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Friday, December 23, 2011

AGL no Fan of Energy Efficiency

Limited-form dynamic pricing: applying shock therapy to peak demand growth
Paul Simshauser and David Downer
AGL Energy Ltd
Level 22, 101 Miller Street
North Sydney, NSW 2060.
February 2011

" aspect of energy policy that is gaining increasing traction at the federal level is ...[an] energy efficiency scheme, primarily as part of the suite of policies aimed at greenhouse gas abatement. Under such a scheme, efficiency targets would be imposed upon [electricity] retailers to reduce electricity consumption of their respective customer base via changing out lights, appliances and installing other energy saving devices. Ergas (2010) observed that this should only occur where benefits exceed the cost. In relation to a federal taskforce report on implementing such a scheme, he noted that:
A policy is effective if it does what it sets out to do. It is economically efficient if what it sets out to do is worth doing. The [federal government energy efficiency taskforce] report's premise is that we should reduce our energy consumption; what it fails to show is that reducing energy consumption would make Australians better off. The clear implication of this is that our levels of energy use are inefficient. But for this proposition, there is no evidence [presented in the report] whatsoever...
Ergas, H. (2010), “Saving energy will tie us in green tape”, The Australian, 15 October 2010."

Electricity Bill Shocks and Smart Meters

The above report is enclosed with a submission by Tim Nelson, AGL's Head of Economic Policy & Sustainability on 26 August 2011 to the Australian Energy Market Commission.

AGL is not in favour of reducing consumption of the product it sells (electricity). It does however support increasing the price for product it sells (electricity).

Tim Nelson's submission on Power of choice – giving consumers options [and electricity bill shocks] ... says:
Muted price signal – unless consumers are exposed to price signals that inform consumption behaviour and purchasing decisions, empowering users to be more energy efficient is unlikely to be fully obtained [sic].
Most importantly, the continued regulation of retail prices prevents retailers from developing innovative dynamic pricing structures which aim to overcome the allocative inefficiency [sic] which results from variable demand.

It is not realistic to talk about reforms to the electricity system involving new technologies (e.g. smart meters) when the very value they provide cannot be extracted [sic] due to rigid pricing structures enforced through ongoing retail price regulation

(Submission, 26 August 2011, page 2)
Tim Nelson enclosed a report that expands on this idea:
Above trend-growth investment across the energy supply chain is now driving retail prices to levels that triggered the sectoral assault in the first place. This pressure should initiate the last piece of the reform puzzle; removing price regulation, installing smart meters and implementing limited-form dynamic pricing to halt the primary cause of the problem [sic]; rapidly rising peak demand. 
(Report Abstract)

With smart meters and a mobilised education campaign, limited-form dynamic pricing could then commence, although crucially, outside the summer period to minimise the incidence of initial bill shock. 
(Report at page 19)