Government buyback could solve power crisis

Wilpena-Pound-Power-Station
Wilpena Pound solar/diesel power station SA Photo by Bob Wilson

“If you’ve got money in your pocket and a switch on the wall, we’ll keep your dirty lights on.” So goes a song by American alt-country singers Darryl Scott and Tim O’Brien about coal mining and power generation.

Their album Memories and Moments includes a version of John Prine’s Paradise, which remains the definitive song about the downsides of coal mining.

That seemed a noteworthy way to introduce the potentially dry topic of energy, be it coal-fired, hydro, nuclear or solar/wind power. is not so much a coal vs solar debate as an examination of our National Electricity Network, which critics say is broken.

University of Queensland economist, Professor John Quiggin, wrote in a discussion paper produced for Flinders University that the solution is for governments to buy back the national grid.

He told Adelaide’s daily newspaper The Advertiser that the nation was “past the point of tinkering”.

“Some may say that a publicly-owned national grid is unthinkable. Yet it is the only coherent response to the failure of neoliberal electricity reform.”

The South Australian government appears to have partially bought into this argument by this week announcing a six-point plan to repair fundamental problems with energy production and distribution. The plan is to build, own and operate a new $360 million, 250-megawatt gas-fired power plant. The Energy minister will have the power to order a generator to be switched on if more supply is needed.

The private sector is not being completely snubbed, with plans to build Australia’s largest renewable energy storage battery (100 MW output) before next summer. The private sector will develop the storage, funded from a $150 million renewable technology fund. SA premier Jay Wetherill said in a statement his government would take control by ensuring the energy minister was given powers to direct the market.

Power bill sticker shock

It’s probably fair to say that most people never think about electricity or gas supplies until the bills hit the mailbox.

According to official government data, household energy prices increased on average by 72% for electricity and 54% for gas in the 10 years to June 2013. Electricity price increases for manufacturing businesses over the same period have been of a similar magnitude (60%) although gas prices for manufacturing businesses rose to a lesser extent (29%).

Energy price increases over the 10 years have differed across states and territories. In real terms, the rate of increase for electricity has been 30% in Perth, 41% in Adelaide, 73% in Brisbane and 107% in Sydney. For cities connected to natural gas networks, household gas price increases ranged from 40% in Sydney to 78% in Perth.

Professor Quiggin says the grid worked quite well for at least 100 years before governments began tinkering with privatisation (circa 1990).

He told the ABC governments should start buying back electricity transmission networks, starting with any new infrastructure. Public ownership of the grid would remove the need to generate a financial return, he said, and this would lead to lower prices for consumers.

The problem as he sees it is that under a privatised system, the Government has to face up to the economic and political costs of electricity failures, but receives no cash in return.

He cited recent system failures in Victoria, Tasmania and South Australia. The South Australian Blackout on Wednesday September 28 last year occurred as a result of catastrophic storm damage to electricity transmission infrastructure. Almost the entire state lost supply, with tens of thousands of energy users still without power on the following Friday.

Meanwhile, people power emerged in Western Australia last weekend in the shape of a major swing to Labor. The incoming government is still digesting its landslide win in the state election, which on analysis may be more about privatisation of state assets than an anti-Pauline Hanson swing.

Analysis by Natalia Mast of the University of Western Australia singled out the Election Day ReachTEL poll published in The West Australian. The poll had Labor on a two-party-preferred vote of 54% to 46%. Of those planning to vote Labor, 27.2% said their main reason was “It’s time for a change of government”. Tellingly, 27% said they didn’t want Western Power privatised. One of Labor’s policies was to declare it would not sell Western Power.

The government planned to sell 51% of Western Power, promising that electricity prices would not rise as a result of the sale. The ABC reported that the government had hoped to raise $11 billion from the sale, using $8 billion to reduce state debt. The policy was endorsed by the Liberal and National parties − a relief for Barnett after the Nationals refused to support his Government’s other privatisation project, the sale of Fremantle Port.

A view from the other side

Prof Quiggin’s somewhat stark view that governments plural should start wresting back control of power assets obviously has its detractors.

Academic Paul Kerin wrote in The Australian on March 13:

“Why on earth would we want a government-owned national grid? It’s RAB (regulated asset base) value would be about $100 billion – that’s almost as big as BHP Billiton.”

Kerin, an adjunct professor at the University of Adelaide, cited the 2013 Productivity Commission report which found that government-owned grids have higher operating costs. He also said Quiggin’s proposal would create a conflict of interest with government as both owner and regulator. Kerin says private ownership per se has not caused high prices or reliability issues. But the NEM and grid businesses are “strongly influenced by poor government policy and regulatory choices (such as the renewable energy target)”. Prof. Kerin also identified energy demand ‘peakiness’ brought about by high growth in air-conditioner use.

Prof. Quiggin brought Kerin’s piece to my attention, when I asked him what his critics have to say. Quiggin has long been known for his unorthodox view of economics and willingness to commit his opinions to paper. Michael Stutchbury of The Australian described him as “an economist who is good on theory and on the far left in practice”. Ross Gittins described Quiggin as “The great neo-classical iconoclast”. A prolific writer and commentator, he is always ready to talk to journalists or pen opinion pieces.

I meant to include this when I wrote about blogging recently. Prof. Quiggin is Australia’s longest-running solo blogger, or at least he told FOMM he thinks he is. He has a self-deprecating sense of humour too. The quotes above come from a warts-and-all tongue-in-cheek Testimonials page on his website.

John Quiggin posts often and keeps immaculate archives, if you have an interest in economics and care to delve.

June 26, 2002

“My blog is just about a week old, and I haven’t found the Internet this exciting since I discovered Usenet in the early 90s. Even setting up my website five years ago was not as good.

Despite wildly varying ideological views, I’ve had a friendly welcome from bloggers across the board…It really seems as if blogs might deliver on the original promise of the Web – certainly the technology seems ideally suited for individuals and small groups. No doubt I’ll get jaded and disillusioned one day, but I hope it will be a long way in the future.”