The traditional electricity industry has been stunned by the enthusiastic uptake of solar panels across the nation. Why? Because rapid uptake of rooftop solar power, solar hot water and energy efficiency technologies are eroding the profits of coal fired power stations, retailers and network businesses.

It’s no surprise that with multi-billion dollar investments at stake, many businesses are fighting back. Without prompt government action, healthy competition for Australia’s energy future could turn into an ugly war.

Policy support for solar panels has already been slashed. There is talk of winding back the national Renewable Energy Target and even introducing new subsidies for coal power stations.

Perhaps the most insidious threat to clean energy is the move towards a new system of billing. Rather than the current system of charging customers mainly for what they use (in cents per kilowatt-hour), electricity providers are shifting a bigger percentage of each bill towards fixed daily access charges (in cents per day).

Fixed charges cannot be easily avoided by consumers who save energy or generate their own power. The Queensland Competition Authority has already proposed households with solar power pay a mandatory tariff along these lines.

But this rearguard tactic could prove counter-productive in the longer term. Increasing fixed charges increases the temptation for customers to avoid them by leaving the grid altogether. The solar power industry is keenly anticipating continued falls in the cost of battery storage that will allow solar customers to disconnect from the main network to extend the solar industry’s growth.

If this technological arms race gets out of control, we could have expensive battery storage capacity installed in streets that already have expensive spare network capacity.

Fortunately, some electricity industry leaders recognise the potential dangers ahead. As Craig Severence describes it

The unspoken fear of all utility managers is the “Death Spiral Scenario”. In this nightmare, a utility commits to build new equipment. However, when electric rates are raised to pay for the new plant, the rate shock moves customers to cut their kWh use. The utility then raises its rates even higher – causing a further spiral as customers cut their use even more… In the final stages of that death spiral, the more affluent customers drastically cut purchases by implementing efficiency and on-site [solar PV] power, but the poorest customers have been unable to finance such measures…“

This is a scenario we can and should avoid. Our electricity networks will be crucial to determining whether the transition to clean energy will be smooth and efficient or wasteful and acrimonious. We urgently need our network businesses to embrace emerging clean energy technologies, to focus on consumer benefit and to develop more sustainable business models. For this to happen, we need governments to act.

The recent Institute for Sustainable Futures report Investing in Savings: Finance and Cooperative Approaches to Electricity Demand Management concludes that government should encourage and support electricity network businesses to invest in helping their customers reduce their demand and save energy.

Such "demand management” by network businesses can defer the need for expensive new supply infrastructure and thus reduce network businesses’ need to hit consumers with higher bills.

To support distributors and the clean energy industry collaboration for greener, more customer-friendly investment, governments should:

state a clear policy of supporting network demand management wherever it can reduce customer electricity bills

ask network businesses to adopt demand management targets to cut electricity demand and customers’ electricity bills, and report progress towards such targets

offer financial incentives to network businesses to invest in demand management (the Clean Energy Finance Corporation is one obvious existing institution to provide this)

let network businesses share in the future savings of avoided network infrastructure in order to recover their investment in demand management.

There are numerous case studies where Australian electricity network businesses have helped consumers to reduce demand, and reaped the rewards. For example, on Queensland’s Magnetic Island, electricity provider Ergon Energy has encouraged consumers to install solar panels and smart meters and replace inefficient lights. Peak electricity demand has been reduced by 46% and overall energy consumption by 40%. In the process, Ergon Energy has saved millions of dollars because they now will not need to install a new power cable to the island for at least eight years.

The rapid power bill increases we’ve seen in Australia over the past five years have mainly resulted from network businesses investing more in infrastructure to meet rising electricity demand. Electricity prices nationally have risen in real terms by 70% between June 2007 and December 2012. Network investment is still running at an unprecedented and astonishing rate of over $20 million per day.

It is easy to point the finger at networks businesses for “gold plating”, but the key reason they have been spending too much on the grid is because that is what their regulations ask them and reward them to do. While these regulations are now being reformed, it will take years before customers see the benefits.

This means years more of unnecessary grid infrastructure that will ultimately have to be paid for, either by customers, including through higher fixed charges, or by taxpayers and investors through writing off stranded investment. This in turn means long-lived financial incentives for network businesses to fight solar panels, battery storage, energy efficiency and smarter energy use that could cut both customer bills and carbon emissions.

Electricity businesses working with customers to reduce demand and costs must become the rule rather than the exception in Australia. We cannot afford for our network operators to become enemies of clean energy options such as solar power, batteries, energy efficiency and smarter energy use.

Instead, they must become strong allies in the fight for an affordable and sustainable energy future. Otherwise, both consumers and the climate will pay.

This article is based on a report from the Institute for Sustainable Futures, commissioned by the Clean Energy Finance Corporation Investing in Savings.