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Fencing wire and mirrors: the world of the National Energy System

By Gavan McDonell - posted Tuesday, 8 July 2008

The National Electricity Grid and market: the basics

You go home in the evening, in Rockhampton, say, and turn on the light. There is a tiny flicker in Whyalla and Hobart and Narranderra and everywhere else around the national power grid - the system of energy suppliers and wires and pipelines and switches running pretty much across the nation.

How big is the national grid? Since the late 1990s the grid covers everyone from far North Queensland down through the eastern states to Tasmania, and across to South Australia, well over 4,000 kilometres. Western Australia and the Northern Territory, so far, have independent systems because they are a bit too far away.

What's in it? Over 30 major power generating companies, with over 100 power plants, mainly coal-fired or gas-fired turbines. Twelve companies run networks of transmission lines on the steel towers you see striding across the country. Sixteen local distributors and retailers use the poles and wires in our streets to transfer it from the big towers into our houses, and then send us the bill for it all.


How is the whole thing managed? With difficulty, the whole system is kept in balance by the central operator, NEMMCO (the National Electricity Market Management Company). Every disturbance - whether it is you with your little switch, a storm in Queensland, a fire in Victoria or a run on air-conditioners on a hot summer afternoon - is absorbed.

The signaling system that NEMMCO uses to keep everything in sync is called the National Electricity Market, the NEM. Generators - the people who make and sell the electricity - and retailers - the people who buy it from them and sell it to consumers - tell NEMMCO what prices they will sell and buy for, every minute of the day, using an auction system, rather like the Stock Exchange. It has to be in balance every second because electricity can't be stored in grids. You can't put some aside for a rainy day when you have more than you need and use it later when you have too little.

That's it, briefly. A more precise description would take several hundred pages and lots of math, as the Americans say.

Why a national system?

Until the 1990s, Australia had a series of separate regional power grids. We now have a system linked almost across the nation - a system which, when well managed, is cheaper and more reliable. In the late 1980s, governments finally came to see that the existing state monopoly power commissions were amazingly inefficient and hungry for great gobs of capital for new power stations and coal mines.

The greater reliability of a connected system is just as important as the cost savings. With a national grid and a national market, it is possible to provide softer cushions against natural or man-made catastrophes: a spiraling cyclone, a stinking hot afternoon (one of the worst risks), the collapse of a transmission tower, or, to take a gloomy view, a terrorist attack.


So it is hardly surprising that state governments should have looked for a new way to keep the lights on. Of course, when talking to their voters back home, they still kept assuring their constituents - and still do - that they were looking after their power, that they were making sure that their state's power supply is in good shape. The fact is that now all of the connected states rely upon each other and NEMMCO, to keep the whole show firing.

As a result, much the same amount of base generating capacity can meet our needs now as 20 years ago. And, when precarious episodes have arisen, the wizards at NEMMCO managed to keep the system up, and you, good citizens, probably neither heard nor worried about it.

The fencing wire and pliers

In the early 1990s, with a national system now technologically possible, economically cheaper and socially more secure, governments faced a constitutional question: is it legally possible? A national electricity system wasn't an option considered by the writers of the Constitution. There were no Commonwealth powers allocated for this, so what was to be done? Improvise, came the call. Out came the great tools of Australian innovation - fencing wire and pliers.

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First published by the Centre for Policy Development on June 13, 2008.

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About the Author

Professor Gavan McDonell has directed four public enquiries for state and federal governments, including the NSW commission recommending, as subsequently implemented, abandonment of planned power stations worth $12 billion, restructuring of the power industry and development of linked regional markets. He designed the economic principles for the NEM's Ancillary Services Markets, probably the world's first, and gave the National Electricity Tribunal decision which resulted in the rewriting of the ACCC's regulatory test of major network investment. With long international experience, including as a former senior investment banker supervising energy and transport investments in the Caucasus and Central Asia, he is currently advising on Asian energy markets research.

Creative Commons LicenseThis work is licensed under a Creative Commons License.

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