Grid Renationalisation

That’s the title of a discussion paper I’ve just released for the Australian Industrial Transformation Institute, headed by my friend and co-author John Spoehr. As the title suggests, the central argument is that we need to abandon the failed electricity reforms of the 1990s. What is needed is a unified, publicly owned, National Grid encompassing the ownership of physical transmission networks in each state and interconnectors between states, and responsibility for maintaining security of supply and planning the transition to a sustainable, zero emissions electricity supply industry.

The report is here

56 thoughts on “Grid Renationalisation

  1. Of course nationalisation of natural monopolies makes sense. Once one nationalisation succeeds the pressure will be great to continue with further nationalisations. The neoliberals know this and will use every dirty trick in the book, and not in the book, to thwart it. For as long as the neoliberlas succeed our economy will keep crumbling, our workers will keep getting lower and lower wages and both households and governments will be squeezed and strangled by rising prices induced by rampant corporate profiteering and corporate tax evasion.

  2. The future is everyone has solar panels and batteries and is off-grid. Why would you spend tens of billions on a grid that quite soon will be worthless?

  3. @Smith

    I think the future for power is more of a hybrid system than that. I believe there will be micro, meso and macro producers. A grid will still add options for storage and transmission and add overall system robustness with multiple redundancy / back-ups.

  4. Equatorwards of 66 degrees, you don’t need anything but solar + battery; the latitude just drives how many solar panels you need for the short days.

    Polewards, you need something else, unless you’ve got months of storage to store the summer sun for winter.

  5. @Smith

    I dunno about that. It’s worth would be in its use-value. Such a hybrid renewables grid would be very reliable, very useful and just might help save humanity from dangerous climate change. I would call that very useful. Worth is based on usefulness economically speaking.

  6. Nice paper. But my fear is there are politicians out there who will see nationalisation as the opportunity to help their mates sell to the public a whole lot of stranded assets at inflated prices.

  7. @Lead Belly
    There’s a solid argument to be made that whatever those inflated prices are the long-term outcomes will make the payment entirely justified. Particularly when part of the long-term outcome may well be having a chance to successfully tackle dangerous climate change.

  8. @Smith

    The economics of going off-grid reflect the mess that has been made of pricing, particularly the absurdly low rate of feed-in tariff for solar. Storage on the grid would be more economical, but the price structure gets this wrong

  9. @John Quiggin

    The problem of a low feed in tariff, if is a problem, can be fixed at a key stroke by state governments without anyone going to the trouble and expense of renationalising the grid. Speaking of which, what would the cost be? NSW just sold half its transmission network for $16 billion, so buying that back, plus the Victorian transmission network, plus the Victorian distribution network, plus the SA transmission network, plus the SA distribution network (I think that covers it) will be in the neighbourhood of $50 billion, give or take a few billion.

    That’s a lot of money to spend on poles and wires whose value inevitably will diminish with technological advances. If governments are going to spend an additional 50 bill, I’d rather they spent it on schools and hospitals.

  10. With the current death-spiral of users leaving the grid how long before we see legislation forcing payments for having poles & wires merely passing your property?

  11. As I wrote eight years ago: emulate real existing Texan green socialism!

    In case you don’t get the joke, GW Bush as governor of Texas signed into law an electricity reform copied correctly (unlike California’s mess) that brought in by Margaret Thatcher in the UK. These made a clean separation of the monopoly grid, in public or heavily regulated private ownership, from a competitive generating sector. It really is the only way to go.

  12. @Smith In case you weren’t told UBS were asked by the NSW govt to prepare an analysis of the NSW sale of poles and wires. They found that the loss of the revenue stream would be greater than the gain in capital. The doc was called “Bad for the budget, Good for the State” which upset Baird so it was reissued as “Good for the State”

  13. What would electricity generation and distribution look like if the price signals, including those for negative externalities, were much more nearly correct? That’s the interesting question.

  14. @Smith
    You seem to be neglecting the fact that the government can charge a reasonable fee for use of the grid as most people would pay for the convenience of a reliable supply. This means that the $50B could be an investment with a positive return, especially at the rates governments can get on infrastructure loans. The private owners are not likely to charge less and, depending on the nature of the contracts, may have incentive to minimize maintenance of the assets over the long term.

