There have been astonishing developments in other areas. The installed cost of photovoltaics (solar panels) have declined by about 80 per cent over the past seven years. Despite patchy policy support, it has taken just seven years for photovoltaics to reach one in five detached houses. Electricity produced by photovoltaics on a roof typically costs about one-sixth of grid-supplied electricity. It is no surprise that photovolatics are now being installed at record rates not just on household roofs but also on farms and in businesses.

And now the trajectory of costs in batteries, particularly those with lithium chemistries is declining even more steeply than we have seen in photovoltaics. The combination of battery and photovoltaics installed behind customers' meters now promises to meet customers' needs more cheaply than grid-only supply.

Responsive demand

South Australia suffers from concentrated electricity markets, dependency on expensive gas and structurally high network charges. The combination of behind-the-meter photovoltaics and battery with the grid for back-up is already cheaper than grid-only supply for most small customers in SA. While batteries plus solar and grid back-up is not yet viable for most customers in the rest of Australia, the gap is small and quickly getting smaller.

If the federal government is determined to deliver lower electricity prices, it might focus its effort on ensuring that demand is more responsive to short term price signals, and on making up the narrowing shortfall needed to encourage widespread uptake of distributed batteries. Such policies will not be difficult to develop or implement, they will require outlays many times smaller than those needed to build baseload coal plants, and will show results during the term of a government.

The market must adjust

Such policies will, however, speed up the nonetheless inevitable decline in many customers' reliance on the shared power system. Generators and retailers should be expected to adjust without assistance: they operate in a market after all. The shared grid still has a future albeit different to its past and even in a declining market there will be ample opportunity for investment in decarbonising electricity production.

Networks are more difficult. Their excessive asset values reflect historic asset write-ups (when policy makers thought demand was inelastic) and many years of wasteful gold plating. Furthermore technology change (distributed energy resources, and more efficient appliances) is leading to declining use of the shared network. Write-downs to bring the regulatory asset values into line with their economic values is needed. The biggest adjustment is needed where the networks are partially or fully government owned. The challenge is not insurmountable but requires governments to take responsibility for their past mistakes. For the privately owned networks, asset write-downs raise legitimate worries about political expropriation and these would need to be resolved.

If the federal government is really concerned to do something about electricity prices, yesterday's heroes must be put out to pasture. Those calling the shots must drop the ideology and find the gumption needed to put the customer first in deed, not just in word.

Dr Bruce Mountain is the director of Carbon and Energy Markets (CME). He will be presenting at today's Melbourne Economic Forum: "Do we have the energy to end the climate wars?"