Why you’re paying $400 a year more for energy than you should
Surprisingly, Australia turns out to have more power than it needs.
New analysis by the Grattan Institute suggests that the average Australian is paying $400 a year more for electricity than they need to because power companies have invested too much in building the network. Yes, despite blackouts in South Australia and much hand-wringing around gas supply, our overall system actually has more capacity than it needs.
Let that sink in for a moment. With the National Broadband Network (NBN), we've ended up with a network that is effectively the cheapest the government could get away with. You can argue over whether that was the right approach, but one change we have seen is falling prices, with fixed broadband costs dropping by 9.1% over the last year.
No such luck with power, where prices have risen by 63% over the last decade. According to the Grattan report Down to the Wire, over-investment in the electricity network has now topped $20 billion. And that has consequences for everyone, as Grattan's Kate Griffiths explained in a summary of the report:
The problem is that state governments, worried about blackouts and growing demand for electricity, encouraged the networks to spend more in the mid-2000s. But the networks overdid it, and now consumers are paying for a grid that is underused, overvalued, or both.
Factor in the expanding use of energy-efficient appliances and a rapid expansion of solar, and you end up with a network that's producing a lot more overall than we actually need.
It's healthy to have some redundancy built in, but we're paying a high price for that. The report estimates that network improvements mean we've got an average of 45 minutes extra of electricity a year, but that's costing us $270 each.
So what can you do about it? Making sure you've compared available options and haven't just tied yourself to your existing supplier out of habit remains the most powerful step consumers can take. If you have the option of adding solar, definitely look into it. And remember to treat any claims that competition and privatisation will automatically produce better outcomes with a degree of cynicism. Energy shows that the reality is more complex.
Angus Kidman's Findings column looks at new developments and research that help you save money, make wise decisions and enjoy your life more. It appears regularly on finder.com.au.