  15. Lindsay Berge: “most people would pay for the convenience of a reliable supply” — of course they will, but given options for that convenience they’ll choose the cheaper one.

    Solar + battery in the home competes with grid + big power plants far away.

    One analysis I’ve seen claims ca. 2030 for when solar+battery becomes cheaper than the grid. Never mind the big power plants, just the grid. If/when we reach that point, the cheapest thing to do will be to pay for the remaining non-solar customers to switch, then recycle the power lines.

    Long before we reach that point, it’s not too unlikely that solar+battery will beat grid+power plant in large parts of the world.

  16. @Lindsay Berge

    It’s a question of how much people are prepared to pay for the insurance. If I had electricity generated on my roof, and a good battery to store it, I would not pay much.

    And this is not counting micro grids, where small communities (new estates are well suited for this) have their little grid, powered by small wind or solar farms.

    Time is running out for the big beast transmission and distribution networks.

  17. @Smith
    If the political will to renationalise was there I expect the amount of money paid out would be a lot smaller than the nominal sale prices – to /get/ the political will there would have to be a /massive/ public push behind it, which would carry with it a very strong mandate to deal forcefully with the matter. Everyone is well aware of how these companies have made out like bandits from the privatisation movement, so no one will have any sympathy when they claim they should be paid handsomely on top of their windfall profits.

    We also have the option of just not paying them at all if we really think it’s important enough and the companies involved have been unethical enough.

    Or, heaven forbid the idea, we could just accept an extra 50 billion or whatever in extra debt and just get on with our lives. It’s a tiny fraction of our GDP for something so nationally critical.

  18. @Simon Fowler

    Section 51(xxxi) of the Constitution says that the acquisition of property has to be on “just terms”. It’s open to the courts to decide what this means but the jurisprudence to date means it’s unlikely that just terms = not paying them at all.

  19. @Smith
    As I noted, not paying would only really be a viable option if there can be a solid argument made that the companies involved were acting in a way that justified seizure of their assets without recompense – I won’t say it’s likely, but under the right circumstances it’s an option. These are, after all, /governments/ we’re talking about – force majeure is an option, even if it’s not a favoured option.

    But my whole point is that the question of money in all this is mostly meaningless – the very worst case you can come up with is that state governments have to take out sizable loans to buy back the infrastructure. State governments can’t print money like the federal government, but they’re still generally very highly rated and able to borrow money on very good terms, and /this is important enough to be worth borrowing money for/.

    Better to not have privatised in the first place, but that horse has bolted – we’re going to have to spend large sums of money on this stuff regardless, so we may as well spend it in a way that allows us to fix the mistakes that have been made.

  20. @Smith
    I wonder how many solar panels they’d have to put on the roof of Chadstone (a Melbourne location, but other places have similar) in order to power it – and its bulk AC on a very hot day – and how much battery storage will be needed for night time operation (and for Xmas 24 – 36 hour continuous operation ).

    Where d’you reckon the solar panels and/or wind turbines should go to feed Melbourne’s railways and trams ? How much battery storage for 24 hour operation ?

    And all those street lights that only operate at night: how big, and where the wind farms ? Or will a huge solar battery – plus huge batteries – do the job ?

    Time is running out for the big beast transmission and distribution networks.

    Yeah, how long to go d’you reckon ? 30, 40, 50 years maybe ?

  21. @John Quiggin

    I don’t understand your reasoning for nationalising the Heywood interconnector. This is just a pair of 275 kV AC lines. There’s nothing special about them other than that they cross a state border. Do you mean the Murraylink interconnector? This is a DC link that isn’t owned by either AusNet Services or ElectraNet. I agree that nationalisation of the system is a good idea, but I think the simplist way forward is for the local incumbent Transmission Network Service Providers to take ownership of the DC links that are in third party hands and eventually for the TNSPs to be retained in/returned to State Government ownership.

    P.S. I am a power systems engineer, I’ve worked for a couple of utilities and in consulting so have a lot of first hand experience dealing with the complicated, legalistic, mess that is the NEM.

  22. @Herb

    I was thinking of the Murray Interconnector. I also haven’t got enough knowledge of the details to work out the best path to renationalisation.

