Why That Electricity Price Study Can't Be Trusted

We've been flooded with headlines saying that a new study demonstrates Australia has some of the most expensive electricity in the world. While power prices are a concern, the way in which that data has been compiled is also open to criticism.

Picture by Nomad Tales

The study was commissioned by the Energy Users Association of Australia (EUAA), which (as Alex pointed out at Gizmodo) hardly makes it a neutral source. Most coverage has focused on how the study suggests that Australia has some of the most expensive electricity in the world, and the parallel claim that, as the announcement press release put it, "Australia's prices can be expected to increase further and significantly in the next few years, which is likely to make our electricity prices the highest in the world."

I'm all for analysing data and looking at how our pricing compares to the rest of the world, although electricity isn't one of those things we can simply import from overseas to make it cheaper (and it is one of the smallest contributors to typical household budgets). But when you start looking closely at how the EUAA study was assembled, you realise that it isn't actually using data which can reasonably be compared when it produces charts like this:

Here's the big problem. The study claims a comparison of 2011 electricity prices, but that's not actually what it offers. The data for Australia covers the year beginning July 1 2011, which means it includes some projections for what will happen between now and June. The EU data is for the year ending 30 June 2011, so we're already comparing different periods. The data for the US is for the year ending in November 2011, and doesn't eliminate state taxes which affect many regions. Most notably, the data for Canada and Japan (two countries which come out looking cheaper) is from 2010.

How does the study justify this variable use of data periods?

It might be argued that we should have used Australian data for the year beginning 1 July 2010 and ending 30 June 2011. We decided against this because the Australian prices are increasing rapidly while the prices in the comparator countries/regions have been declining or approximately constant.

That reasoning is entirely self-serving, and smacks of "we assume this is happening so we're seeking information that supports that view". Data quoted elsewhere in the paper suggests prices rise and fall in different markets at different rates. Presuming that Australia is going up and that other countries are staying constant, but not actually including evidence demonstrating that, savagely undermines the credibility of the argument.

What makes this even more extraordinary is that the study criticises a recent Bureau of Resource and Energy Economics paper which said Australian electricity prices were lower than the OECD average for using 2010 figures from the Australian Energy Markets Commission (AEMC), rather than 2011 figures. But the Bureau paper compares 2010 numbers across all the regions. It has a consistency the EUAA paper entirely lacks. That renders the comparisons and the criticism somewhat hollow.

And what about the future? The study also projects what will happen to Australian electricity prices through until 2014, which is how it justifies the claim that we may end up with "our electricity prices the highest in the world". But it doesn't actually make any attempt to calculate what will happen to electricity prices in other parts of the world, which would seem the proper basis for making that statement. Indeed it notes that "Price projections for the other countries in the comparison are not known" and adds a note that "prices in these other countries have been stable over the last decade", effectively implying that we can expect no change there.

I can instantly think of one obvious reason that might not be so: Japan's massive reduction in the use of nuclear generation in the wake of the Fukushima Daiichi nuclear disaster is presumably going to see pricing changes (as well as supply issues) in that country for some time. Regardless, with no comparisons actually made to other projected power prices, it's impossible to conclude with any authority that we'll end up being the most expensive.

The study doesn't actually use its own new research for those Australian projections either. Instead it took data from the Australian Energy Markets Commission (AEMC), which has projected potential prices through to 2012-2014. So it's not new data; it's just re-reporting of an existing study.

Finally, buried in the report there's this chart, which suggests that if you adjust the calculated figures using purchasing power parity (which measures which goods incomes in different countries can actually buy) Australia is no longer the most expensive country in the world even now, with Japan and the EU ranking further ahead:

In other words: there's a lot of interpretation involved in those blanket statements (and remember, again, these adjusted figures still aren't actually comparing the same time period, especially in the case of Japan). Perhaps unsurprisingly, there's no in-depth analysis of this chart, beyond a brief suggestion that we'll still end up paying more in Australia by 2014. But again, there's no evidence provided for that assertion in terms of what will happen elsewhere in the world.

Does that mean that electricity prices aren't high? No. But this study doesn't properly make the case that they're high by global standards. It's basically impossible to claim a realistic comparison when you're using data from different years for different countries. Strong claims require strong evidence, not selectively manipulated facts.

EUAA (PDF link)

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Comments

    Well said.

