Electricity: Who’s benefited – “Distributors”? “Providers”? Retailers”? “Consumers”?

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          Electricity plays one of the major role in everyone’s life. Imagine a life without electricity every day, from the time we wake up and till we sleep. Can we run our day without power supply? Just think what if our mobile runs out of battery and have no power to charge it, what if all the electronic devices (Examples: Television, home appliances, washing machines, etc)  stop working due to lack of electricity? Can you imagine the consequences for these? To be frank, it would be a mechanical life without electricity, by using motors for each and everything we do in our daily life. I think ‘Imagining a life without electricity is something like human being without eyes’.

          The production of electricity has been increasing every year and every one are making use of it 24 hrs a day. But at what cost. Are consumers benefited with the electricity prices they get?

Australia is the world’s biggest exporter of coal and natural gas. The real asset for generation of power is coal. Coal is plentifully accessible all through Australia. For power era, black coal is majorly utilized as a part of New South Wales, Queensland and Western Australia. Though in Victoria, brown coal is the prevalent source. In the year 2013, “247 billion kilowatt hours (TWh)” of power is created by the “Australia’s energy stations”, which is very nearly 59% overabundance than the power delivered in the year 1990. Out of 247 billion kilowatt hours (TWh) of power, 15 TWh is utilized by the power stations and almost 12 TWh is lost amid transmission and the remaining is used by the buyers.

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National Energy Market (NEM) foundation incorporates both state and private assets and is administered by a blended sack of substances under the general course of the Australian Energy Market Operator (AEMO).The framework burden component was around 55% and the store edge around 28%. In the focused business sector the wholesale cost found the middle value of about $55/MWh. This included around 20% of last retail charges (51% being system, 20% being retail client administration and vitality effectiveness projects, and 9% being carbon cost). Not at all like some abroad power markets where the transmission framework administrators initiate dispatchable limit 45 minutes in front of saw need, in Australia the NEM has constant adjusting with the commitment on renewables up to five minutes prior to conveyance. Costs are subsequently topped all that much higher, at $13,500/MWh. This has given motivation to interest in new adjusting plant, with 4 GWe of adaptable limit being included late years. In 2013 spikes went to $7000/MWh, with a considerable measure above $1500/MWh. (In Germany the top is €3000/MWh and the most astounding spike in 2013 was about €130/MWh, offering ascent to little speculation.) In Australia a gas-terminated plant may keep running for 900 hours for each year (burden figure 10%), on 1050 events, with 400 of the starts being for five minutes just, however it can be economic.

Much power in Australia is presently exchanged so that dissemination organizations purchase at the best cost accessible from hour to hour from contending generators. The troubles coordinating supply with interest can be judged from the way that Victorian interest reaches from 3900 MWe to 10,000 MWe, and that in NSW from 5800 to 15,000 MWe.

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Australian power costs were practically the most reduced on the planet to around 2007, yet have risen altogether from that point forward, and worldwide examinations are exacerbated by the conversion standard. Henceforth 2011-12 normal Australian family costs are above Japan and EU normal and much higher than USA. By state, WA, Vic, NSW and SA, 2011 costs rank behind just Denmark and Germany.

The prior low costs made a noteworthy issue in pulling in interest in new producing plant to cater for resigning old plant and taking care of new demand – a 25% increment by 2020 was anticipated, and indeed a 40% ascent happened by 2011, with another 30% anticipated to 2013.

Eastern Australia’s National Power Market (NEM) works the world’s biggest interconnected force framework that keeps running for more than 5,000 kilometres from North Queensland to focal South Australia, and supplies some $10 billion power every year to take care of the demand of more than 10 million end clients. The NEM volume-weighted normal cost in 2008-09 ran from $36/MWh in Queensland to $49/MWh in Victoria and $69/MWh in SA. NEM base contains both state and exclusive resources, and is overseen under the general heading of the Australian Vitality Market Administrator (AEMO), which was built up by the state and central governments.

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The supply of power starts with generation of power in power station. The generating of power is done by utilizing numerous natural assets that are accessible, similar to coal (significant asset in Australia), renewable energy – sun based, wind, hydro, and a some fuels for low power generation. Generally these power stations are situated in the regional places where there is less population. In Australia, there are number of power stations in every state. “Loy Yang” is situated in Victoria and is the biggest power station in Australia.

The power produced in these power stations are transmitted to diverse districts with the assistance of transmission links. Every locale has its own particular wholesaler who purchases power from the power stations in mass at a low cost. These wholesalers supply energy to the suppliers independently in diverse areas at a value which would be gainful to the merchant. The no. of suppliers are not confined to one and only in a locale, there are atleast 2 to 3 suppliers for a district. (For example: AGL, Origin, Power direct, Jemena are the suppliers of power in Victoria. AGL and Origin are likewise retailers of the power market). These suppliers offer power to the retailers at higher cost than they get. The retailers then alter their very own cost and give it to the clients. This is a long channel of appropriation of power from the producers to the purchasers. Because of the move of power in this long channel, the costs are brought at every point up in the channel and when reaching the end (Consumers) the costs are increased than the manufacturing costs and it varies with different retailers.

