Tag Archives: infrastructure

You’re paying too much for electricity, but here’s what the states can do about it

The Conversation

Kate Griffiths, Grattan Institute

State-owned power networks have spent up to A$20 billion more than was needed on the electricity grid, and households and businesses in New South Wales, Queensland and Tasmania are paying for it in sky-high power bills.

A new Grattan Institute report, Down to the Wire, shows that electricity customers in these states would be paying A$100-A$400 less each year if the overspend had not happened.

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.


Read more:
Comparing Australia’s electricity charges to other countries shows why competition isn’t working


Why we built too much

The grid includes high-voltage transmission lines that carry electricity over large distances, as well as low-voltage poles and wires that connect to homes and businesses. Networks are built to cope with those times of highest demand for electricity. Yet the growth in the value of network assets has far exceeded growth in customer numbers, total demand, or even peak demand.

Demand for electricity did grow rapidly in the early 2000s, but since then it has slowed substantially as more and more households have installed solar panels, and appliances have become more energy efficient. Networks may have overbuilt because they expected that demand would continue to grow.

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Yet the overbuilding has occurred almost exclusively in the public networks. Why would government ownership lead to such high costs?

There are two main reasons. First, investment in electricity networks boosts state government revenues because public networks pay a fee to the state to neutralise their lower borrowing costs (as well as the dividend they pay to the state as the owner). Second, a government-owned business might come under political pressure to prioritise goals such as reliability or job creation over cost.

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Of course governments worry about reliability – they cop the blame if anything goes wrong. In 2005, the NSW and Queensland governments required their network businesses to build excessive back-up infrastructure to protect against even the most unlikely events. Reliability did improve a bit in some networks, but at significant cost: on average, customers got an extra 45 minutes of electricity a year at a cost of A$270 each.

State governments should take responsibility

Successive state governments in NSW, Queensland and Tasmania are responsible for overinvesting in their networks and, in NSW and Queensland, for setting reliability standards too high.

State governments can’t turn back the clock but they can still fix the mistakes of the past. And they should, because if they don’t, consumers will be paying for decades to come.

Households and businesses that can afford to buy solar panels and batteries will reduce their reliance on the grid. Meanwhile, those left behind – including the most vulnerable Australians – will be stuck with the burden of paying for the grid.


Read more:
Energy prices are high because consumers are paying for useless, profit-boosting infrastructure


In Down to the Wire we recommend that where network businesses are still in government hands, the government should write down the value of the assets. This would mean governments forgoing future revenue in favour of lower electricity bills. For recently privatised businesses in NSW, a write-down could create more issues than it solves, so in those cases the state government should refund consumers the difference through a rebate.

At a time when governments are concerned about energy affordability, NSW, Queensland and Tasmania have a real opportunity to do something about it. They should seize it.

How to prevent this happening again

There will always be pressure to spend more. At the moment, concerns about South Australia’s reliability could very well lead to further investment in network infrastructure.


Read more:
FactCheck: does South Australia have the ‘highest energy prices’ in the nation and ‘the least reliable grid’?


Policymakers must also deal with the risk that, in future, parts of the network may no longer be needed. The grid may need to be reconfigured as new technologies emerge, some communities go off-grid, and new energy sources arise in new locations.

For now, consumers bear this risk: they are locked into paying for assets whether or not they are needed. In future, the risk should be shared between consumers and businesses; this would encourage businesses to avoid overbuilding in the first place and instead consider alternative solutions.

With the focus on reliability right now, governments are at risk of repeating mistakes of the past. The truth is that Australia already has a very reliable grid.

On average across the National Electricity Market, consumers experience less than two-and-a-half hours in unplanned outages per year. Reducing that by a few minutes of supply each year is very expensive. Politicians typically value reliability more than consumers, but ultimately it is consumers who foot the bill.


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The ConversationState governments now have an opportunity to reset the clock – to pay off the mistakes of the past and let consumers guide choices about our future grid.

Kate Griffiths, Senior Associate, Grattan Institute

This article was originally published on The Conversation. (Reblogged by permission). Read the original article.

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City-wide trial shows how road use charges can reduce traffic jams

The Conversation

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A trial of 1,400 drivers across Melbourne suggests time-of-use charges can be effective in easing traffic congestion. AMPG/Shutterstock

Leslie A. Martin, University of Melbourne and Sam Thornton, University of Melbourne

Road congestion in large Australian cities is estimated to cost more than A$16 billion a year. Economists have long argued the best way to improve traffic flow is to charge drivers for their contribution to road congestion. We have now analysed data collected from 1,400 drivers across Melbourne to see whether road user charging can change their behaviour in ways that ease congestion. And the answer is yes.

Because the obstacle to adopting this approach has been concern about its fairness, we also looked at driver incomes. Would congestion-based charges price the poor off the road for the benefit of those who can pay? We calculated how different systems of road use charges affected households on different incomes, and how driving patterns changed under different prices.

