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Discontent with electricity « Previous | |Next »
July 7, 2003

I have mentioned in the past (here and here) that SA has not done too well from the neo-liberal creation of a national electricity market. (NEM) A tottering NRG has pulled the plug on some plants and consumer prices have skyrocketed (30% increases). See this submission in Energy Market Review

The story the neo-liberals continue to tell is still upbeat: ---teething problems with the creation of a national electricity market and the states suffering from reform fatique. The market can do wonderful things. Governments are a disaster. The neo-liberal vision was one of a national market with a host of privately owned generators, distributors and retailers competing fiercely and a deep and sophisticated market for power. Well, you know the economic catechism. If there were any negatives these would be overcome through pushing ahead with more reform.

So I started reading up on the Californian electricity crisis to understand what was going on. I had big doubts that the national electricity market was working as it was supposed to, or that it could work to ensure greater sustainability.

Stephen Mayne reports of a shakeout in electricity in the electricity market through power industry asset shuffling. Many of the big overseas firms that got in on the privatisation splurge are now getting out. Some are taking enormous losses in selling the generator plants (eg. $1.4 billion on the Loy Yang A power station in Victoria).

And Stephen Bartholomeusz in The Age confirms my doubts about the national electricity market is working as a free market system. He says:

"The reality of the national electricity market is that there are a series of thinly connected regional markets, with significant private ownership and competitive intensity really only apparent in Victoria and, to a much lesser degree, South Australia."

So we have market imperfections; a hybrid market of private and public ownership (in NSW and Queensland). Stephen Bartholomeusz's judgement is that:

"It is unlikely that those imperfections in the market will disappear any time soon, if ever - although the growing number and capacity of interconnection arrangements, the emergence of new peaking capacity and an underlying excess of capacity over supply - which could prevail for some years - provide some constraints over volatility and market distortions."

What is rarely stated in public is that most of Australia's electricity is generated from coal, the industry produces over one third of Australia's CO2, and there has been an increase in the CO2 production. See the supplementary Bardak submission (p. 8).

On top of that South Australia, unlike Victoria, has not received a net benefit from the creation of a national electricity market. The flaws of the market ( lack of interstate interconnectivity, lack of competition between generation of power and retail, and lax market rules allowing vulnerability to bidding practices) are concentrated in SA (p. 12). It all means that consumers in SA are being screwed.

So we have both an electricity crisis and a political crisis. And very little by way of incentives for harnessing renewable energy for public power generation.

| Posted by Gary Sauer-Thompson at 12:06 PM | | Comments (5)
Comments

Comments

It would be interesting to speculate on the effects on electricity prices if the street lights in the suburbs were turned off at midnight. I haven't been able to think of a good reason why the ratepayers pay to have them on. It's not for pedestrians, there are none, it's not for motorists, they don't need them. Why is it so?

Joe: I doubt it would make any difference. The coal power stations can't be turned off or on at will. They take several hours to change capacity, and there is no way to store the electricity produced (the market would work a lot better if there was). Because after midnight is a non-peak time anyway, the energy is being created regardless of whether we use it.

On another note, the increase in CO2 emissions (and inefficiency) mentioned in the Bardak submission is almost certainly down to the fact that in Victoria, Hazelwood (an ineffecient polluting 1950s dinosaur) is now producing power all the time. Prior to privatisation it was only being used in peak periods.

Hazelwood shows that privatisation and a national electricity market does not lead to a more sustainable mode of energy generation.

The efforts to restructure the electricity system to make it more flexible and responsive to changing economic conditions
is flawed, and based on fundamental policy mistakes (especially in SA).

Russell: even if the cost of electricity is very low, what's in it for the ratepayer of say Canberra to have street lights on? They are all in bed. They don't care if the electricity generators would be doing it tough if they turned the lights off.

Joe: The electricity generators won't be doing it tough. They'll just charge more in the off-peak times to recoup the cost of the wasted electricity. Those costs will eventually get passed on.

I'm also not convinced that motorists don't need street lights. Have you ever tried to find a lane off a country road in the dark? Keep in mind as well, country roads have cat-eyes, guide posts and lines to keep you on the road. Suburban streets generally don't, they are probably pretty hazardous without lighting.