The Times Australia
The Times World News

.

The national electricity market is a failed 1990s experiment. It's time the grid returned to public hands

  • Written by John Quiggin, Professor, School of Economics, The University of Queensland
The national electricity market is a failed 1990s experiment. It's time the grid returned to public hands

A crisis, as the saying has it, combines danger and opportunity. The dangers of the current electricity crisis[1] are obvious. The opportunity it presents is to end to the failed experiment of the national electricity market.

Having suspended the market last week, the Australian Energy Market Operator (AEMO) is now directing generators when to supply electricity. It’s also paying them lavish compensation for the financial shortfalls they suffer as a result.

These emergency measures are unsustainable. But they provide the starting point for a restructured electricity supply industry – one that’s better balanced between markets and planning.

Now’s the time to create a national grid that serves the Australian public and meets the challenges of a warming world. A new government-owned and operated body should take control of Australia’s electricity system. And decarbonising the grid, while ensuring reliable and affordable energy, should be its core business.

string of light bulbs in dark
Decarbonising the grid should be a key goal of electricity reforms. Dave Hunt/AAP

A failed experiment

The National Electricity Market is where energy generators and retailers trade electricity. It was established about 25 years ago after technological advances allowed electricity grids to be connected across all states except Western Australia and the Northern Territory.

Before the market began, each state operated its own electricity industry with only limited interconnection. Back then, electricity companies were publicly owned. Most were also fully integrated, with one company responsible for the entire electricity supply chain, from generation to distribution and billing.

The national grid’s arrival coincided with the peak of enthusiasm for micro-economic reform. So, instead of a unified national enterprise, state utilities were broken up into separate parts – generation, transmission, distribution and retail – with the intention they would be privatised then engage in market competition.

Driving the trend towards privatisation was a widespread view that state-owned electricity enterprises had not performed well[2] – particularly in investing to expand access to electricity.

Reflecting this view, the industry became fully or mostly privatised in Victoria, South Australia and New South Wales. Other states opened electricity generation and retail to competition.

Read more: What's a grid, anyway? Making sense of the complex beast that is Australia's electricity network[3]

The market was created just as the global need to reduce carbon emissions was being recognised. Despite this, the climate problem was not considered in the design of the market, which was based on a mix of coal and gas plants.

Until AEMO suspended the market last week, bids from generators determined the wholesale price of electricity at five-minute intervals. Retailers supplied electricity to consumers at prices that shielded them from the fluctuations in wholesale prices.

Prices typically sat around A$50 per megawatt hour. But in periods of very high electricity demand, the price can reach the market “price cap”, currently set[4] at $15,100 per megawatt hour.

Meanwhile, electricity distribution – getting the power to homes and businesses using poles, wires and other infrastructure – was handed to a set of regulated monopolies, which were awarded high rates of return on low-risk assets.

steam emitted from coal-fired power station
The climate problem was not considered in the design of the market. Dan Himbrechts/AAP

What went wrong

The designers of the national electricity market hoped it would lead to better efficiency and more rational investment decisions. The market also aimed to lower consumer power bills and promote competitive retail offers tailored to individual needs. But none of this happened.

In fact, consumer electricity prices – after falling for the better part of a century in real terms under public ownership – rose dramatically[5].

This was partly due to high returns to private electricity distribution companies, and the need for infrastructure investment to improve reliability. A proliferation of highly paid marketers, managers and financiers were also required to run the market.

Over time, the failures of the original design led to an alphabet soup of agencies needed to run the industry. They include AEMO, AEMC, AER, ARENA and a bunch of state-level regulators. Finally, the Turnbull government created the misnamed Energy Security Board (ESB), which sat on top of the whole process.

All this delayed the transition from an old and unreliable coal-based system to its necessary replacement by a combination of solar, wind and storage.

Now, this rickety system has failed to deal with a major supply crisis. The temptation is to slap on another patch and restore “normal” market conditions. The ESB’s proposal[6] to pay coal and gas generators to be on standby if needed is one such quick fix. But much more comprehensive reform is needed.

Read more: Why including coal in a new ‘capacity mechanism’ will make Australia's energy crisis worse[7]

composite image of electricity infrastructure and numbers
The national electricity market has failed to achieve its key aims. Shutterstock

Where to from here?

