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Some electricity links

April 30th, 2013

The Australia Institute has a report out making the point that the growth in the administrative and marketing costs of electricity companies, following the reforms of the 1990s, has added more to electricity prices than has the carbon price.

Also, the Centre for Policy Development has a nice piece on solar PV coming out soon. Look for it.

Finally, here’s a piece I wrote for the The Economic and Labour Relations Review in 2001. Conclusion over the fold. I think it stacks up pretty well, certainly compared to the gushing praise for reform that was commonplace at the time.

The National Electricity Market is still developing. Some problems that have emerged in the early stages such as the disparity between the substantial price reductions for large customers and the largely unchanged prices paid by households will fade away as the market matures. Other issues such as the structure of the industry and the degree of horizontal and vertical integration will be resolved by a mixture of market processes and regulatory interventions.

Some problems, however, are likely to become more rather than less acute. The Australian National Electricity Market commenced operation in a period of oversupply so that problems of market power and excessive prices have not emerged until recently. It remains unclear whether an electricity auction market can produce adequate incentives for investment while generating appropriate prices for consumers.

Similar problems are emerging in relation to the regulated monopoly component of the industry, the transmission and distribution sector. Regulators must set prices that do not reward inefficiency or allow monopoly profits, but nevertheless provide appropriate incentives for new investment. This is a delicate balance.

In the longer term, the problem of the environmental impact of an industry relying predominantly on carbon-based fuels remains to be addressed. A market solution would involve the creation of emissions credits that could be traded along with electricity in national markets. Although limited steps have been taken in this direction, much remains to be done.

Quiggin, j.Market-oriented reform in the Australian electricity industry, The Economic and Labour Relations Review in 2001, 12 (1), 126-150

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  1. Ikonoclast
    April 30th, 2013 at 08:36 | #1

    Surprise! Surprise! Natural monopolies in state hands produce cheaper, more effective and more efficient outcomes than artificial “competitive” markets. Gee! Who’da thunk it? Well actually a lot of us thought it and predicted it. Indeed, the general public knows it and opposes asset sales of state natural monopolies even if they do not know the technical term “natural monopoly”. They know it because they know that the prices of everything that is privatised and corporatised have increased faster than general inflation since the privatisation mania began.

    So, you have to ask yourself what is happening in a supposed democracy when a majority of people oppose the privatisation of public utilities and other natural monoply state assets and yet it just keeps happening. This is the clearest evidence possible of the subversion of the democratic system by sectional monied interests.

    This continues the paradigm of “being correct but losing”. Left (left of neoliberal) analysis of the system is clearly correct but the left keeps losing. The public’s empirical hip pocket analysis is also correct. The public knows it is losing via these privatisations. In basic physics, when the smaller mass or force “outweighs” or “outpowers” the larger mass or force we know we dealing with levers or other gearing mechanisms. It is the levering and gearing mechanisms available to the rich that must be dealt with here. But it would take a whole sandpit or weekend post to get into that.

  2. Ikonoclast
    April 30th, 2013 at 08:52 | #2

    It would probably be worth tracking down the following items.

    Book – “Power Play: The Fight to Control the World’s Electricity” – Sharon Beder, August 21, 2003.

    DVD/Film – Inside Job – Documentary directed by Charles H. Ferguson, narrated by Matt Damon.

  3. Michael
    April 30th, 2013 at 08:57 | #3

    @Ikonoclast
    Are there any issues where monied interests lose out to public interest? If there any left they will no doubt win under the next government.

  4. Ken Fabian
    April 30th, 2013 at 09:42 | #4

    So the biggest part of electricity price rises has not been the “Federal Carbon Tax and Green energy schemes” that get a prominent, in red, place on every NSW electricity bill – and this time around, on the envelope it comes in as well. By NSW Government mandate. A neat bit of politically partisan anti-climate action messaging that apparently bypasses rules on both commercial and political advertising. Sigh.

    Pr. Quiggin, I doubt that what the Australia Institute has to say, challenging the cultivated view that our energy will be only be abundant and cheap if we don’t do anything serious about emissions, will be something our Mainstream Media are that interested in.

  5. April 30th, 2013 at 10:45 | #5

    The Costello Audit final report has now been released:

    http://www.commissionofaudit.qld.gov.au/reports/final-report.php

    Apparently the LNP is looking at selling the generators but not the retailers.

    I haven’t read it yet, but I heard a report that they are also considering selling QIC too. That’s the State Owned body they just sold all our CBD commercial real estate to and will lease it back from.

    The ALP would, of course, be doing exactly the same things.

  6. Ikonoclast
    April 30th, 2013 at 10:56 | #6

    @Michael

    “Are there any issues where monied interests lose out to public interest?”

