Sucked in badly: Labor caucus grossly misled on electricity privatisation

New South Wales Premier Morris Iemma and his Treasurer Michael Costa would have us believe that this state faced two choices. Either we agree to privatisation of the electricity industry or the lights will go out some time in 2014 or 2015. The logic behind this dichotomy is as flawed as the consequences of accepting it are dire.

The problem appears to have started with Treasurer Costa’s dual obsessions with building a new coal-fired power station in NSW and selling off as much of the electricity industry as he could get away with. The search began for a justification for both breaking an election promise to keep the industry in public hands and for massively increasing this state’s greenhouse gas emissions.

In late April of this year, the Iemma Government commissioned Curtin University Professor Tony Owen to report on the need for new generation capacity in NSW. The premise was that NSW needs more investment in so-called baseload plants, that is, the large, expensive to build but cheap to run generators that are designed to run 24 hours-a-day.

The Iemma government’s terms of reference for the Owen Inquiry misquoted last year’s report by the national electricity grid operator, NEMMCO. The implication was that an emerging shortfall in generating capacity would require new plant to be built in NSW to maintain supply reliability. The report actually said nothing of the kind.

NEMMCO’s Chief Operating Officer Dr Brian Spaulding felt obliged to write to Professor Owen to point out that his organisation’s assessment was very different to that which was quoted in the terms of reference. His submission stated that “it may be uneconomic to meet this additional capacity requirement using baseload plant” and that “the additional capacity could be delivered by reduced demand in the form of demand side participation”.

Dr Spaulding was reiterating what many electricity industry experts have been saying for years. There are enormous technological opportunities to reduce energy wastage and to change the way people consume electricity. If these were fully exploited, demand would be reduced sufficiently to delay the need for new large baseload capacity until at least 2020 and probably well beyond, even with population growth.

The most outstanding example is electric off-peak hot water systems. It is now commonly accepted that encouraging households to heat water overnight with lower priced electricity has passed its useful life. Off-peak tariffs were originally designed to create a load for the large coal-fired power stations that experienced cost penalties and technical difficulties if they had to reduce output at night. They are now seen as an incentive to a wasteful use of energy that is bloating the demand for new baseload capacity.

The Greens’ analysis showed that replacing the 70,000 off-peak water heaters that reach the end of their life each year with solar or high efficiency gas or electric units would remove any need for new baseload plant in NSW for the foreseeable future. For less than the paltry sum of $6 million a year, the NSW government could ensure that no household was financially worse off and the state would be significantly better off.

Other industry observers agree with the conclusion that it is cheaper, lower risk and better for the environment to reduce wasteful usage of energy and assist consumers in changing to more efficient technology, then it is to build new baseload plant.

Professor Owen however chose to ignore much of the evidence submitted to him. He dismissed the demand side opportunities and reinforced the myth that without new baseload plant the lights would go out. While this would have been standard thinking in the mid 20th century, it is deeply outmoded in a world where the technological opportunities have grown dramatically and greenhouse constraints should be taken very seriously.

The report went on to argue that without privatisation of the retailers and at least long term leasing of the generators, NSW would not be able to build a new baseload plant and maintain its international credit rating.

Combined with the enticing prospect of a $14 billion war chest to spend on in the lead up to the 2011 state election, a majority of Labor MPs were unable to resist the argument that without privatisation the lights would go out.

They have a lot to answer for. Not only have they fallen for an argument for privatisation that is based on an entirely false premise, but they have committed this state to massively increasing its greenhouse gas emissions. They have also undermined long term jobs and placed at risk household electricity bills.

In March 2011, NSW will go to the polls. The choice could be between a Labor government that has inflicted an unpopular and unnecessary privatisation and a Coalition opposition that would have done exactly the same thing if they had been in office. What Labor MPs need to remember is that that they will be the ones the voters turn on if Treasurer Costa’s privatisation obsession becomes a reality.