We Need a Reality Check on Energy Prices

Rising energy prices have become a cause of widespread complaint and are cited as a reason we need to cling coal-powered electricity.   As far as I can tell all the anxiety around rising electricity prices is way out of proportion to reality.

First, our electricity costs are only a small proportion of our household budgets. A 2012 ABS survey found that the households with the lowest 10% of income spend 2.7% of their income on household energy. The dollar amount spent on energy rises with income but falls as a proportion of income, so that the households with the top 10% of income spend just 1.7% of their income on household energy. ¹ABS 4670.0 – Household Energy Consumption Survey, 2012. Prices have risen by about 20% since the survey, which would mean lower income households are now paying around 3% of their household income in energy bills.

Second, energy prices have gone up. In real terms (i.e. after allowing for inflation) the cost of residential electricity in Australia has almost doubled over the last decade ²https://industry.gov.au/Energy/EnergyMarkets/Documents/TheFactsOfElectricityPrices.pdf.This means that the price rises in electricity have added 1.0%-1.5% to our household costs over the course of the last 10 years. While this presents a challenge to lower income households, for whom 1 in 5 could not pay their electricity, gas or telephone bills on time ³ABS 4670.0 – Household Energy Consumption Survey, Australia: Summary of Results, 2012 , for those who aren’t in the bottom 10-20% of household incomes the hysteria over rising electricity prices is misplaced.

Third, the rise in energy prices is not due to the switch to renewables. In 2013/14 emissions reduction schemes and the renewable energy targets accounted for just 17% of the cost of electricity⁴Australian Government department Industry. The Facts on Electricity Prices. https://industry.gov.au/Energy/EnergyMarkets/Documents/TheFactsOfElectricityPrices.pdf.  The bulk of the cost is in providing the networks (poles and wires). These accounted for 50% of the retail cost of electricity ⁵Australian Government department Industry. The Facts on Electricity Prices. https://industry.gov.au/Energy/EnergyMarkets/Documents/TheFactsOfElectricityPrices.pdf. Only a small proportion of the rise in electricity prices is  being driven by the switch to renewables. The primary reason we have seen accelerating price rises is that we all want to run our air conditioners on really hot days. The Department of Industry’s own fact sheet says

The really disturbing thing about this debate is the way it is being used to argue against the use of renewable sources of energy. We have the Prime Minister, who was once a devotee of action to reduce the risk of climate change, now arguing that the Government should use the Clean Energy Finance Corporation to fund “clean coal”. Banks are refusing to finance new coal stations and businesses are getting out of them because they can see the writing on the wall. They are a bad investment. How ironic that we have a Coalition government now arguing that taxpayers should subsidise what the business sector sees as a lousy investment!

Even if countries reach the emissions the emission reduction targets they pledged in Paris in 2015, the world is still on track for a rise in temperatures in the vicinity of 3 degrees.⁷https://www.theguardian.com/environment/2016/nov/03/world-on-track-for-3c-of-warming-under-current-global-climate-pledges-warns-un. If there’s anything we should be getting anxious about it’s that.