    I think there are some. Monied interests don’t get it all their own way. Wages would be much lower still if monied interests got it all their own way. Wages would be $2 a day if Gina Reinhart had her way. Exactly how an advanced economy would run with those wages is something she clearly hasn’t thought about. Consumer spending would collapse completely. Aggregate demand would collapse the same day. Unemployment would be 80% within a month. There would be a revolution.

  7. Ikonoclast
    April 30th, 2013 at 11:02 | #7

    @Megan

    Gee, I wonder what private enterprise will do for windfalls when all the public assets are sold? My guess is it will privatise atmospheric oxygen and sell us breathing rights. If you don’t pay your annual subscription you will be placed in a sealed room without oxygen until you change your mind. If you can’t afford to pay you obviously don’t deserve to live.

  8. Nick
    April 30th, 2013 at 11:30 | #8

    Ikonoclast,you speak for me!…somewhere along the line I must have sold you my brain, but at least I’m getting my ideas back gratis… ;)

  9. Michael
    April 30th, 2013 at 11:43 | #9

    @Ikonoclast
    True, there is still a lot left to lose in Australia, e.g. state schools, medicare etc
    I don’t see much hope in the ALP being able to defend what’s left though – in both senses of the word.

  10. Hermit
    April 30th, 2013 at 13:40 | #10

    Have a look at the website or Wiki item on √Člectricit√© de France. The company does low carbon generation, transmission and retailing. It is 15% non-government owned and has programs to help disadvantaged electricity consumers. It is also gaining a foothold in the UK.

    The EdF model seems basically sound both financially and in environmental terms. If the lacklustre French economy can be blamed on ‘socialism’ I don’t think EdF is part of the problem. No doubt the free marketeers will find something amiss.

  11. April 30th, 2013 at 13:46 | #11

    When I tried accessing that last link, it said “forbidden”.

  12. crocodile
    April 30th, 2013 at 13:57 | #12

    When the great big new tax is finally repealed there will be a few red faces when the prices don’t start tumbling down.

  13. Ikonoclast
    April 30th, 2013 at 15:47 | #13

    @crocodile

    No, not at all. A red face requires a sense of shame. They have no shame.

  14. crocodile
    April 30th, 2013 at 16:07 | #14

    OK Iko, no shame maybe, but embarrassment if some probing questions are asked.

  15. Jim Rose
    April 30th, 2013 at 20:56 | #15

    What are the barriers to new entry into these markets?

  16. Ben
    April 30th, 2013 at 23:10 | #16

    Another important development, Prof Q, is the AEMO 100% renewable electricity draft report.

  17. Ikonoclast
    May 1st, 2013 at 07:45 | #17

    @Jim Rose

    I am fairly sure you know the answer to your question. Your questions are usually leading or rhetorical. The issues related to barriers to new entrants in the electricity market have been canvassed before on this blog. The most obvious barrier is the high up front investment cost in plant, machinery and infrastructure (power stations, power distribution systems etc.). Closely related is the congruence with the standard conditions for natural monopoly.

    There is the pdf report “Barriers to entry in electricity generation” – AEMC.

    I neither recommend nor reject this report as I have not read it. I don’t know if they dared to pen the words “natural monopoly” anywhere. Whilst being empirically validated, the phrase is usually politically incorrect in neoliberal ideology which is the dominant discourse of this era.

  18. Hermit
    May 1st, 2013 at 08:01 | #18

    @Ben
    The lack of public discussion so far on this report is puzzling. Perhaps people read the bit about 300 large ($bn) in capex and doubling of wholesale electricity prices and their eyes glazed over. I’m a bit dubious about the assumption biogas can replace ground sourced gas. People in third world countries can do it since they live next to pigs, something I haven’t done since my student days.

  19. Ben
    May 1st, 2013 at 08:46 | #19

    @Hermit
    Bioenergy seems to bother people in Australia for some reason. Obviously it needs to be used carefully and converted at high efficiency. The size of the biomass resource in Australia has been well documented by Geoscience Australia and ABARE in the Australian Energy Resource Assessment. Biomass gasification does not require pigs. :-)

  20. sunshine
    May 1st, 2013 at 08:58 | #20

    Peter Costello on Lateline last night was saying the only (he ‘s got no imagination) way to reduce debt (just got to keep that AAA ) is to sell assets . Surplus -good , deficit -bad .
    Good to see him squirming trying to protect his legacy re: the post mining boom structural deficit built into the budgets now . He was bristling .
    The American Politifact fact checking service is reportedly starting here in 2 weeks time .

  21. Jim Rose
    May 1st, 2013 at 16:37 | #21

    @Ikonoclast the costs you mentioned are the same for incumbents and new entrants. No barrier to entry.

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