Energy Cost Explainer:
The effect of Network Costs

When electricity prices rise, attention usually turns to power stations. But according to the Australian Energy Regulator, network costs, the poles, wires, and substations that move electricity around the state, now makes up one of the largest components of household power bills.

In Tasmania, network costs have grown steadily over the past five years and are set to increase further. TasNetworks operates as a regulated monopoly. Under AER rules, the more infrastructure it builds, and the more expensive that infrastructure is, the more it is allowed to charge consumers. This includes operating costs, depreciation, and a regulated rate of return.

As renewable energy expands, new generator sites are increasingly being built in remote and dispersed locations. The logic for this is often based on the priority the developer of the windfarm has – a good resource (wind and solar) and available land. Hence, we find proposals on ridgelines, coastal locations, and solar farms. All require new transmission lines, spread across the landscape, and substations to connect them to the grid.

Tomorrow’s consumers will be paying the price for not understanding the consequences of the decisions unfolding around today. Projects such as the North West Transmission Developments and Marinus Link dramatically expand Tasmania’s regulated network asset base.
Ministers Nick Duigan and Chris Bowen are correct when they say wind and solar generation can be low-cost to operate. However, the infrastructure needed to connect these generators is expensive. Once built, those costs are locked into electricity bills for decades. An uncomfortable reality is that profits earned by TasNetworks ultimately flow back to the Tasmanian Government. With rising state debt and budget pressures, there is little incentive for the government to push for lower-cost network solutions if higher spending today delivers higher returns tomorrow. The proposed reclassification of Basslink highlights this issue. The Tasmanian Government has lobbied the AER to make Basslink a regulated asset, shifting its costs away from Hydro Tasmania and onto consumers. Instead of a commercial user paying for access, households and businesses will now cover those costs through network charges.

Most Tasmanians are unaware that this transfer is coming.

Network investment is necessary to maintain reliability, but it is not cost-neutral. Decisions about how much infrastructure is built, where it is built, and how efficiently it is planned will shape electricity prices long after today’s political claims have faded.