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Pall over Deregulation « Previous | |Next »
January 30, 2003

In establishing a national electricity market neo-liberals have learned from the Californian experience of having volatile wholesale prices and fixed retail prices. The neo-liberals have deregulated wholesale and retail prices in Australia so that the cost charges at the wholesale level can be passed onto retail customers. Hence the 30% hike in retail electricity prices in South Australia this year.

Alas, another problem has emerged. The Rann Government does not like the excesses of the market in electricity.

The sequence we are at, with the ongoing shift to a deregulated national electricity market, is that the volatile wholsale price can go through the roof due to the interplay of supply and demand.

This happened recently in Adelaide. It was so obvious that the Rann Government's public response was one of 'we are shocked' and the journalists who wrote about this event echoed them.

The Rann Government had informed NRG of the Santos gas plant shutdown on Saturday. Within five minutes of being advised, NRG withdrew 170MW of electricity generated at its Port Augusta power plants and re-priced it. NRG increased the price of its electricity from $269 a megawatt hour to $9697 during South Australia's gas crisis.

Deputy Premier Kevin Foley said yesterday that it did so in in a bid "to gain a huge profit windfall". The story is here Gas shut-off led to `profiteering'

The Rann Government is not pleased with this market excess. However, it has little comeback because under national electricity market rules, generators are allowed to charge up to $10,000 a megawatt hour and withdraw electricity and re-price it if supply conditions change. So the NRG price spike is all within market expectations.

Within a deregulated market the incentive for increased investment in power assets comes from the price spike, rather than the marginal price usually charged. This is the whole rational. Higher prices bring for the new supplies of electricity through the construction of new generating plants. Until this happens SA can purchase additional electricity from the eatern states connected through the power grid.

Has the Rann Government reached the limits of the neo-liberal mode of governing through the market and is re-discovering politics? I doubt it. It is another cog in its publicity campaign to blacken NRG so as to get itself off the hook. "Our hands are tied", they can say, then add, "its the price gouging of the nasty NRG that is the problem."

This way of managing the political fallout means that it can avoid having to confront its neo-liberal mode of governance and its tacit faith that the deregulated market will lead to the upgrade of infrastructure, new plant construction and cheaper retail prices.

Of course, there is nothing in all of this about a shift to renewable energy. Why should there be: a shift to new electricity plants based on renewable energy requires government intervention and being proactive. This distorts the operation of the free market because renewable forms of energy are not commercially competitive. And Australia has large reserves of oil and is self-sufficient in natural gas and coal. These industries should be protected in the name of national security.

And Australia has little political will to meet its Kyoto commitments to take a more proactive stance stance towards supporting renewable energy by limiting its carbon emissions to 108 per cent of its 1990 emissions in the period 2008-12. It is going to continue its heavy reliance on oil and natural gas rather than reduce this reliance through fostering the development renewable energy power plants.

What is displaced in this sort of "public debate" is the public interest in the shift to sustainability in South Australia and the most appropriate form of government intervention to promote renewable energy in South Australia.

| Posted by Gary Sauer-Thompson at 8:47 AM | | Comments (3)
Comments

Comments

Now let me get this straight. Some public servants entrusted with the public good,gave a select few, profit-maximizing oligopolists the right to supply monopoly power to the public. They are happy to earn normal profits and supply for $269/mwh but they are legislatively allowed to charge up to $10,000/mwh and earn super normal profits but are only charging $9,697/mwh. Clearly an example of non-rational behaviour and market failure according to my Economics1 Professor. What the hell has happened to the extra $303/mwh I hear him cry!

News Flash! The professor has solved the conundrum. He reckons somebody somewhere has too much utility.

Goodo, I'm glad the Professor is on the ball and keeping a sharp on the desire for utility.

Clearly the Rann Government is using the electricity stuff as a public relations campaign ---when you read the speeches to electricity conferences its all about SA doing the right things to establish a national electricity market. They buy it lock, stock and barrell.