South Australia’s energy plan gives national regulators another headache

The keenly awaited new energy policy unveiled today by South Australian Premier Jay Weatherill features a range of headline-grabbing items, such as a plan to spend A$150 million on a 100-megawatt battery storage facility to help stave off the danger of future blackouts.

On page 7 of the policy document, Weatherill explains part of his underlying rationale:

The national market is now widely considered to be failing and in need of urgent reform. The ability of governments to influence the industry requires cooperation within and across state borders and at a Federal level – cooperation that needs to transcend politics and self-interest.

Noble words, but the new policy doesn’t “transcend politics and self-interest”. Quite the contrary – it is a unilateral move by a state government understandably keen to safeguard itself after suffering vicious criticism at a federal level.

There are rules for how SA and the east coast states that make up the National Electricity Market (NEM) are supposed to behave, yet member states seem to be able to flaunt them, systematically undermining the NEM along the way.

Rightly or wrongly, the NEM does not account for schemes such as renewable energy targets or solar feed-in tariffs. This means that when states pursue them, they can distort the market in the process.

There is conjecture about how much blame the Weatherill government should shoulder for the reliability issues that have beset SA’s electricity network. Either way, the decision has been made to fix it with yet more unilateral state government intervention in what is supposed to be a federated electricity market.

As a result, the new policy is likely to cause major headaches for the NEM and its operators. The announcement includes plans to give the state’s energy minister Tom Koutsantonis the power to override the NEM’s operating rules, allowing him to order generators to supply extra power when he deems it necessary.

This might help avert another South Australian blackout, but it will also undermine the role of the Australian Energy Market Operator (AEMO), which is responsible for managing the supply of electricity within the NEM. I will be fascinated to see how the SA government deals with the complex issue of what price they will pay for such power.

If the NEM is experiencing a peak in demand and South Australia is facing a shortage, will the South Australian Minister be able to override AEMO and demand private power generators in SA deliver power at a price determined by the minister? Or will the price be the one dictated at that moment by the market?

It is unlikely that the predominantly Labor-run states that now constitute the NEM will allow any adverse action against South Australia. In fact, the SA Parliament is the body through which rules of the NEM are legislated, so it will be nigh-on impossible to toss SA out of the NEM, lest the whole house of cards collapses.

Going it alone

Two other interesting aspects from the South Australian “energy intervention” is the construction of a new A$360 million gas-fired power plant, courtesy of SA taxpayers, and the A$150 million battery bank.