    Purchasing power parity is extremely important because the Australian dollar is very strong against other currencies. Even if Australian electricity prices had remained static in dollar terms over the past two years, they would have become 'more expensive' compared to other countries because of exchange rates. Of course we can't buy electricity from Japan, so it needs to be compared to average earnings or as a percentage of household spending to have any meaning whatsoever.

    Thanks for holding the PR industry spin machine to account. Phony 'think tanks' backed by powerful interests and unscientific 'studies' make up far too much of the 'news' that we're fed.

    Just look how easy it was for the mining magnates to pull the wool over our eyes on getting a fairer price for OUR mineral resources.

    Excellent article! It's so important to hold people accountable for their analysis.

      Here here!

    The increasingly deregulation/privatisation of our energy production must also be a factor in such a comparison - so the percentage of our taxes that go to generation v the percentage in other countries would have an impact on the bottom line.

    I get that this report is dubious at best. I mean you just need to look at who commissioned at, and what their agenda is to see the outcome before even reading this report, but the idea that we CURRENTLY pay more for electricity than anywhere else in the world, can't be a good thing for their business.

    Sure they're trying to get rid of the carbon tax, claiming it'll cost "working families" more for electricity. But that doesn't explain why we're paying more now. Surely people's reactions should be "we're being ripped off by these power companies", not"carbon tax is a bad idea".

    Keep in mind also that Canada and various EU countries (particularly in the scandanavian area) have very high tax rates on their citizens, but the pay-off in those countries is that a lot more public services are paid for by the government (e.g. no "gap" when you visit a doctor, cheap prescriptions, excellent wellfare schemes etc) and it wouldn't suprise me if to some extent the governments of those countries subsidies utilies like water, gas, electricity. [citation needed] [grain of salt required]

    Heard this on the radio this morning, highest in the world was what they were toting, idiots. What we pay here in a quarter was the equivalent of 1 months power in NZ and averaged close to $45 per week in NZ.

    PS. stop burning coal, go Nuclear and stop the Kiwis from getting skin cancer.

    As soon as I saw the list of companies that make up the incredibly unknown EUAA organisation I knew it was a crock - BHP, BP, Rio Tinto, Caltex, etc. It's like a who's who of anti-carbon tax and anti-government propaganda. An Australian version of the Heritage Foundation, the US Chamber of Commerce or the Koch brothers. It comes as no surprise to find they played games with statistics and data, it's how these creeps operate, on the basis that no one will check their work. And the Murdoch press will helpfully repeat their claims as fact and make no attempt to uncover the distortions they engage in. Which is exactly what they did this time.

    Has anybody here paid a electricity bill in OZ?
    I live in Melbourne, Vic and pay them each quarter.
    MY rate?
    $0.23/kWh and that is a flat rate, no off peak rate, no shoulder rates, nothing.
    Just as the graphs above show.
    These are AU $ too, which in the current exchange rate are about $1.05 US per $AU
    Of course the EUAA is self interested.
    By my electricity bills are what they are: $0.23/kWh

    What i would like to know is the motivation of the EUAA behind the release of the original report about high prices?.

    Is it because this industry body wants to push the liberal line, death to the carbon tax?. Nothing like stirring up the public to setup a backlash against the new tax?

    Its funny, petrol just hit $1.60 yet we see nothing from these corporates about the high prices killing us there, i wonder why??

    Business As Usual..

    Is it also about smoothing the way for Lib Ted Baillieu in Vic to expand brown coal mining and export?..

    EUAA Members include..
    Anglo Coal Australia
    BHP Billiton
    Bluescope Steel
    BOC Limited
    BP
    Caltex Australia Ltd
    Dalrymple Bay Coal Terminal Pty Ltd
    Grange Resources (Tasmania) Pty Ltd
    Minerals and Metals Group (MG)
    Queensland Magnesia Pty Ltd
    Rio Tinto
    Rio Tinto Alcan

    http://www.euaa.com.au/whats_new/index.htm

    http://www.theage.com.au/victoria/baillieu-set-to-boost-brown-coal-20120319-1vfue.html

    What, are you telling me that a report published by an agency I haven't heard of, that uses suspect research practices and data sources, could have an ulterior motive? :-O

    I wish more people would engage their critical thinking skills sometimes.

    http://about.me/david.zmood

    Did I miss something? How come only kilowatt hour usage is used here? Why is the additional service availability charge not included in Australian figures. In new South Wales it is 98.004 cents per day. My quarterly bill is boosted by $88.20 due to this.

    I live in the US Virgin Islands and I pay a flat rate of 48 cents a kWh and fuel for my car is $4.58 usd

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