SOARING electricity prices have put the squeeze on irrigators profits, forcing some growers from energy efficient electric equipment and back on to comparatively clunky diesel burning pumps.
Representative groups including Cotton Australia, National Irrigators Council and Canegrowers report retail electricity prices have risen more than 100 per cent in the past seven years. One pump station in South Australia’s Riverland saw its costs rise from $800,000 to $1.8 million in that period.
Bundaberg, Queensland canegrower Dean Cayley has been burnt by the cost of expensive upgrades that, thanks to the price spike, have failed to delivered returns.
Mr Cayley spent $200,000 on a low pressure, electric irrigation system that cuts power use from 132 kilowatts a night of pumping down to 60kW.
“It’s extremely frustrating when you’re prepared to borrow and invest to improve your operation only to have any savings are gobbled up by the power price rise,” he said.
Cotton Australia general manager Michael Murray said “the network is overcapitalised and the operators’ guaranteed returns has made electricity unaffordable.
“Growers do the best job they can using as few inputs as possible, but once the crop is grown you’re a price taker and from then on in the production cycle, any blowout really hits profits,” he said.
While vaulting gas prices have hit hard, the single biggest contributor to power bills has come from electricity transmission network charges.
In 2014, the Productivity Commission all but accused transmission networks, which run the ‘poles and wires’ across the country in state-based corporations, of gaming regulations to maximise profits and advised government “the system is broken”.
The Australian Energy Regulator approved investment in vast infrastructure upgrades, which were often predicated on questionable demand growth forecast, which has since failed to materialise.
A quirk of regulation let them borrow cheaply from government, typically at 4pc to 5pc interest, and claim capital costs of up to 10pc. The cost was passed through electricity retailers and onto consumers’ bills.
Once the crop is grown you’re a price taker and from then on in the production cycle, any blowout really hits profits
The difference between the interest payment and capital costs was pocket as profit. Industry profits rose 67pc between 2007 and 2011 and as Jess Hill reported in The Monthly, bills rose 40pc over the same period.
National Irrigators Council chief executive Steve Whan said it was “unthinkable” that Australia is one of the most expensive retail markets, given we are rated among the best supplied with energy resources.
“Electricity policy has focused on the returns for infrastructure owners and private arguments over policy, but the consumer has been missing in the debate.”
St George, Queensland cotton grower Ian Todd said pending changes to electricity tariffs for large consumers would force irrigators like him to switch his pumping power units from electricity diesel.
“The new tariffs would mean the cost is prohibitive and I would swap back to diesel,” Mr Todd said.
“I could see a significant portion of those of us on electricity in this district moving away from electricity.”
The new tariff, set to be implemented in 2019 if Queensland government pushes ahead with mooted changes, would charge electricity users based on their peak rate of usage, rather than overall take or what is often a consumption tariff.
Irrigators have no choice but to get their pumps whirring when the water is available and crops are thirsty and cannot wait for off-peak periods. Even though they are not the heaviest of industrial power users, their short, intense burst bump them into the highest bracket of a demand tariff.
Cotton Australia calculated with Mr Todd that the new pricing structure would sting him with a whopping price rise. One particular year’s bill, which totalled $150,000, would have cost $400,000 under a demand tariff.
A similar tariff change will come into effect in NSW on July 1 for regional customers on the state-wide Essential Energy network.
The change to a demand tariff would impact power-hungry industry, like irrigation, who have annual bills in excess of around $20,000.
“I would rather stay with electricity, it’s a better fuel source and more convenient to operate,” Mr Todd said.
“But if prices start impacting on you gross margin, then you’ve got no choice.”
Mr Todd said network operators will grapple with a “downward spiral” as power prices rise.
A dwindling pool of ratepayers, which will shrink as people are pushed off the grid due to high prices, will exacerbate the challenge of maintaining the grid infrastructure as fewer and fewer customers are called on to foot the bill.