21 November 2012 — The big issue now is the soaring price of electricity. Something has to be done and the building industry will have to play a role containing it.

According to the Australian Bureau of Statistics power prices are the single biggest driver forcing up the cost of living.  For the September quarter, the Consumer Price Index rose three times the amount it had risen in June, powered by a monster 15.3 per cent rise in electricity prices.

PricewaterhouseCoopers tells us that the Australian Energy Market Commission has estimated another 37 per cent increase in retail electricity costs by 2014 and the International Energy Agency says global electricity prices will soar 15 per cent over the next decade. See the Business Spectator

Overall household energy consumption is on the rise. Household energy consumption per capita has not improved over the past decade. In fact, it’s got worse.

As the ABS explains in its Social Trends analysis, data from the Bureau of Resources and Energy Economics reveals that Australian households’ energy consumption, excluding fuels used for transport purposes, grew by 14 per cent between 2000-01 and 2010-11.

The fuels with the greatest increase in household consumption over this period were a 25 per cent rise in electricity consumption and 22 per cent greater use of natural gas. According to the NSW auditor general, average household bills in 2012-13 were around $2230 a year – up from $1100 in 2007-08.

But household energy production from solar quadrupled between 2005 and 2009. See the statistics here.

Lifestyle is the driver
According to PwC, despite the carbon price, forecasts suggest that people will still be using lots of electricity.

Some of it is driven by lifestyle. According to AGL Energy, a single household can own up to a staggering 175 electricity appliances, with up to 35 per cent of those on at any one time.

George Maltabarow, managing director of Ausgrid, one of the largest electricity networks in Australia, recently told ABC’s, Insight that  prices are rising because consumers are pursuing energy intensive lifestyles, which means electricity networks have to spend large amounts on infrastructure to meet rising demand. Wi-Fi, home computers and air conditioning were once a luxury. Now they’re regarded as household necessities.

Still, the figures on household consumption are unclear. Energy expert Alan Pears says the future trends are not well understood by anyone because no one has good data but household consumption seems to have flattened after a period of strong growth. New homes are getting smaller, occupancy rates are increasing slightly and minimum energy performance standards for air conditioning units have tightened up which means people are no longer installing inefficient air conditioning systems in inefficient houses.

So with all of that uncertainty about the figures, is Maltabrow right? Are wi-fi and airconditioning really driving these outrageous increases in the price of electricity? Or is it more because of inadequate building codes, a lack of investment in ageing infrastructure and rising fossil fuel prices? And what’s being done about it? Not much.

The Government has just released its Energy White Paper which focuses on the need to deregulate the industry and introduce demand-based pricing. That would allow consumers to cut electricity costs by alerting them to periods of peak demand so they can moderate their power use. It says that electricity pricing needs to be overhauled to stop inefficient investment in infrastructure which is only used during rare peak demand times. Smart meters, which are being rolled out in Victoria, may be part of that overhaul.

Matthew Warren, chief executive of the Energy Supply Association told the ABC the big problem driving the price rises is the ageing infrastructure. “That’s the poles and wires that connected the network to the power stations. This was all built around Australia in the 1960s and the 1970s. So that plant and equipment, those poles and wires are now 40 to 50 years old and they simply need to be replaced. It’s an expensive job and it’s a big job.”

The Climate Institute says the ageing infrastructure and rising fossil fuel prices are sending up prices.

“Power prices are increasing for a number of reasons and causes, but the main driver is the increased investment in network infrastructure, with over $46 billion to be invested over the next five years. In Sydney, increased network expenditure accounts for 72 per cent of the regulated power price increase between 2009/10 and 2012/13. Even when the potential costs of a pollution price are factored in, rising network costs still account for 59 per cent of the total increase over this period.

“Rising costs of electricity generation, due to rising coal and gas prices driven primarily by global demand, are also expected to be a major contributor to rising power prices in the coming years. The cost of gas for electricity production in NSW could increase by as much as 180 per cent by 2015 compared to 2008 levels, irrespective of whether a price-tag on pollution is introduced.”

Housing stars may not help
Australia’s building infrastructure is contributing to the problem.

Choice magazine tells us that energy ratings on houses are no guarantee of cost savings, simply because the rating is for the initial design only. There is no assessment on whether recommended energy saving requirements are installed.

“In some cases, owners have been shocked when independent assessors rated their homes as far less energy efficient than they were told originally. This could be the result of an incorrect evaluation, or building and construction issues. Either way, there are clearly discrepancies between the rating listed on paper and the actual energy efficiency for some new homes being built.”

The Australian Building Codes Board  incorporates minimum mandatory energy efficiency to eliminate worst practice and achieving significant improvements. Apparently, the aim is to reduce greenhouse gas emissions associated with buildings while avoiding excessive technical and commercial risks and unreasonable costs.

Unfortunately, the code doesn’t do the trick. It doesn’t reference a star rating level. Instead, it states minimum performance criteria in qualitative terms. No measurable values or levels are to be met. Some states have seen the problem and have added  their own energy performance requirements as appendices to the code.

Therein lies the problem.

As reported here Nigel Howard, managing director of Sydney-based environmental research consultancy Edge Environment says the Building Code of Australia tends to over-emphasise the role of insulation in mild climate zones but fails to address ventilation losses and leakiness of homes.

Hot water – a key component of household energy use – is virtually ignored. Others have called for more disclosure of building energy performance in residential buildings similar to that currently in place for the commercial sector with penalties in place for non-compliance.

Clearly the Building Code of Australia needs to be revised to help contain electricity price rises.

Australia is supposed to be a leader in green buildings but the rampant electricity price rises are telling us something else. Something needs to be done to control the soaring electricity prices. The building industry has a role to play.

Leon Gettler is a freelance business journalist, author and podcaster. He works for a range of publications and produces two podcasts for RMIT every week: Talking Business and Talking Technology. He has an acute interest in the environment, its impact on business and the response of businesses and governments.