Just heard on Insiders this morning the clearest metaphor to summarize the electricity supply problems we’ve been seeing in South Australia.

Lenore Taylor compared the energy supply transformation in Australia with the period when we moved from horse carts to automobiles. Surely there were cars bogged down during that transition too. But when we had a problem with the road system the solution was not to stop rolling out cars. The solution was to fix the roads.

There is a fundamental flaw in the energy market, which is a little like the road system. The energy market is the system that takes energy to everyone’s houses.

If a provider has producing capacity in e.g. Victoria and SA. If the provider makes more money keeping the SA plant closed and sending all power from Victoria because there’e a price spike, that’s a perfectly legal and reasonable thing to do. These companies decisions aim only to maximize their own profits. Given the lack of federal regulation, these financially driven decisions don’t take into account energy security needs, and if an entire state is plunged into successive blackouts, the producers wash their hands and whistle along.

Now that the entire transmission network has been privatized, who is going to build better inter connectors? Who’s going to develop better and more efficient ways to move energy between the markets? These are things that would impact the bottom line, and represent an investment that any private company would find hard to justify to their shareholders.

Still, conservative politicians jump on the opportunity to unleash their misplaced anger against renewable energy and work hard to justify the donations they get from the coal lobbyists. Like amateur illusionists trying to distract us from the key lesson we should be taking here: Markets do not self-regulate. A federal government should not be a market player, but that doesn’t mean it can neglect regulatory responsibilities.

 

http://www.abc.net.au/insiders/content/2016/s4618495.htm

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