“People will die.”
So came the warning from Liberal MP and chairman of the Coalition’s backbench energy and environment committee Craig Kelly on the ABC’s AM program in early July.
During that interview, Kelly raised concerns that souring power prices would mean that many households were unable to adequately heat their homes.
"People will die," he told the program.
"We've seen reports only recently that one-in-four Australian households this winter will be frightened to turn the heater on because of the price of electricity.”
"We also know that the World Health Organisation has made it very clear that you increase winter mortality, that is you have more people dying in winter, if they cannot afford to heat their home."
Kelly’s warning sounds dramatic, but the fact that household energy prices are on the rise cannot be denied. In a recent analysis, Australian National University researcher and energy policy expert Dr Hugh Sadler analysed both the energy component of the consumer price index and data from the Australian Energy Markets Commission. According to his analysis, retail energy prices in Queensland have roughly doubled in over the past ten years from around 15 cents per kWh (June 2013 dollars) in 2007 to around 30 cents per kWh today. Over that time, costs in New South Wales, Victoria and South Australia have risen from just over 15 cents to around 28 cents per kWh whilst those in South Australia have risen from just over 20 cents to almost 35 cents per kWh. On an inflation adjusted basis, data from the Australian Energy Regulator (AER) indicates that prices for electricity and gas have risen around 65 and 70 percent apiece (national average) over the past decade. Though these vary across providers and states, average annual household bills now sit at just over $2,000 for electricity and around $1,000 for gas.
Partly as a result, disconnection rates have risen – through they have eased back over the past year or two. Over the five-year period spanning 2010/11 to 2015/16, disconnection rates for electricity due to non-payment of bills have risen in New South Wales, Victoria and South Australia from 0.6 percent, just under 0.8 percent and 1.0 percent to 1.0 percent, 1.3 percent and 1.4 percent respectively. Those for gas have risen from 0.6 percent to 1.1 percent in both Victoria and South Australia over the same period. All up, annual bills for low income households amount to between three and six percent of disposable income in the case of electricity (varying according to state) and between two and five percent in the case of gas.
This matters. From a public health perspective, for example, cold conditions from poorly heated homes cause blood pressure to rise and can aggravate pre-existing conditions such as cardiovascular or respiratory disease. One multinational study published in The Lancent a few years ago looked at data from Melbourne, Sydney and Brisbane as well as 381 other locations across thirteen countries over the period between 1998 and 2009. It found that around one in fifteen Australian deaths during that period were attributable to cold weather.
Granted the rise in disconnections has not been uniform. Disconnection rates in Tasmania and the ACT, for example, have eased. Moreover, both prices overall and disconnection rates have eased off their peak in 2013/14 following the introduction (and subsequent repeal) of the carbon tax.
Largely speaking, commentators attribute higher prices to several factors. In the latter part of the last decade, excessive levels of investment in poles and wires led to overcapacity and upward pressure on prices per kilowatt hour in order to cover the cost associated with this. More recently, uncertainty over regulation in respect of issues such as carbon pricing and the renewable energy target have drained investor confidence in generation capacity. In gas, further concerns revolve around looming shortages in domestic east-coast markets following the ramp up of investment in export facilities. Though not all agree with this view, some such as Kelly attribute much of the rise in retail prices to the cost of subsidies for renewable energy. According to the AER, green schemes make up about eight percent of the cost of retail electricity bills.
In terms of vulnerable households, however, Saddler believes two other issues are at play: the type of heating being used in residential premises and the poor thermal performance of many homes.
On the former issue, he says that whilst contemporary reverse cycle heating/cooling systems can deliver an output of up to four units of heat for each unit of electricity, traditional heating systems using electric resistance achieve an output of one to one at best. Whilst the cost of gas per unit is less than that of electricity, gas heaters (common in Melbourne) achieved a miserable average ratio of around 80 percent to one unit.
Second, he said Australia compared with many parts of the world suffers from poor thermal performance in our homes – a phenomenon he says is especially common in rental housing. Courtesy of factors such as drafts and insulation, Saddler says many older homes require multiple times the volume of energy to heat to a comfortable level compared with contemporary homes built to a six-star standard.
Sarah McNamara, General Manager Corporate Affairs and Retail at the Australian Energy Council, a group representing energy providers and downstream natural gas providers, cautions that disconnection data needs to be kept in perspective.
