How to Save our Failing Electricity System from the Political Storm

The great promise of privatisation and the creation of the National Electricity Market (NEM) was that it would deliver falling prices and reliability. Market purists and self-interested insiders hang on to that mistaken view.

The latest fiasco illustrates just how wrong they are. It demonstrates how perverse the logic of privatisation of the electricity industry and creation of the NEM is, a diabolically problematic combination that inevitably places private interests ahead of the public interest. Escalating prices have long demonstrated this, now we are witnessing the imposition of rolling blackouts at a time where spare generation capacity was available but not able to be deployed. This is a sign of systemic failure, a warning that the NEM cannot be relied upon to meet the public interest.

Recall, the electricity system we are part of is no longer one that we own or directly manage any more. The assets have been leased to private operators and responsibility for the management of the wider system handed over to the Australian Energy Market Operator (AEMO). Under the present national arrangements, the South Australian Government has little influence over the operation of the system. Like other Australian governments, it makes submissions to the AEMO seeking to influence rulings but it cannot intervene decisively in the system without adopting a very different model of engagement with it. After recent events, the state government has no choice but to act.

That AEMO allowed rolling blackouts to be implemented by SA Power Networks on February 8 rather than ensure that sufficient generation capacity was available to the system was an error of epic proportions, particularly in the wake of the state-wide blackout last year. Unlike the September 2016 blackout, weather conditions in the lead up to the February 8 rolling blackouts were predictable. There were no surprise cyclones or torrential rain, just extremely hot weather.

The AEMO had all the information it needed to reach the obvious conclusion that demand was likely to be very high as people made their way home in search of air-conditioned relief. They bet on wind delivering more power into the grid than it could on that calm day. They sought bids from generators to make additional supply available but none were forthcoming. Pelican Point power station could have provided it but it couldn’t power up its additional generation capacity in time. Why? It was not instructed by AEMO to have its second generator on standby. You don’t have to be a systems engineer to realise that reliable electricity networks require contingency planning and multiple redundancy.

Things got worse than they should have on February 8. The load-shedding process was bungled. While AEMO says it ordered that 30,000 customers should be exposed to load-shedding, SA Power Networks inflicted it on 90,000. The network operator claims the mistake was attributable to a software glitch! South Australians were outraged by all of this.

Collective anger was joined by political meltdown with the state and federal governments locked in acrimonious exchange about who was to blame. Fresh from a dramatic display of aggression against his nemesis Bill Shorten, Malcolm Turnbull unleashed his wolves on the South Australian Government. This seemed to be a test of the PM’s machismo and an early salvo in the lead up to the 2018 state election. That the rolling blackouts, like the state blackout in September, had absolutely nothing to do with the Weatherill Government was immaterial. In what appears to be a desperate attempt to appease the hard right in the LNP, the Prime Minister and his inner circle channeled Donald Trump. All truth was lost, all principles of fair play abandoned.

The Premier and his Treasurer declared they would intervene and had been considering possible measures for some time. One of the options being canvased was the state government using its purchasing power to help introduce new gas generation into the mix. The events of February 8 indicate that increasing supply won’t solve the problem if the generators are not instructed to be on standby. Of course they have no incentive in the current system to be on standby.

Prices are maximised for generators by tight supply. This is a fundamental flaw that must be remedied. It requires re-nationalising key elements of the system to ensure that the public interest is never compromised in the operation of the system. This is the radical measure that is needed, not just adding to base-load supply or changing some of the rules of the ‘market’ such as it is. Energy security, environmental objectives and affordable prices require us to be the unequivocal beneficiaries of the system.

That age old tension in our electricity system between the public interest and those of private shareholders is playing itself out again. In 1946 this resulted in nationalisation of the system. Of course, circumstances are very different today. After the Liberal Party privatised the Electricity Trust of SA in 1998 we also became immersed in a diabolically complex electricity trading system. This combination of policy disasters has served us very poorly as any honest observer of history and reality can see.

It is time to put the Trust back in our electricity system.

@JohnSpoehr