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The retail organizations that are currently accessible in the business, purchase power effortlessly and make benefits by offering it to the clients at distinctive expense. This is making clients feel uneasy with the costs and making them to choose alternate options like solar energy (for example). At last, the retailers are benefited on the whole than the consumers. Many people switched to the solar energy in the resent years, which made the power prices high.

Honourable Prime Minister of Australia, Mr. Tony Abbot has told in an interview stating that “Australians will notice a difference on their next power bill and argues that the government has lowered the overall tax burden on people” (In a video interview with Sarah Ferguson (Reporter) on 17/07/2014 at Australian Broadcasting Corporation). He also says that the retail companies are advertising on the prices that are going to be reduced soon. Later on the prices of electricity reduced to some extent but not much low.

Resources:

  • World Nuclear Association – “Australia’s Electricity”, Appendix to Australia’s Uranium Paper, 2015.
  • CME report to Energy Users Association, Electricity prices in Australia: An International Comparison, March 2012.
  • “Data and Statistics – Energy in Australia”, ESAA: Policy and Research, esaa.com.au.
  • Brady, “A Dictionary on Electricity”, Prepared for Australian National Committee of CIGRE, 1996.
  • Warrick, “Living without Electricity”. Essay written for youth tour essay contest organised by White River Valley Electric Cooperative at Gainesville High School.

By

Subramanyam Raju Gangaraju (213340871)

Arun Mattaparti (213347061)

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19 thoughts on “Electricity: Who’s benefited – “Distributors”? “Providers”? Retailers”? “Consumers”?

  1. Good posted. Using huge amount of data and graph to show the composeing of electricity and the electricity price in different place. However, I think it is just a description. It doesn’t show the relationship with marketing. Maybe you need more analysis

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  2. Post really demonstrates what happens when you privatise Government Assets. Once upon a time, electricity, gas, & telecommunications were monoploised by Government agencies. In a big sell off of assests to generate cash they were privatised & here we are today. You can choose which company you want to supply you with electricity, gas & telecommunications. With so many players in the market(s), it is becoming difficult for consumers to differentiate which company has better prices, better service & other add ons to entice me, such as “green” energy & the jacked up price for the privelage of using it! Hence, agencies with websites that help you to make the comaprisons & ultimately the decision. I don’t think much has changed, evidenced by the rigamarole we went throught to get a new gass connection. Once I lodge, AGL has 24 – 48 hours to reply, or ask for more information & then has to act in 30 days. This means they tell on day 28 that you need a non-standard connection & hence the process starts again! Ask for a definitive date & you get the company speak & no answers. Then they show up when no one’s there becasue they haven’t actually informed you they’re coming on that day! Bureaucracy is alive & well! Pity Governments can’t run their departments like real businesses.

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  3. Thank you for share
    This video really interest. I can’t image that no electricity in our life, the people have to like the people who in the video.
    I agree with the first comment, I think there are no relationship with marketing, just lots of data and graph. However, they show the electricity use in different place.

    Liked by 1 person

  4. Nice work. I like the clip “Life without electricity”. but I wouldn’t totally agree with the following statement ‘Imagining a life without electricity is something like human being without eyes’ . I agree that we are so much dependent on electricity that is embedded in to our lifestyle. Think about people living in some of those third world countries in rural areas without no electricity at all. But that’s not the topic here.

    May be we can discuss about how energy is distributed through different channels and how it is made available to the consumer at different prices through various differentiations and partnerships, etc.

    Liked by 1 person

    • Hi Subbu,

      You have done a great job in terms of putting some good facts together, which is commendable. I am sure you can use part of this learning also in your reflection.

      regards,
      Sam

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  5. Electricity is an essential product/service that we cant do without but I think consumers, rather than accepting services and pricing strategies have a huge role to play in driving change. Services like iselect are supporting people in their decision making process and creating competition where it was once very limited. Retailers will have to adjust their marketing strategies to respond.

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  6. Hi there – thanks for the post. The electricity market across Australia is in a total state of disruption. Solar PV use is increasing dramatically and combined with battery storage capability, will soon have a significant substitution impact on the traditional retailers and gentailers.

    That in itself is interesting with gentailers (those that both generate and retail the electricity / gas) seeing advantages from their vertical integration (control the supply chain and manage their fleet and margins accordingly) but pure-play retailers also having the agility to respond to maket dynamics by offering solar PV as well as traditional energy (elec/gas) products without having to necessarily consider the impact on reducing the need for the generation assets to product the electricity.

    Overall the traditional distribution model in the electricity sector is being compromised by a range of factors – in addition to solar PV – such as the decreasing price of battery storage forcing the big energy companies to bring new and innovative products to market to accommodate consumer driven generation capability from solar. This totally changes the legacy business model which in many cases used to be a regulated monopoly – imagine being a business and having to respond to your own customers effectively becoming competitors!

