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Disclaimer. After nearly 40 years managing money for some of the largest life offices and investment managers in the world, I think I have something to offer. These days I'm retired, and I can't by law give you advice. While I do make mistakes, I try hard to do my analysis thoroughly, and to make sure my data are correct (old habits die hard!) Also, don't ask me why I called it "Volewica". It's too late, now.

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Monday, July 7, 2014

Utility Death Spiral


Finally the doom loop facing the utilities reaches the mainstream media.  They've been discussing it at Renew Economy for months --- see this piece.

It is called ''the death spiral'' and it is terrifying power suppliers.

At the moment they are awarded price rises to cover the cost of their spending on cables and substations. If power usage slides (as it has been), they are granted further price rises to ensure they can continue to recover those costs.

It has not been a big problem [my comment : for utilities!] because their customers have had nowhere else to go. Until now.

Energy specialist Lucy Carter of the Grattan Institute outlined the horror scenario for suppliers while launching a new report to be released on Monday about why we are paying too much for power.

She says network charges account for most of the increase in electricity prices. The carbon tax is small by comparison.
''The risk for the companies is that when people get the option of putting solar panels on their roofs and installing batteries and cutting the cord, demand will fall sharply. The people who end up left on the network will be the only ones left paying.'' They will be stuck with extremely high network charges, forcing even more people off the network, pushing network charges higher still. It is what Ms Carter calls ''your death spiral scenario''.

She says it is not upon us yet, but if battery storage improves and network costs keep rising, it will be.

Read more here.  The original Grattan Institute report is here.


In this context, this report is highly relevant.

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