Call for major rethink of how electricity transmission upgrades are funded

Labor and the Coalition are locked in a war of words over power prices, sparking concerns there will be “winners and losers” across the grid.

The former chair of Australia’s Energy Security Board has called for a major rethink of how electricity transmission upgrades are funded, saying the federal government must lead the way.

Kerry Schott’s intervention comes as Labor demands the Coalition release its modelling which suggests the opposition’s $78bn upgrade of the poles and wires network would force up power bills by $560 within a decade.

The modelling, revealed by the Herald Sun on Tuesday, sparked a political war as opposition energy spokesman Chris Bowen accused the government of launching a “desperate attack” based on “fake figures”.

Frontier Economics managing director Danny Price and Victoria Energy Policy Centre director Bruce Mountain are among those to question how Labor’s policy — providing $20bn in low-cost finance for transmission projects to support $58bn in private investment — will drive down prices.

Former Energy Security Board Chair Dr Kerry Schott says there needs to be a rethink of how electricity transmission upgrades are funded. Picture: AAP

Labor says households will save an average of $378 by 2030 on their bills.

Ms Schott told the Herald Sun it was “soul-destroying” to get into a “battle of models”.

She said the existing cost-recovery model for transmission projects — which can leave private companies waiting more than a decade before seeing a return on investments worth billions of dollars — needed to change.

“The way that it’s charged is okay for incremental things but it’s not okay for a big build,” Dr Schott said.

“Going forward, the way that transmission is funded — and I don’t mean to favour either Labor or Liberal with this statement — there does need to be a rethink of it.”

Warning there would be “winners and losers” across the grid, she added: “It makes it very hard to co-ordinate unless the commonwealth is there to ease the pain.”

Dr Schott said Labor’s proposed $20bn investment would lower the costs passed through to consumers, as long as projects were kickstarted in line with the energy market operator’s “most extensive modelling”.

The market operator’s plan forecasts $29bn in net market benefits if transmission projects are properly sequenced, although Labor’s policy fast-tracks several upgrades which Energy Minister Angus Taylor said were not yet considered “actionable” by the operator.

“The important thing about the Labor Party policy is it’s got to be based on the integrated system plan … If it does that, it’s not sort of rushing things forward,” Dr Schott said.

Prime Minister Scott Morrison said Labor’s policy showed “they don’t understand the consequences of the decisions they’re making”.

The Australia Institute’s climate and energy program director Richie Merzian also called for the Coalition’s modelling to be released “so that it can be subject to appropriate scrutiny”.

Claims Labor power plan will add $560 to energy costs

An election war has erupted over power bills, with energy experts and the Coalition warning Labor’s $78bn transformation of the electricity grid will force up prices.

Government modelling ­estimates Labor’s plan – to fast-track new poles and wires with $20bn in federal support – will add as much as $560 to the ­average annual power bill within a decade.

The opposition maintains its energy reforms will wipe $378 off bills by 2030, based on what it says is the most extensive modelling ever completed for an opposition policy.

But its plan faces scrutiny from experts who say it risks leaving consumers worse off.

If elected, Labor will provide $20bn in low-cost finance for electricity transmission projects, which it says will ­unlock $58bn in private spending to complete the major works this decade – up to 20 years earlier than expected.

Anthony Albanese’s Labor Party maintains its energy reforms will wipe $378 off bills by 2030. Picture: Toby Zerna

Opposition energy spokesman Chris Bowen demanded the government release what he claimed was their “pretend” modelling.

“The LNP always has an excuse for less renewable energy. They never have a plan for more renewable energy,” he said.

Frontier Economics managing director and energy economist Danny Price questioned how the Reputex modelling produced for Labor had factored in the consumer ­impact of increasing the cost of the transmission network, from $21.7bn now to almost $100bn.

With transmission costs making up about half of bills, he said that increase would have to flow through as higher prices, but the modelling suggested transmission costs would fall in the next decade.

“Logically, it doesn’t make any sense … the reality is that prices are going to go up,” Mr Price said.

The government’s modelling, seen by the Herald Sun, estimates the opposition policy will cause a 42 per cent spike in household bills by 2032, which Energy Minister Angus Taylor said would be “a hammer blow to Australian families”.

But Labor is confident it will drive down the cost of transmission projects because ­investments by its Rewiring the Nation Corporation will not have to earn a profit, unlike private poles and wires companies that will also benefit from cheaper finance.

Labor hopes to fast-track new poles and wires with a $20bn investment.

Mr Bowen said the policy had expert backing to “cut power prices by reducing the cost of building new transmission, and bringing more low-cost renewables into the grid sooner”.

“Unlike the Coalition’s ­approach of hand-picking pet projects, Rewiring the Nation will be disbursed by independent experts, and projects will only be supported if they stack up,” he said.

Grattan Institute energy program director Tony Wood said Labor’s $20bn promise would help reduce the cost of transmission by bringing down the cost of capital, but it did not solve the “fundamental problem” of deciding when and how new poles and wires should be delivered.

He said that if projects were built too soon “then someone is carrying the cost”.

“It’s a bit of a mess,” Mr Wood said.

“We absolutely need to sort out the investment test under which these projects are ­approved and built so that they meet the test of the best long-term interests of consumers.”

“It doesn’t make any sense for the government to say we’re just going to go ahead and do it … you will end up building stuff at the wrong place at the wrong time.”

Originally published as Call for major rethink of how electricity transmission upgrades are funded