Jess Hill: If you've noticed your power bills going up, it may not be because you're using more electricity. Australian electricity prices have doubled over the past few years. We now pay some of the highest power bills in the developed world. The Prime Minister has blamed the price rise on the carbon tax and the renewable energy target. He says the target is significantly pushing up the price of electricity.

So what makes up the bulk of that 100% increase? Well, 20% goes to your energy retailer. That pays for things like customer service and marketing. Another 20% goes towards the actual electricity that you use, and around 50% of your bill is paid to network companies who own and manage the poles and wires. The portion of your bill that's going to network companies is slowly paying off the $45 billion investment they made into the poles and wires over the past five years. That money was spent because, according to the network companies own data, energy demand in Australia was rising fast and the poles and wires weren't big or strong enough to cope with it.

So in 2009 the Federal Energy Regulator approved billions of dollars worth of investment into the grid. That very same year however, for the first time in Australia's history, demand went down, and it has gone down every year since. But even as the data showed that energy demand was falling, network companies insisted it was rising and continued to spend billions of dollars on the poles and wires. We are now paying off every dollar of that through our electricity bills.

Nationally, energy demand is now lower than it was in 2006. That's partly due to the loss of manufacturing and the rollout of energy efficient appliances. But it's also because in the last six years 1.3 million households have installed solar panels on their rooftops. Thanks to the sharp rise in our electricity bills, solar panels are now not just an ethical choice, they are an economic one, and they are saving people up to 60% on their energy bills. That might be a good deal for consumers but it's a disaster for the traditional power industry.

Coal-fired power plants make their biggest profits in periods of peak demand. There are two peak demand periods every day; one in the afternoon when kids come home from school, and another in the evening. During that afternoon peak over a million households are now getting their energy directly from the Sun, and many of them are feeding excess energy back into the grid. That is making life very difficult for the owners of coal-fired power plants. In fact the federal industry minister Ian Macfarlane says the cost of coal-fired power is lower than it was in 2001 and the energy market is now in oversupply. That's a problem, he says, and the traditional energy companies generally agree. By and large they want to see the renewable energy target reduced.

Solar panels have one fundamental drawback though; they can't make energy at night. Until people can afford batteries to store the energy they produce, they'll have to remain connected to the grid. But some solar analysts believe that we will see commercially available battery storage systems within the next year or two. And in Queensland, Ergon Energy says that within a decade it will be cheaper for their customers to use solar with battery storage than it will be for them to buy power from the grid. This is what the power industry calls the death spiral. It goes like this: as electricity gets more expensive, it makes more sense for people to install solar and perhaps leave the grid entirely. That means the power industry has to recover their costs from a smaller group of customers, which means they are forced to raise their prices. This makes more people leave, prices get higher, more people leave, prices get higher…you get the idea. Power companies say it's not fair that consumers who don't have solar should have to pay more than people with solar. But the real reason people are paying so much for electricity is because of the $45 billion that was spent on the grid, some of which was based on demand predictions that were wrong.

Bruce Robertson, a beef farmer from Burrell Creek in New South Wales, played a key role in exposing the network companies' faulty demand projections. He says the incentive to overinvest is clear. He says, 'These electricity distribution companies that build the poles and the wires are paid purely based on their assets. They are not paid on the amount of electricity delivered, they are not paid on the efficiency of doing that, they are only paid on their assets. So if they build more, they get paid more.' What Bruce Robertson is referring to here is the 10% guaranteed rate of return the network has got over the past five years for every dollar they spent on the poles and wires. That rate of return was granted to them by the Federal Energy Regulator, who says it was necessary at the time because after the GFC it cost a lot for companies to borrow money.

But it's clear where that rate of return went. Data from the Australian Bureau of Statistics shows that two years after the investment began in the grid in 2009, the electricity industry's profits had risen by 67% to $9 billion. During this same period, our electricity prices rose by over 40%. The Senate held an inquiry into the price of electricity in 2012 and found that the overinvestment in the network had been driven by this perverse incentive to invest.

The Labor MP who chaired the committee, Matt Thistlethwaite, says he visited a $30 million substation in Newcastle that wasn't even connected to the grid because the energy demand that had been projected for that substation never eventuated.

Robyn Williams:Jess Hill, who asks; with infrastructure projects as large as any in Australia's history, why wasn't the public consulted? And if you're going to build a huge electricity grid for the future, why didn't the blueprint take sufficient heed of solar and other renewable energy options? Jess Hill's Background Briefing was broadcast on April 27, it's very much worth listening to. There is a link below.