Green power forcing prices up

JULIA Gillard is under pressure to compensate households for the impact of the federal government’s renewable energy programs after another independent tribunal found they had contributed to rising electricity prices.

Amid the broader debate over the commonwealth’s carbon policies, NSW Premier Barry O’Farrell’s demand for compensation yesterday signalled the political escalation of the nation’s cost of living crisis.

Mr O’Farrell made the demand during his first meeting with the Prime Minister, in Sydney, as the state’s price regulator recommended hikes of up to 18.1 per cent in power prices from July 1. In its draft determination, the Independent Pricing and Regulatory Tribunal said the actual cost of generating electricity had risen by only 1 per cent but the cost of green energy schemes, state and federal, had rocketed.

“I think we all agree we need to encourage the use of alternative and renewable energy,” Mr O’Farrell said. “But we also have to ensure we do not make it impossible for working families to be able to afford a basic service like electricity. So we will be formally asking the commonwealth to provide compensation to NSW families to make up for the costs of these schemes.”

According to IPART, six percentage points of the price hike is the result of the federal Labor government’s renewable energy target. The target is designed to ensure a fifth of Australia’s electricity comes from renewables by 2020.

A further 10 percentage points of the price hike in NSW is the result of a tripling of an increase in network costs. This increase has been driven by a boost in capital spending by network companies, which is passed on to retailers and ultimately to consumers.

The IPART recommendation comes after the Queensland Competition Authority signalled that electricity prices in the state would rise by 5.83 per cent from July 1. It blamed changes to the federal government’s renewable energy target for 2.92 percentage points of the increase.

South Australians experienced a 12 per cent hike in electricity prices on January 1, with a yet to be determined price rise scheduled for August.

Essential Services Commission chief Rajat Sarawat said: “That decision will be made on what the market prices do.”

Victoria does not have a regulated standard contract price so the longer-term impact on households is unclear.”

Documents recently released by the Reserve Bank, after a freedom of information request from The Australian, had its analysts predicting electricity price inflation to “peak later this year” but “continue at a rapid pace”.

One briefing note, from last October, reported “the increase in Australian household electricity and gas prices since the 1990s has been towards the upper end of the range recorded in advanced economies” however the level of prices is not high by international standards.

Last October, then-NSW premier Kristina Keneally radically revamped a program designed to encourage households to purchase solar panels after a blowout that threatened to add $2.5 billion to NSW energy bills.

IPART’s draft determination also comes after the Productivity Commission criticised decisions by state governments across the country to overinvest in expensive and inefficient desalination plants which require a huge amount of electricity to run.

Additional reporting: John Ferguson, Mark Schleibs