    The introduction of potentially economically viable battery storage also adds another dimension to this issue. Much of the complexity of the utility distribution model is based on the fact that electricity can’t be stored (reliably, at scale) meaning that the matching of demand to consumer energy needs needed to take place in real-time markets, and to meet the peak-demand profiles often expensive peaking plant (e.g. gas turbines) are used to generate peak capacity – which is what drives the high $/mWh charges that you refer to during peak periods. Battery storage such as the Tesla (Panasonic!) Powerwall and similar are now being introduced by the big energy retailers such as AGL from June this year, and others will follow suit.

    All in all, pretty testing times for traditional utility business with a history often rooted in government regulation; but for those that can respond to the challenge of consumer driver distributed generation and the desire for simple, mass-market energy storage solutions, there is still plenty of opportunity on the table.

    http://reneweconomy.com.au/2015/agl-to-roll-out-1st-battery-storage-products-in-qld-in-june-30137

    Liked by 1 person

  7. I’ve been looking into hydrogen as an alternative for purchasing electricity from a provider. At the moment its around $50,000 for a home step-up which puts it out of most home owners price range. When that price decreases, as it inevitably will, it will change the environment again, like privatisation did. Maybe by next decade we will be talking about the time we used to buy our electricity instead of contributing to it?

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  8. The prevalence of governments selling off public services has not resulted in the huge savings that the public were promised. Regardless, it’s now difficult for consumers to compare electricity providers, as they all have different pricing schemes. The electricity providers assure us that it’s because they offer consumers tailored products to suit consumption habits. The cynic in me thinks it’s to create a challenge for consumers to do accurate comparisons between providers, though!

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  9. Thank you for the blog. Distribution is bit hard to be analysed in the Energy business. Nkraskov, it seems that I am not the only customer who isn’t happy with the service from AGL. I don’t think we have too many choices, as it appears the retailers are all the same!

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  10. Thank you for the post. I think your blog not only discuss marketing problem, but also shows a economics issue——the monopoly and oligopoly in Australia Energy market. Now most of energy provider or manufacture in Australia are monopoly or oligopoly, and I think there are lots of problem in it. The service and price can not as the same as a company which in a competitive market. If you have any problem, and need call company to solve that, when you call a company like Vodafone which in a competitive market, you definitely will receive quick response and good attitude for service. But if you call a monopoly or oligopoly company, I cannot say all of them, but for most of them you would not receive very good services. Maybe the calling waiting time is enough for you to solve it by yourself. I remember once I made a phone call to SA water, telephone connect for half hour and no one answer. Your blog is discuss Electricity, at this moment electricity market is Oligopoly. I think we can not expect too much for that.

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  11. Electricity is the necessity for everyone’s life; it will be very inconvenient if we need to live without electricity for modern people. Australia is the world’s biggest exporter of coal and natural gas. This is an interesting blog; it is directly link to our life.
    Since people start to concern about the pollution problem so the supplier starts to generate the natural power, such as wind and sun based. Your blog clearly explained that government can influence the market by setting the tax level of the products and services.
    I think we can try to find out how the energy distributed by different channels; most of the customers concern about the price more than the environmental problems; government wants to protect the environment and that’s why they promote people to select natural resources.

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  12. Interesting blog leading me to think of the power outage when there was a severe thunderstorm. I agree with one of the above comments that it seems all the firms providing electricity is the same to customers. But the blog overall is more like an economic topic.

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  13. Thanks for this Interesting topic. I didn’t think about this question before. The electricity is very important in our daily life. But i saw the blog use more description of the usage of the electricity and data description but less analysis the distribution side. I am interesting in if it really have huge profit in this industry and what the government will do with it in the future.

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  14. to be honest, i have never thought the electricity can be traded like other products or services through similar distribution channels. now i know why i have to pay more electricity bills. i guess the reason is double marginalization.

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  15. This is a great post with excellent clarity. Like you said in the post around consumers being forced to look at alternative solutions. Do you think it will get to the stage where the individual is able to trade there electricity generated on the open market ?

    There is a new technology coming out that will see a massive shift in this landscape and the product is already sold out without being released. Do you think this will be a key enabler for change in the energy supply and trade and how do you think this will be managed ?

    http://www.teslamotors.com/powerwall

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    • Thanks for your comment. I have seen the presentation on the Tesla Powerwall. The product was innovative and many get benefited with the product once it is widely available in the market. Well, as you said, i don’t think that there would be stage where an individual will trade electricity. we have got many alternate resources where we can generate electricity from. So there won’t be a problem with electricity.
      Coming to the tesla powerwall battery, it would be really helpful for the people who is supplied with less electricity. I mean few hours in a day.the product is not yet officially launched in the market but are selling the product through online. well the reason is, to know the market of the product. If the product is not successful then it would be a loss for the company. so their strategy is to deliver the product directly to the consumer without any distributors. if the product is really useful , then there will be a good market for the product.

      Like

  16. Wow, never realised what a complicated distribution channel existed in this sector and I must admit I am still not a lot clearer about why the distribution of power is like this in the first place. I assume there are many historical factors that contribute to this system, perhaps you could clarify?

    Like

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