The evidence does not support other common policy responses to traffic congestion. Building new roads does little to relieve congestion. Placing tolls on roads can push traffic onto others.


Further reading: Do more roads really mean less congestion for commuters?


However, even small reductions in congestion can produce large benefits. On congested roads, reducing traffic by 5% can increase traffic speeds by up to 50%.

The question is: what would the optimal charges be? Drivers often plan their travel ahead of time, so Uber-like surge pricing is not necessarily the best way to go. Could simpler fixed charges, based perhaps on time of day or location, be effective?

In 2015-2016, Transurban Group implemented the Melbourne Road Usage Study (MRUS) to answer these questions. More than 1,400 drivers across greater Melbourne installed GPS devices in their vehicles for eight to ten months. After a period to establish baseline use, a randomly selected subset faced a series of road use charges via a system of virtual accounts. Every month participants accumulated real money from reduced charges as a result of their decisions about driving.

A congestion-charging zone in central London. Bikeworldtravel/Shutterstock

Well-targeted charges ease congestion

The Melbourne Road Usage Study tested three simple charges:

  • a flat distance-based charge of 10 cents per kilometre
  • a time-of-day charge of 15 cents per kilometre at peak times and 8 cents at other times
  • a distance-plus-cordon charge where drivers were charged 8 cents per kilometre at all times plus A$8 if they entered the inner city.

Our working paper, Can Road Charges Alleviate Congestion?, evaluates the raw data.

Charges that vary by time of day were most effective at reducing driving at congested times. Drivers subjected to a higher cost of driving in the weekday peak hours of 7am to 9am and 3pm to 6pm reduced travel by 10% during these periods.

While a simple 10 cent charge on distance travelled did reduce driving, this was mainly outside the congested inner city and at off-peak times – mostly in the middle of the day and on weekday evenings. Most freeway congestion occurs around morning and late afternoon commutes.

London and Singapore have charges to enter the congested city centre. Further research is needed to assess the effects on inner-city traffic in Australian cities.

The evidence points towards most drivers who enter the CBD being willing to pay higher weekday charges. But few drivers entered the cordon zone during the study. Less than 5% of the drivers made over half of the trips into the area.

Access to reliable public transport matters

Public transit has a key role in getting cars off the road. Our data showed households located far from the CBD and from public transport drive more. Living 500 metres closer to a tram or train station has the same effect on kilometres driven each day as living 5km closer to the CBD.

Households within a 10-minute walk from public transport drive least. The largest reductions in driving from time-of-day and cordon charges come from households living 10 to 20 minutes’ walk away.

Road use charges could be fairer

Congestion-based charges can be a more progressive way to fund roads than the existing system of registration fees and fuel taxes.

The fuel excise makes up almost half of the average annual road bill in Australia. It’s essentially a distance-based fee, but more fuel-efficient vehicles pay less per kilometre travelled. Hybrid vehicle drivers, for example, contribute much less to fuel tax revenue.

Yet, although hybrids contribute less to air pollution, they increase congestion just as much as their petrol-guzzling counterparts. And congestion is a much greater shared economic cost than vehicle air pollution.

Annual vehicle registration fees make up most of the remaining road bill. These provide no incentive to reduce congestion.

Fuel taxes and registration fees put a disproportionate burden on low-income households in the outer suburbs. Our research shows these households would be better off if roads were funded more by congestion charges.

Field experiments help get the settings right

So what is the optimal congestion charge? Economic theory (Pigou 1920) tells us to price at the cost that each extra user imposes on the system.

With road use, though, the calculation is difficult. To fix rates in advance, we would need to know exactly how much longer everyone’s trip is when each extra driver joins each system. And we’d need to cost that slowdown for each individual on the road at that time (i.e. value their time and, potentially, the cost to them of being late). New research has been using clever experimental designs to identify these values.

That said, maybe it is not too important to get the price just right. For electricity, we are starting to see that households respond to there being a price, not its specific level.

Before widespread road use charges are implemented, we would like to see more field experiments like the MRUS to find answers to other questions. Would it be better to combine a time-of-day charge with targeted locations? How effective would it be to charge more for using highly congested arterial roads at peak times? Would this simply push congestion onto nearby local roads? How large a gap between peak and off-peak prices is needed to produce a strong response?

Another interesting option is the i10 model outside Los Angeles. Two lanes are for traffic willing to pay more to get to their destination faster.

Dynamic pricing ensures traffic in these lanes flows freely – if too many use these lanes and traffic slows, the price increases. Drivers can decide every few kilometres if they want to pay more to stay in the express lanes. Those who must get somewhere on time are able to, and the fee revenue can be used to reduce road costs for others.

