users.
An outfit called Energy Users Association of Australia in August 2011 predicted significant rises in the price of electricity in Qld 18 months before the 22.6% electricity price rise as recommended by the Qld Competition Authority.
Well, there is that, but the main point is that DistCos and TransCos have a statutory right to cover their expenses, so unless the Govt wanted to violate its own laws, it had to raise the tariffs eventually. The promise to keep electricity prices down was a particularly blatant campaigning manoeuvre, ahem, lie.
“My larger point is that there should be a direct commercial relationship between the consumer and the network owner/operator.”
Why? The only time you need to talk to the network owner/operator (that is, the distributor) is when there’s a blackout and you want to know when the power will be restored. Other than that, it is only the retailer that is of interest to you.
Yes, there should be a closer connection between users and network service providers. The current NEM legislation mandates a particular tariff structure that does not allow DistCos and TransCos to interact with electricity users through their regular bills, but only via specific subsidies (e.g. some offer payments for direct load control i.e. interruptable hot-water or pool pumps). The TuoS and DuoS charges make up about 50% of your overall bill, but there really is no feedback to users on how their patterns of energy use over time are contributing to ever-increasing peak load requirements. There are also other stability and safety problems, like voltage rise, caused by increasing amounts of residential PV, which the DistCos have to deal with using the blunt instrument of more capital investment. In either case, the costs are recovered by (fairly) uniform tarrifs, which convey no information to those causing the most pressure on the network — all because that’s what the legislation requires.
On a bit of a tangent, I believe that the network companies are not being greedy or exploitative when they ask for tariff deregulation. They know as well as anyone how the tariff structures imposed on the industry are stifling the kinds of innovation that would benefit everyone.
Some overseas DistCos that operate in less regimented regulatory regimes are being very innovative in this space: check out Vector (Auckland’s distribution company) who are giving away batteries to residences as part of their PV packages. They understand that the future will be in meeting peak load though clever technology, not through more poles and wires.
Thanks ArchCC.
Giles Parkinson has another article about entire suburbs or towns going off-grid. I’m wondering whether that would be permitted in Qld. I understand that in Brisbane you are not permitted to go it alone wrt to water.
Inexperienced staff in rural issues within Powerlink Qld are costing the government owned corporation millions. Currently 212 kms of high voltage transmission lines and seven substations are being planned in a massive web in North West Surat. The highvoltage infrastructure is yet to be constructed or given the nod as community infrastructure. It is solely for the use of the Coal Seam Gas Industry and their shareholders and costs need to be met by the CSG industry. All coal seam gas employees we have spoken to agree with this. There is no way this is for public benefit. Whether designated community or not, the Coal Seam Gas infrastructure will proceed and no jobs can possibly be affected but the back pockets of all Queenslanders will be impacted through increased electricity costs if this type of development is not fully funded by the Private Coal Seam Gas Industries. The impacts on local rural businesses and families have largely been unrecognised and instead of redrawing appropriate plans to avoid these impacts, time constraints by the Coal Seam Gas Industry are being used as excuses to forge ahead with unsuitable alignments. The Coal Seam Gas Industry will have pressure from their shareholders to make sure their gas reaches Curtis Island in a timely manner, but this will be to their detriment if they do not slow down and reassess poorly planned alignments. The compensation for these poorly thought out alignments will be massive and a little more time spent by experienced staff who understand rural issues could save all Queenslanders money. To add insult to injury, each and every substation is being ‘gold plated’ for possible future development that has not been requested by the Coal Seam Gas Industry at this time. Where does all this cost ultimately go back to, the everyday Queenslander and their cost for electricity. When Peter Costello said Powerlink Qld should be sold, he may be right. Real business people should be in charge of this type of infrastructure and this type of development should come under a second tier in the Acquisition of Land Act 1967 to ensure the private resource sector covers all costs. It is time for the legislation to change to keep pace with the booming resource sector and stop treating this type of infrastructure as if it is an essential service that must be subsidised by all Queenslanders.