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Leap of faith on the National Electricity Market required

By Mark Christensen - posted Monday, 20 February 2017


As a Catholic convert, I'm sure Malcolm Turnbull is familiar with the musings of GK Chesterton.

That said, perhaps it's unfair to expect the PM to link a witty Christian apologist to the current crisis in energy policy and, from there, rephrase one of his more scathing observations: "The National Electricity Market ideal has not been tried and found wanting. It has been found difficult; and left untried."

Yes, security of electricity supply is being undermined by left wing ideology. The moral imperative to achieve renewable targets is forcing a profound shift in generation plant from baseload coal to wind and solar, which in turn has compromised NEM stability and customer service.

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While the chaos has political meddling written all over it, its roots are actually technical. That is, the NEM was not designed to be a vehicle for appeasing our environmental conscience. Policy obsessions, even those with good intentions, cannot, by sheer will, override engineering reality.

The bigger problem, however, relates to the government-controlled institutions that manage the NEM, those who act as a conduit between industry and the political realm. They continue to either not ask the right questions or duly ignore the advice of others who know the system and its limitations.

Phillip Strachan, head of the inquiry into the train crewing fiasco in south-east Queensland, recently brought this phenomenon to light when he noted QR's reluctance to "share bad news" had effectively suppressed "the identification, escalation and resolution of issues".

Like rail, electricity supply involves an intricate interplay between operations and infrastructure. In the NEM, this complexity is compounded by an extensive array of convoluted rules and financial arrangements intended to create a competitive market.

This goal has clearly not been realised. Responsibilities between governments, governing institutions and industry remain blurred. Risks do not lie with the party best placed to manage them. Despite asset sales and new independent bodies, electricity is more politicised today than it was 30 years ago, when state governments didn't hesitate to use the sector to safeguard employment and subsidise regional development.

The dysfunction was on display 8 February when AEMO, the market operator, deliberately blacked out thousands of households in South Australia.

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Who was to blame? Why didn't the state government invoke its emergency powers? Why wasn't available capacity at Pelican Point employed? Surely, with its sophisticated know-how, AEMO should have brought the gas-fired station online before it was too late? Why didn't the owners respond to the wholesale price? Where they gaming? What is the regulator doing about such behaviour? Who will protect consumers?

The essential concern here is not who, in truth, stuffed up. There is no definitive answer, given the muddle. The essential concern is those charged with fixing things are content to pretend our mixed public-private operating model is a workable end game.

The NEM cannot ever perform to expectations if its most crucial decisions rest with bureaucrats and politicians.

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About the Author

Mark is a social and political commentator, with a background in economics. He also has an abiding interest in philosophy and theology, and is trying to write a book on the nature of reality. He blogs here.

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