Despite being up compared with five years ago, disconnection rates have actually eased since their peak in 2013/14.
Moreover, disconnection rates for those who identify as having a hard time paying their bill are very low. Across Queensland, New South Wales, South Australia and the Australian Capital Territory, for example, the National Energy Retail Law requires retailers to have specific policies and procedures in place to help customers who experience financial hardship, and are limited in the circumstances in which disconnections can proceed. Victoria is not part of the National Energy Retail Law but operates its own hardship arrangements.
Even aside from these requirements, McNamara stresses that retailers try to avoid disconnections. Indeed, in some instances where disconnections do occur, she says these have arisen out of a lack of engagement from the account holder in respect of unpaid bills. In such circumstances, she says retailers are forced to use disconnection as a ‘prod’ for the customer to commence engagement with them.
As a result, she points out that disconnection rates for customers in hardship programs sit at less than one percent (AER figures). This, McNamara says, is less than the disconnection rate overall and is certainly manageable notwithstanding the fact that no disconnection is desirable.
Going forward, McNamara says industry is seeking a stable policy environment upon which to underpin confidence to invest in assets whose life will span over several decades. In particular, she says the AEC supports the Finkel recommendations and would like a bi-partisan approach from both sides of politics in support of these.
For consumers, McNamara encourages those having trouble to contact their retailer.
“We encourage customers who are experiencing financial hardship or are concerned about their ability to pay their upcoming energy bills to contact their retailer,” she said.
“Every retailer is required to have hardship programs with a variety of different options available to customers who may be under financial stress or are going through a life event which means that they might need a little bit of extra time to pay their bill.”
“Retailers are compassionate toward their customers. They don’t want to alienate their customers in a competitive market. There is a lot of help from retailers for customers who pick up the phone.”
Sadler, meanwhile, would like to see a shift away from ‘scattergun’ forms of assistance whereby those with concession cards, for example, are given money toward their energy bill. Instead, he would like more targeted assistance to make housing more energy efficient and to help those with abnormally high level of energy usage to manage their energy use more effectively.
On the first point, he says a number of things could happen. For starters, improvements can be made to governments’ own stock of public housing. A program in the ACT in which the government is replacing old radiator heating with reverse cycle heating is a step in the right direction, he said.
In the private rental market, as well, landlords could either be required to undertake upgrades such as installing insulation or given incentives to do so.
Technology could help. Using infrared photography, for example, Sadler said authorities could identify homes which have either poor or no ceiling insulation and thus lose considerable levels of heat through the ceiling (these glow when infrared photographs are taken on clear winter nights). From there, he says these households could either be given incentives to install insulation or at least informed about the situation and what is happening.
Assistance could also be targeted around what Saddler says is a relatively small number of households which lie across the income spectrum whose energy consumption is abnormally high.
Sometimes, this driven by circumstances specific to that household. Residents with particular medical conditions might require the premises to be maintained at ambient temperature, for example. Those who are retired, unemployed, work from home or are stay at home parents often occupy their home throughout the day and thus require heating during this time.
Other times, causes may be more preventable. These could include broken doors or back doors being left open to enable children to come in and out.
Whilst acknowledging the need to observe privacy considerations, Sadler says working with these households to help them identify ways to reduce energy consumption could pay dividends.
“I think you need to target the assistance,” he said.
“You need to target it at households which are really poorly insulated and you need to target it at households who use a lot of electricity and think about ways in which they can reduce energy use whilst protecting privacy.”
“Frankly, I think that would be a better way of spending money which retailers currently pay through the VEET scheme (a Victorian government energy scheme) giving away light-bulbs to everyone. It would be better to make substantial improvements to the minority of households which are really poorly performing from an energy perspective.”
In respect of the actual prices, meanwhile, Sadler says there is no significant near-term prospect of any decline in retail energy prices. Indeed, he says, Victoria is set for a substantial increase in January following the closure of the coal fired power station at Hazelwood in the Latrobe Valley.
This, he said, had little to do with renewable energy but was being driven more so by issues associated with shortages in the gas market and along with the supply and higher costs and issues with the demand/supply balance at the generation level.
Around Australia, households (like their commercial counterparts) are facing considerable energy cost pressures.
To address these, assistance needs to be targeted whilst those consumers who are having trouble should be proactive in talking to their retailer.