The Melbourne Road Usage Study (MRUS) shows field experiments can help us design better road use charges. By all appearances, households took it seriously and were positive about their involvement.

The ConversationThe MRUS provides evidence that well-designed road use charges could help reduce congestion by encouraging people to drive at different times, take other routes or use other transport. This could lead to better use of existing infrastructure, thereby reducing costs, while generating revenue for infrastructure investments. Under such a system, drivers who contribute little to congestion could see substantial gains.

Leslie A. Martin, Lecturer (Assistant Professor) in Economics, University of Melbourne and Sam Thornton, Master of Economics candidate, University of Melbourne

This article was originally published on The Conversation. (Reblogged by permission). Read the original article.

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Campaigns urging us to ‘care more’ about food waste miss the point

The Conversation

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What if you had somewhere quick and easy to put food waste, instead of being blamed for wasting it? Gary Perkin/Shutterstock

Bethaney Turner, University of Canberra

Environmental campaigns often appeal to our emotions: they ask us to care. They implore us to feel a sense of connection, empathy and stewardship, and then to alter our behaviour as a result.

In relation to food waste, this could mean anything from not pouring oil down the sink so as to protect ocean habitats, to keeping methane-emitting organic waste out of landfill.

About one-third of the world’s food goes to waste. We know that this squander is bad for social, economic and environmental reasons, yet still it happens.

But my recent research (publication pending) which looks at how food surplus is managed in homes, found that in many households, food wastage is not due to people being unthinking, unskilled or uncaring over-consumers. Instead, it is a product of our (largely reasonable) hierarchies of care: we actively prioritise the health and well-being of our family and friends.

For example, leftovers may go to waste because of health concerns about freezing and reheating certain foods, or the need to eat them within particular time frames. Many parents with young children (in line with parenting and dietary advice) want to give their kids a wide variety of fresh, nutritious food. This means not feeding them the limp veggies lurking at the bottom of the crisper, and avoiding meat that may have crept past its use-by date.

As well as feeling a strong obligation to their family’s immediate concerns, many people I survey and interview are frustrated by a lack of appropriate infrastructure to help keep food waste out of landfill. As a consequence, campaigns that focus on mobilising people to “care more” about the environment may actually be preventing – or at least limiting – the focus on more urgent problems.

Blame game

The implication that waste results from a lack of care reinforces a neoliberal approach that blames consumers. This is evident in the most well-known food waste reduction campaign, Love Food Hate Waste (LFHW), which originated in Britain and has been imported to New South Wales and Victoria.

The NSW LFHW website implores us to care for food, in turn promising that we can “waste less food, save money and our environment”. The suggested strategies include meal planning and leftover recipes. These could be useful for some people, but many consumers are already using these techniques. They know how to reuse food and consciously attempt to avoid overbuying.

In the few research studies that have looked in detail at the passage of food into and out of homes, all found that householders carefully monitor and manage fresh foods. Generally speaking, people aren’t adding organic waste to landfill through a lack of care for the environment.

Many of my participants said they want to reduce waste but find it difficult to buy small amounts of fresh food from supermarkets, where such products are often pre-packaged. Many people were also concerned about over-packaged items, such as half a cauliflower wrapped in huge lengths of cling wrap.

Food enters the waste stream not because we don’t care, but because we actively prioritise other things such as our family’s health, and because of authorities’ failure to provide infrastructure to address the problem.

A failure of infrastructure

While care for the environment is rarely front and centre in people’s decision-making about food waste (being secondary to health considerations), my research suggests that people will happily use schemes to keep food waste out of landfill, as long as they are simple, efficient, and mess-free.

Such schemes could include regular collection of the waste by local councils, including provision of receptacles that fit into kitchens and minimise mess and smell through the use of biodegradable bags (as used in a recent successful trial by Lake Macquarie Council).

Community composting initiatives, commonly centred around community gardens, also have potential, as does the use of private companies, particularly for servicing businesses. In my work with households involved in some of these initiatives, all were enthusiastic about having their food waste being repurposed into compost to nourish new life.

But most urban Australian households either can’t or won’t compost at home, and this is unlikely to change no matter how much we urge the public to care for the environment.

This illustrates why focusing solely on making people “care” is unlikely to reduce household food waste as much as we would like. Instead, we must reduce food waste in landfill by providing infrastructure that drives widespread behavioural change. Put simply, we need to expand our toolkit.

The ConversationMany people already care about food waste, but they care about other things too, such as health and hygiene. By giving consumers a simple way to deal with food waste rather than throwing it into the bin, we can reduce landfill without asking people for unrealistic compromises about their food habits. To really drive behavioural change, perhaps what we need to promote is not care but the infrastructure that makes caring convenient.

Bethaney Turner, Assistant Professor in International Studies, University of Canberra

This article was originally published on The Conversation. (Reblogged by permission). Read the original article.

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