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The Forum > Article Comments > Take government out of the electricity market > Comments

Take government out of the electricity market : Comments

By Mark Christensen, published 22/1/2016

The traditional National Electricity Market supply chain – large-scale generation, networks and retailers – is facing a phase of rapid change, bringing unbridled risk and complexity.

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At this stage I doubt batteries will have a disruptive effect. Even in sunny Queensland the payback period for a home battery system has been estimated at 17 years, almost when the battery component needs replacing for the second time. The emerging technologies report by AEMO and CSIRO suggests we will have 8 Gwh of energy in battery storage by 2035. I make that about 17 minutes worth of our current national consumption.

Surely the big issue has to be replacing the large coal baseload stations notably in the Vic Latrobe Valley and NSW Hunter Valley. Some plants are way past due for replacement. Australia has talked of a 26% emissions reduction by 2030. We cannot replace coal with coal. Any alternatives seem to be pixie dust at the moment.
Posted by Taswegian, Friday, 22 January 2016 8:06:52 AM
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Unconvincing diatribe.

When has the free market protected the interests of the consumer, and then when the market is a captive one and the so called private player is the monopoly?

It was far better when the government owned and operated the power stations and councils inclusive of the other still affordable essential services, gas and water, were the retail reticulation purveyors!

Every cent of profit went back to the people or into new facilities, infrastructure or industry subsidies.

And why are tax avoiding debt laden speculators using market power and price gouged gold plated profit margins to repay and service a debt burden, somehow better than a government owner?

For we the people it's a lose/lose scenario. Nowhere in the world can I find as much as a single example, where privatisation has resulted in a less costly better maintained service!

As for ministers and public servant involvement. They do exactly what private enterprise does and appoint a CEO with a competent track record.

We need governments willing to shoulder traditional responsibilities rather than sell the farm for very short term political gain or to curry favor with the most privileged.

We have reached a situation where the top 1% own as much reported wealth as the rest of the planet, yet as exampled in the article, still want more?

Time for governments to start and govern for the people, not some ultra privileged cabal?

Will private players divest themselves of their aging coal fired assets, and replace them with something less costly that just doesn't add to the carbon load in our atmosphere?

The short answer is no! Given the profit graph and its continual rise is all that concerns these folk along with the endless spin and the deep pockets they use, it would seem, to control Government administered outcomes?

Simply put, you can only sell a cash cow income earning asset once, and when the proceeds have been used to balance a badly administered budget, the replacement funds need to come from somewhere.
Rhrosty.
Posted by Rhrosty, Friday, 22 January 2016 8:42:06 AM
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Another "YARTS" degree fantasist. The only thing "Alternative" about Solar and Wind is it produces less than it uses. Its only net production is "First World" virtue signalling.
Posted by McCackie, Friday, 22 January 2016 9:02:45 AM
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Rhosty,

As a result of government interference, we have seen the cost of electricity double in the past 6 years.

This should be privatised.
Posted by Shadow Minister, Friday, 22 January 2016 10:12:36 AM
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Rhosty,

I can remember when the government ran such essential services.

Take telephones. I can remember applying and waiting forever for a new phone connection and when it came at the convenience of the installer, the choice of handset was one (take it or leave it), and there was one and only one outlet in the house, and calls were so expensive it was a special occasion to ring grandma a few towns away, and getting anything fixed was a process of form filling, waiting and frustration.

Governments are essentially hopeless at running businesses. Electricity is an eminently marketable, essential product, like petrol, for instance. Would we prefer the government to run petrol? Bread?

God help us if we ever have to revert to government run services again. And where they still do now, they should sell and stick to their core function.
Posted by Captain Col, Friday, 22 January 2016 10:51:59 AM
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As a result of government interference, we have seen the cost of electricity double in the past 6 years.

This should be privatised.
Posted by Shadow Minister, Friday, 22 January 2016 10:12:36 AM

There was an article about a decade or so ago that claimed that Australian power prices were too cheap, and if I recall correctly; the prices had too increase in order to attract investors.

In Victoria, privatisation lead to a decrease in ongoing maintenance on assets, that result and contributed to the horrendous bush fires in Victoria. As assets were allowed to deteriorate, it then opened to the door to 'gold plating' the network.

The gas explosion that lead to rationing of natural gas in Victoria, was also a consequence of reducing and cut back on maintenance in order to boost share holder returns.

Typically any company that is part of the privatisation, will reduce their taxable company income to zero and shift profits off shore.