A combination of public and private investment is now needed to secure affordable electricity and transition to renewable energy generation.

The plethora of bodies regulating the market should be replaced by a single government agency that buys wholesale electricity from generators. This organisation could then sell electricity directly to customers or supply it to electricity retailers.

The emergency purchasing arrangements AEMO currently has in place should be replaced by “power purchase agreements”. These are long-term contracts between a buyer and a generator to purchase energy, in which prices, availability and reliability are set.

Within those terms, generators that consistently produce electricity at very low prices are the first to be called on. This dispatch method, known as merit order, has been shown in Germany[8] to lead to lower prices for consumers.

At the same time, the Australian electricity grid should be returned to government ownership and operation. And its guiding principle should be moving to a decarbonised energy system, rather than the “net market benefit[9]” test AEMO currently uses when deciding where to approve investment.

Labor’s Rewiring the Nation policy provides a starting point for reform. It should invest directly in the expanded transmission network needed to support the transition to renewable energy.

Australian energy policy took a wrong turn in the 1990s. It’s time to get back on course.

Read more: In an energy crisis, every watt counts. So yes, turning off your dishwasher can make a difference[10]

Read more https://theconversation.com/the-national-electricity-market-is-a-failed-1990s-experiment-its-time-the-grid-returned-to-public-hands-185418

Times Magazine

Building a Strong Online Presence with Katoomba Web Design

Katoomba web design is more than just creating a website that looks good—it’s about building an online presence that reflects your brand, engages your audience, and drives results. For local businesses in the Blue Mountains, a well-designed website a...

September Sunset Polo

International Polo Tour To Bridge Historic Sport, Life-Changing Philanthropy, and Breath-Taking Beauty On Saturday, September 6th, history will be made as the International Polo Tour (IPT), a sports leader headquartered here in South Florida...

5 Ways Microsoft Fabric Simplifies Your Data Analytics Workflow

In today's data-driven world, businesses are constantly seeking ways to streamline their data analytics processes. The sheer volume and complexity of data can be overwhelming, often leading to bottlenecks and inefficiencies. Enter the innovative da...

7 Questions to Ask Before You Sign IT Support Companies in Sydney

Choosing an IT partner can feel like buying an insurance policy you hope you never need. The right choice keeps your team productive, your data safe, and your budget predictable. The wrong choice shows up as slow tickets, surprise bills, and risky sh...

Choosing the Right Legal Aid Lawyer in Sutherland Shire: Key Considerations

Legal aid services play an essential role in ensuring access to justice for all. For people in the Sutherland Shire who may not have the financial means to pay for private legal assistance, legal aid ensures that everyone has access to representa...

Watercolor vs. Oil vs. Digital: Which Medium Fits Your Pet's Personality?

When it comes to immortalizing your pet’s unique personality in art, choosing the right medium is essential. Each artistic medium, whether watercolor, oil, or digital, has distinct qualities that can bring out the spirit of your furry friend in dif...

The Times Features

NSW has a new fashion sector strategy – but a sustainable industry needs a federally legislated response

The New South Wales government recently announced the launch of the NSW Fashion Sector Strategy, 2025–28[1]. The strategy, developed in partnership with the Australian Fashion ...

From Garden to Gift: Why Roses Make the Perfect Present

Think back to the last time you gave or received flowers. Chances are, roses were part of the bunch, or maybe they were the whole bunch.   Roses tend to leave an impression. Even ...

Do I have insomnia? 5 reasons why you might not

Even a single night of sleep trouble can feel distressing and lonely. You toss and turn, stare at the ceiling, and wonder how you’ll cope tomorrow. No wonder many people star...

Wedding Photography Trends You Need to Know (Before You Regret Your Album)

Your wedding album should be a timeless keepsake, not something you cringe at years later. Trends may come and go, but choosing the right wedding photography approach ensures your ...

Can you say no to your doctor using an AI scribe?

Doctors’ offices were once private. But increasingly, artificial intelligence (AI) scribes (also known as digital scribes) are listening in. These tools can record and trans...

There’s a new vaccine for pneumococcal disease in Australia. Here’s what to know

The Australian government announced last week there’s a new vaccine[1] for pneumococcal disease on the National Immunisation Program for all children. This vaccine replaces pr...