The electricity market regulator, Australian Energy Market Operator (AEMO), suspended the wholesale electricity spot market across five states on June 16 “until further notice”. It did this to force companies to make more supply available for local consumption in a colder-than-usual winter.
With the election of a new federal government, and raised expectations for policy change, it has opened up an important discussion over who owns energy and how energy transitions could be done.
It is a discussion that is sorely needed.
This is the first time the national electricity market (NEM) has been suspended. It follows AEMO’s imposition of a price cap across all mainland grids — another first. These moves were welcomed by New South Wales’ Coalition and Queensland Labor energy ministers.
Energy companies are still guaranteed the average price in their state — $300–500 a megawatt hour — rather than the flat rate of $300/MWh and can seek compensation for any losses.
Some quipped that AEMO had “flicked the NEM switch to Cuba mode”, but that is not the case. Energy companies own 40% of AEMO.
It stepped in because, as a cold snap hit, local prices for coal and gas soared — the result of greedy operators keen to take advantage of higher global prices, pushed along by factors such as sanctions on Russia over its invasion of Ukraine.
Energy companies buying coal on the spot market need a price of more than $300/MWh to break even, according to Renew Economy. Gas generators need about $400/MWh. This means ordinary people are being held to ransom.
According to the Australian Energy Statistics 2021 Energy Report, residential energy consumption was up 3% over 2019–20 and commercial production was down by the same amount, largely due to the pandemic. Transport energy fell for the first time in 20 years.
But this did not disrupt profit-making, as most of Australia’s energy is exported — 70% — and exports grew mainly from crude oil and condensate (by 15%) and liquefied petroleum gas (by 48%).
The whole idea of having a market for a commodity that everyone needs is a scam.
MichaelWest Media described the energy shortage as the result of a “suite of complicated scams”, but mostly the result of fossil fuel companies failing to supply the domestic market with coal and gas because they make more money selling it overseas.
Also complicit in the scam are state governments, which have corporatised and privatised state electricity commissions, giving the green light to fossil fuel companies’ profiteering.
Another factor is the AEMO. Set up by the Council of Australian Governments in 2005 following the Australian Energy Market Commission Establishment Act 2004, it makes the rules governing the electricity and natural gas markets, including retail prices. The rules are heavily influenced by government’s strong relationships with fossil fuel companies.
The scam works because governments, wrongly, decided that the market could run an essential service better than themselves.
They did this knowing that energy companies and private distributors will want to make a buck. The more they charge to operate, the higher the prices to domestic users.
The former Coalition government’s “gas-led” special commission for the COVID-19 economic recovery was a clear signal to big fossil fuel companies that it would continue to put their profits first. Then Labor opposition leader Anthony Albanese backed the government’s gas “recovery” plan.
Labor, at federal and state level, has been in lock-step with the Coalition on the notion that energy delivery can be left to the market. Clearly it cannot — and not just to avoid blackouts, euphemistically described as “load shedding”.
The evidence that this “market solution” was not delivering reliable and cheaper power — let alone a rapid transition to 100% renewables — had been catalogued by several studies years ago.
Writing for The Australia Institute in 2019 on the failure of electricity privatisations David Richardson said: “The inefficiency, rising costs and unaccountability of this industry are the natural and predictable result of the private market structure which was imposed on this industry, beginning in the mid-1990s.
“This grand experiment in privatisation, competition and marketisation, inspired by faith in the supposedly all-knowing efficiency of market forces, has in fact created an industrial structure marked by fragmentation, duplication and waste.”
Former Fairfax economics editor Ross Gittins has long campaigned against the privatisation of the electricity industry.
In 2018, he wrote: “[It] may not be the worst of the many stuff-ups perpetrated in the name of ‘micro-economic reform’, but it’s certainly the one that’s cost the greatest number of Australian households and businesses the greatest amount of money.
“The experts told us not to worry. The prices the private owners are allowed to charge would be tightly regulated. Wrong.
“In no time the monopolists found ways to rort the system…
“The blowout in power prices is the direct result of a decision to take five state-owned electricity generation, transmission and retailing monopolies and turn them into a national electricity market of competing privatised businesses.
“But although the feds are now carrying the can for this giant national stuff-up, it was all the doing of the state governments who did the privatising.”
It makes no sense to allow strategic energy assets to be monopolised: energy companies must be brought under public ownership to have a hope of achieving a clean energy transition in which energy workers are not left behind.
The Electrical Trades Union (ETU) is calling for real change, saying the privatised system has well and truly failed.
ETU acting national secretary Michael Wright said on June 15: “The current regulatory system fails us during the good times, with rampant profiteering and price gouging, and fails us when times are bad, as has been demonstrated today.”
As Trevor Gauld, ETU national policy officer, said in a Tweet on June 16: “In the 1930’s Australia’s energy system was fragmented, largely privately owned & failing to serve the public interest. Govt’s (of all persuasions) nationalised our energy system to guarantee it delivers for the common public good. Time to learn the lessons of our past.”