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Death spiral warning for power grids

The nation's electricity system faces a "death spiral" that could drive up prices even further and leave States, particularly WA, facing huge bills that may have to be paid by taxpayers.

The independent Grattan Institute think tank, in a report to be released today, says even though power demand across the country is falling, prices are going up as infrastructure companies scramble to protect their bottom lines.

And it warns that the advent of wide-scale solar rooftop systems, a key element of the Federal Government's direct action policy, is exacerbating the situation.

The institute found electricity consumption across the country has fallen since 2009.

Despite the overall fall in consumption, prices have rocketed - on average by 85 per cent or more than $700 a year.

Report authors Tony Wood and Lucy Carter said many Australians were switching to solar power to reduce their electricity bills.

But electricity companies, especially monopolies which own the poles and wires, have driven up prices to make up for the fall in consumption and customers. If this continued, the nation's entire electricity network would come under threat, as would the bottom lines of those State governments that owned major power assets.

"The death spiral is a term used to describe the situation where declining demand, technology changes and rising prices may interact in a way that induces large numbers of consumers to disconnect from the network," they wrote.

"In that case, the whole funding model of Australia's regulated power networks is under threat."

Mr Wood said that WA was particularly at threat because of the way the State Government owned so much of overall electricity infrastructure.

The report found the move to solar panels was helping cut consumption, even though these consumers were being effectively subsidised by those who remained connected to the main grid.

It also warns State Governments and private power operators have to write down the value of their assets at a potential huge cost to taxpayers.

The report estimates there is already almost $5 billion worth of electricity assets that are not needed.