True energy/ Energy Australia already does this.
Posted by Wolly B, Friday, 22 January 2016 11:44:18 AM
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Why is electricity so dear there is not enough retailers in the market.
The criteria of becoming a retailer is, any business or individual can apply to become an electricity retailer
When you apply you find out that is not the case. You are asked if you have employees in the hundreds.
What is your management structure and a full financial statement for the past several years.
It costs $8,000 to apply. Non refundable.
The ESC vic is the first contact: An archaic piece of wood called Phillips is the boss man.
It is not necessary to have employees in the hundreds, there are billing companies out there that do billing on a massive scale. The Deal is $1 / customer / month and they handle all meter readings, reporting facilities, and monthly or quarterly billings by post or electronically.
A retailer has to market and buy product from the National Energy market, register new customers to the billers site. Paying of GST and power infrastructure each quarter.
The whole process of retailing was never altered from days of old when we had one retailer.
That is why the only take up of retailing is confined to multinational players.
Posted by 579, Friday, 22 January 2016 1:02:02 PM
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Yes South Australian's are basking in the cheap power privatization has brought.

The author is in fantasy land, a fully private electricity network would so be screwing all Australians for as much as they can get. the government would have to step in and give relief to low income earners and help fund or underwrite new power stations because we can't get scale in Australia.
Posted by Cobber the hound, Friday, 22 January 2016 1:31:27 PM
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Well, Cobber, SA would be doing much better if government subsidies for massive, unnecessary solar and wind weren't driving up the price of power and knocking perfectly viable coal fired power stations such as Port Augusta out of business. We can also blame government antipathy to coal as a long term investment.

As for power companies screwing all Australians, shall we put governments in the angelic category? Governments are free to demand unsustainable dividends (and they do) from their power assets thereby robbing them of funds for maintenance and improvements. The answer in every case to companies screwing people is competition, something governments don't like happening to their assets.

I have plenty more economics 101 for lefties if you like.
Posted by Captain Col, Friday, 22 January 2016 4:12:18 PM
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Port Augusta is fast becoming unviable because their coal supply has dried up at Leigh Creek.
Posted by 579, Saturday, 23 January 2016 6:36:22 AM
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Electricity assets in government hands once again would enable the old aging polluting examples to be decommissioned without fuss or subsidies and replaced with very large scale modern solar thermal, which costs no more to roll out than similar size coal fired projects and latest technology inclusion make them very suitable for peak load operations.

At least that is the experience of a private california power company that has built and is operating one in their desert, where the land was cheap enough and the fuel both costless and more plentiful, than the coastal variety.

For the benefit of those who want the world to think that this is just green wishful thinking? we are talking about a privately built and operating power plant! ANd I"m a small L liberal and former business man with a very powerful social conscience.

Given rollout costs for this already operational example and the lastest similarly sized new coal project, the only cost difference has to be in the price of fuel.

Nothing whatsoever for the solar thermal project and annual exponentially rising millions for the coal fired example!

After that we have the option of cheaper than coal thorium for defense bases and or various industries that would be completely resuscitated by cheap (half price) power and energy dependant automation.

Moreover, locally made and consumed biogas could cut domestic power bills by up to 75%! Always providing we eliminate debt laden,tax avoiding, rapacious private players from the essential service market!

Even as I type these lines, thousands are being replaced in china by space age automation!

Typically we like gormless sheep only ever follow, never ever lead and invariably put too many eggs in the one basket!

When we with our vast resources could lead the world, but only if we were intelligently lead and kept all those (not helping) moribund wannabes and hasbeens out of the way!
Posted by Rhrosty, Saturday, 23 January 2016 9:37:34 AM
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All privatisation has done here in Victoria has been the replacement of engineers and maintenance workers with sales people.

We also have the highest churn rate in Australia.

Privatisation ruins utilities, increases prices, reduces essential maintenance, and kneecaps fairness.
Posted by SteeleRedux, Saturday, 23 January 2016 10:17:57 AM
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Even today you will see Electricity auctioned for 3-5 Cents / KWh By the time it gets to us it’s 33-35 cents / KWh.
The rules that control retail electricity is grossly out of date, we may as well be in 1901.
Even the NEM computers run XP. It takes several computers just to get any reliability.
Bills are compiled and distributed on a world wide system these days. The NEM says you must be sympathetic to customers that default. That is a reason for an extra 20% of charges the customers pay. It is a half hearted privatized system. Power distribution services wand their payments from retailers, but the retailer is expected to forgo payments from customers. That is another good reason for another 20% of charges the customer pays.
You not only have to be a member to the ombudsman which has access to your computer. The AXS, Austraclear, because that is the only place the generators accept payment from, NEM and AEMO. That is where all the extra charges come from, to make up a retail cost. The whole system needs stream lining and bought up to date.
Posted by 579, Saturday, 23 January 2016 12:42:42 PM
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SR,

The privatisation of electricity resulted in far smaller increases in power costs in victoria than states which didn't privatise, also maintenance and availability of equipment improved.
Posted by Shadow Minister, Saturday, 23 January 2016 2:39:05 PM
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Dear ShadowMinister,

You wrote;

“The privatisation of electricity resulted in far smaller increases in power costs in victoria than states which didn't privatise, also maintenance and availability of equipment improved.”

