Australia’s Electricity Market heading in an NBN direction?

As many of my blog entries describe, Australia has experienced two decades of dysfunctional policy when it comes to telecommunications.

In parallel, Australia’s electricity market has been following a spookily similar path when it comes to the introduction of competition and the management of monopolies.

Although the markets are very different, with the electricity market involving state governments and environmental factors, the trajectories are now becoming more synchronised.

The similarities begin with the disruption of new technologies. In the electricity market it is the introduction of renewable energy sources and technologies that allow decentralisation of energy generation (eg household photovoltaics, batteries and co-generation). In telecommunications it has been the introduction of broadband and mobile technologies.

De-regulation and privatisation has been the other common thread. Policy makers have followed similar paths in taking what were once government owned utilities and looked to develop market oriented solutions to drive efficiency into what were previously state-owned bureaucracies.

As as happened with fixed telecommunications (although noticeably not mobile telecommunications), the electricity market it seeing the concentration of market power create outcomes that are not in the consumers interests.

This is most clearly on display in the electricity market with the development of the “gentailers” which is the trend for large electricity companies to combine generation and retail functions in order to have more power over the market of electricity provision.

AGL, a large Australian private energy operator, is now in the firing line and under government pressure to sell the old coal generation plant in Liddell, NSW rather than retire it in 2022. AGL acquired the Liddell plant in 2014, after the ACCC originally ruled against the acquisition on competition grounds. The ACCC decision was overturned on appeal to the Australian Competition Tribunal. The acquisition was from a wholly owned NSW state owned company. The similarity with the privatisation of Telstra as Australia’s fixed telco monopoly are spookily similar. Government would rather pocket the high sale price than pursue policies that enhance competition.

Now after only 4 years the Federal Government is being lobbied by its own backbenchers to either buy the Liddell coal power station or build a new coal power station in the La Trobe Valley of Victoria (where another old coal power station was retired in early 2017). No private sector company is willing to build coal power stations given the advances in renewables and the potential for battery and pumped hydro.

The Federal Government is also investigating a potential $4.5 billion upgrade to the Snowy Hydro scheme to provide further pumped hydro capacity into the market.

Government intervention in the electricity markets is just as ironic as the telco markets. In a similar fashion to the Telstra – NBN tragedy, rather than follow the advice of competition regulators, governments are taking the short term option of selling their assets in ways that restrict competition to pump up the sale price they receive only to have to reinvest and re-enter the market themselves later when competition is not delivering the outcomes they want for consumers.

The similarities between telecommunications and electricity markets will be interesting to follow – both are experiencing technology disruptions that should encourage competition and better outcomes. But this will only occur if governments are prepared to get out of these markets at reasonable sale prices reflecting the future competition risks rather than sell them as ongoing monopolies / oligopolies.

If ever there was a case for the old adage that “you cannot have your cake and it eat too” then this is it. Government’s need to be realistic in there sale expectations otherwise this problem will be come circular and never ending.

The future privatisation of NBN Co must only proceed after NBN Co is broken up. Otherwise you can expect government to have re-enter the market in the future to fix the lack of competition.