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Energy: botched attempts « Previous | |Next »
February 4, 2004

I've been looking into the electricity reforms of the 1990s associated with the privatisation of public utilities by the Kennett and Olsen Liberal Governments in Victoria and South Australia.

The neo-liberal rhetoric was about competition, empowering customers, and freedom of choice. Underneath the spin the governments were more concerned to use the sale of the public assets to overseas consortiums to repay state debt and regain the lost AAA credit rating. Hence the emphasis was on the commercial attractiveness of the sale whilst consumer interests were downplayed. The privatisation process was then sold as an outstanding success. However, the high prices paid for the assets meant that private industry was saddled with servicing high debt.

In South Australia the Olsen Government opposed the construction of the new NSW SA interconnector, even though NSW had excess capacity and South Australia a shortage. Why the oppostion? The interconnector would have halved the value of the generation in the state if it proceeded, and so reduced the money the Olsen Government would have received from privatisation to repay state debt.

The private energy companies paid big prices for the generation, transmission and distribution assets in Australia. That meant they expected to make big profits. Were were those profits to come from, if not from prices increases and service cuts.

Yet South Australia needed interconnector capacity to draw on cheaper electricity from Victoria and NSW, because the poor quality of the Leigh Creek lignite meant higher costs incurred in generating energy. In particular South Australia needed access to the relatively low cost surplus energy generated in NSW.

What this little account suggests is that the states had their backs turned to the development of a sustainable and effective national electricity grid. They were more interested in limiting interstate competition than the economies of expanded interconnection, open access electricity supply, or building new capacity through renewable energy.

We begin to see why deregulation and privatisation had not delivered the promised benefits. Yet the liberalisation mantra continues.

Instead of a national electricity market we still have a series of separated regional markets with weak interactions. What happens is illustrated by the crisis of 2000: Customer load was shed in Victoria and SA (blackouts) for lack of 500 MW of capacity. Yet NSW had 2000 MW of spare serviceable capacity but no means of delivering it into each state.

SA has plenty of wind and sun. But it has no renewable generation to meet the peak demands on hot summer days.

Not a satisfactory situation all round. A botched attempt? How about a confidence trick?

| Posted by Gary Sauer-Thompson at 2:10 PM | | Comments (0)