Bunkum!

Mantras are not facts.

Victoria had historically low electricity prices before privatisation. The government kept a cap on prices under a privatised system for a number of years then let the shackles off. We have seen dramatic increases in prices but an equally dramatic fall in the maintenance of the network. Victoria's network cost as a proportion of the average bill is markedly lower than any other state but the wholesale and retail cost proportion is the highest.

So the actual truth is that Victoria was the first state to so fully privatise its electricity sector yet its price increases have been in in lock step with the other states ever since.

For you to claim “far smaller increases” is completely wrong and without foundation.

Also since 1997 to 2012 the number of trade and technicians in the utilities have not kept up with population growth but the number of sales people have shot up 6 fold and the number of managers have more than doubled with a manager now for every 9 workers rather than 13 pre-privatisation. The vital trade and technician cohort has gone from being over a third of the workforce to around a fifth.

As is usual with privatisations the managerial classes move in and in order to pay for them the on the ground staff are cut to the bone.

The so called efficiency gains are totally illusory.
Posted by SteeleRedux, Saturday, 23 January 2016 11:26:35 PM
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The way Electricity is auctioned off is far to complicated. It would be far better by having a set wholesale price. Retailers know day to day how much electricity that they require and pay for. Alleviate the riskiness involved from market speculating. That is a cost that needs not be there. Why have a system of retailer against retailer. [Not at the wholesale market at least ]
Electricity could be ordered for a week in advance and paid for. The industry needs to be simplex not complex. Persons that specifically buy green energy is nothing that can not be calculated and verified by %.
Risk reduction, a stable MWh rate, a streamlined system, 15 cents could come off the prise / KWh. Days of old never change.
Posted by 579, Sunday, 24 January 2016 1:20:13 PM
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SR,

First you claim that privatisation increases costs to consumers and reduces maintenance, Next you claim that costs in Victoria are in lock step with other states. Make up your mind.

http://theconversation.com/myths-not-facts-muddy-the-electricity-privatisation-debate-38524

This detailed comparison supports the contrary view.

In addition, in doing benchmark studies on maintenance, i.e. plant availability, the plant availability on every coal fired plant in the Latrobe valley increased considerably after privatisation. That this was done with less staff, is due to good management and initiative which is generally lacking in government organisations.
Posted by Shadow Minister, Sunday, 24 January 2016 5:24:40 PM
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579,
We do not know in advance what the electricity demand will be, nor exactly how much electricity we will get from solar and wind. There is a day ahead electricity market, and AFAIK electricity companies aren't prevented from making longer term trades. But to ensure supply matches demand, there needs to be a highly variable spot price.

Market speculating is more a way of dealing with risks than a source of risk, unless the speculators are able to manipulate the market. The system of retailer against retailer was set up to help ensure that they can't manipulate the market.

The most useful change that could be made is to make it much easier for consumers to buy electricity at the spot price. I'm certainly not saying they should have to, but people and businesses should have the opportunity to do so if they want to.

_________________________________________________________________________________

Shadow,

Some services are much more suited to privatisation than others, and electricity generation companies are much better suited to privatisation than monopoly infrastructure providers are.
Posted by Aidan, Sunday, 24 January 2016 9:53:42 PM
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That this was done with less staff, is due to good management and initiative which is generally lacking in government organisations.
Posted by Shadow Minister, Sunday, 24 January 2016 5:24:40 PM

So you are saying that they performed better than government organisation and did so with less staff, hence lower costs.

So why did the priced rise like they did?

If their costs were lower and performance productivity increased?
Posted by Wolly B, Monday, 25 January 2016 7:24:44 AM
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Oh! I know why?

All the savings went into the pockets of CEO's and the price increases were to pay the shareholder investors.
Posted by Wolly B, Monday, 25 January 2016 7:26:44 AM
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Wolly,

The Victorian generation and network was was so badly run that it was costing the taxpayer money to keep it going. The privatisation helped drastically reduce the budget deficit left by Labor, remove the cost of subsidizing this network, and provide tax on profits and wages.

Aidan,

As generation sells power on a bidding basis there is no justification for this to be government owned. Regards the monopoly networks, price regulation removes justification for government ownership.
Posted by Shadow Minister, Monday, 25 January 2016 10:39:21 AM
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There is rarely a case for generation to be government owned, but I can think of three situations where there is one:
• Where there isn't sufficient competition to prevent them from manipulating the price.
• Combined heat and power facilities are well suited to municipal ownership.
• Very capital intensive facilities (nuclear and some renewables) can be more efficient in the public sector because of their lower cost of borrowing.

Others may be able to think of other situations where there is a case. And please keep in mind that i didn't say there was a compelling case – obviously the strength of the case depends on the specifics of the situation.

If the regulators were sufficiently tough, that may remove the justification for government ownership of the network, though that's far from certain because governments can borrow more cheaply. But our regulators have been complicit in the ripoff, giving the network companies a guaranteed return on investment much higher than the cost of borrowing, and with little regard to what investment is actually needed. A complicating factor is that because of the slack regulation, even where the network is in public hands the government has used it as a cash cow instead of passing the savings on to electricity users.

The biggest hazard of privatisation is that it may end up being controlled by accountants instead of engineers, and they will opt for the false economy of cutting back on maintenance.
Posted by Aidan, Monday, 25 January 2016 1:51:54 PM
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Aidan,

Of your three reasons given why generation should not be privatised:
1 Over pricing can be controlled by regulation and high profits bring in competition
2 This applies just as well to private generators such as in Germany,
3 Efficiency is generally better in private hands.
Posted by Shadow Minister, Tuesday, 26 January 2016 7:47:03 PM
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Dear Shadow Minister,

You wrote;

“SR, First you claim that privatisation increases costs to consumers and reduces maintenance, Next you claim that costs in Victoria are in lock step with other states. Make up your mind.
http://theconversation.com/myths-not-facts-muddy-the-electricity-privatisation-debate-38524
This detailed comparison supports the contrary view.”

Did you even read your own link?

Its conclusions were:

“Does privatisation always lead to higher or lower electricity prices? No”
“Are electricity businesses more efficient in public or private hands? The jury is still out.”

Victoria has gone from the lowest cents/kwh charges of the Eastern states pre privatisation to the highest in 2014.

The Bushfire Royal Commission and subsequent civil action showed most of the deadliest fires where caused by powerline issues. In the preceding 7 years before Black Saturday the top three energy distributors underspent in maintenance and operating costs on their own figures by between 10-30% each year.

I repeat, we got less maintenance done which directly lead to lives lost, a shift from on the ground workers to salespeople and managers, and no savings in electricity charges.
Posted by SteeleRedux, Tuesday, 26 January 2016 11:58:02 PM
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SR,

Considering that your original claim was: "Privatisation ruins utilities, increases prices, reduces essential maintenance, and kneecaps fairness."

Yet now you have back tracked entirely.

The electricity networks are essentially divided into 2 parts, the generation and the distribution.

My special interest is in the generation, and from the data from the Latrobe valley power stations is that plant availability has dramatically improved from 1990 which shows that maintenance there is far more effective and uses less manpower to achieve this. In addition, this means that the output of the plant is higher, more electricity is sold, and more profits are made.

As for the distribution networks, reading the bushfire RC, there is no indication that the rate of faults are any higher, nor fires caused are any different from before the network was privatised.

http://www.royalcommission.vic.gov.au/Commission-Reports/Final-Report/Volume-2/Chapters/Electricity-Caused-Fire.html

Rather, the initial design of the network in rural areas appears not to be entirely appropriate, and risk reduction would involve $bns replacing the network. To do this would require permission from the Vic Government to raise power costs to fund the capital expense, which according to the RC was requested and refused.

That the maintenance budget was underspent is largely irrelevant, the only question is whether the required maintenance was done
Posted by Shadow Minister, Wednesday, 27 January 2016 7:57:15 AM
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Shadow,

"Of your three reasons given why generation should not be privatised:"
Just to clarify: they are situations where it's best not to privatize it, not general reasons why electricity generation should not be privatised.

"1 Over pricing can be controlled by regulation and high profits bring in competition"
Theoretically true, but the regulators are usually too timid, and it is very difficult to prove market manipulation. High profits do not always bring in competition, as the real driver is the expectation of high profits. If there is more competition (or just tougher regulation) high profits now do not indicate high profits in the future.

"2 This applies just as well to private generators such as in Germany,"
True, but protecting consumers' interests when an effective monopoly is privatised is a lot harder than doing so when it's been in private hands from the start.

"3 Efficiency is generally better in private hands."
But I'm not referring to the general case, I'm referring to the specific exceptions. Not every public sector organization is badly run, and even where privatisation results in an internal efficiency improvement it isn't always passed on to the customers. And where the cost of capital is a high proportion of the total cost, the public sector's lower borrowing cost gives it an intrinsic advantage.

I do actually agree that efficiency is generally better in private hands. But there are lots of exceptions, and just assuming privatization will bring better efficiency is a trap for unwary governments.
Posted by Aidan, Wednesday, 27 January 2016 1:47:14 PM
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