  23. @Smith
    Victoria just introduced a revised feed-in tariff of 11.3 c/kWh to take effect this year. That just made roof-top solar a sound investment again.

  24. @Simon Fowler

    It would be a hard argument to make, as all these companies are regulated by government. All their costs have to be approved and their prices are set by the regulator.

    Could state governments find the money to buy everything back? I suppose they could, but as I’ve argued, why would they, when the assets might be near worthless in the not too distant? What’s more, if state governments feel it’s politically possible to borrow a whole heap (more) money, they’ll spend it on extra health, education, public transport etc, not buying poles and wires, especially if the income they could get from them is falling fast. The only way they’d even consider it is if there’s a serious danger that the lights can’t be kept on. Other than Malcolm Turnbull and some of his ministers, nobody says that is a real problem, and if it is a problem, it’s not one that is caused by the grid, let alone who owns the grid.

  25. @Smith
    The only reason people with easy access to the grid are seriously considering going off-grid is because of the stupidity of the current charging model, which is driven by the attempt to run the grid as a for-profit enterprise rather than as a public good. Take away the ever-growing network charges and the impetus to go off grid for the vast majority will go away.

    Keeping the electricity grid in place (in an upgraded form that’s designed around a large proportion of distributed production) makes a lot of sense. Suggesting that everyone go it alone, and that we let billions of dollars worth of infrastructure rot on the assumption that everyone (including the poor, renters, people living in apartments, people too busy paying off an over-priced mortgage to have any money spare to install enough solar and battery capacity to go off-grid) is ridiculous.

    The electricity grid is not going anywhere. It is, however, going to need to be re-engineered in a big way over the next couple of decades. Should we be paying private entities a special subsidy to encourage them to rebuild the grid the way we want them to? Should we put it all out to tender, with each section being tendered for by the company that already owns it, with no one else able to make a meaningful bid? Or should we leave it all to the magic of the market, which is at a significant risk of driving itself into a death spiral as it’s attempts at profiteering drive more and more people to take the off-grid approach you’re suggesting is inevitable.

    I’m not sure that we’ll go down the renationalisation path, but whatever we do it needs to be a lot more rational and far less ideologically driven than the current approach. And as I’ve said again and again, this is far too important for the driving factor in the decisions we make to be cost – this isn’t just a question of how we most efficiently provide electricity to people, this is right at the core of how we deal with the existential crisis that is climate change.

    We need to be concerned about /effect/, not just efficiency. At some point our policy makers will finally wake up to the fact that all these things that experts keep telling them that they need to do, /need to be done/, regardless of efficiency or economics or social and political impact. The later it gets left the more disruptive that will be – eventually our only option will be to go on a full war footing, for decades. Force majeure will apply to almost /everything/ then – no pussyfooting about with “just terms”. And the measly $50 billion you estimated will be recognised as chump change, regardless of how it might be funded.

  26. @Simon Fowler

    If it’s “the existential crisis that is climate change” that you’re worried about, you might as well as directly on electricity generation with an emissions intensity scheme. The grid doesn’t emit any carbon. All it does it carry electrons, some of which have been cleanly produced, some dirtily. Mucking around with the grid is a very roundabout way of fixing the problem.

    If the network planning of the grid is haphazard, there’s a process for changing the rules. It’s governments that decide the rules, not private entities.

  27. @Smith
    The grid is an essential component of the electricity generation and distribution system. A grid that effectively supports the function of large scale, distributed and intermittent power sources will /enable/ us to remove the emissions currently produced by electricity generation. Lacking that grid will make that goal massively more difficult to achieve.

    Seriously, your arguments are getting pretty trite – no one suggesting nationalisation of the grid is suggesting that it’s the only thing that needs to change, and no one is suggesting that it should be acquired by force majeure /right now/ (though I suspect at least a few people would feel, like I do, that this would be a damned good idea). We’re discussing a very clear market failure, the implications of that market failure for a number of different issues of national importance, and the implications of the potential solutions to that market failure in the broader national context. If you don’t want to have that discussion that’s fine, but I don’t particularly want to play your rhetorical games, so I’ll sign out.

  28. Simon Fowler :
    The grid {linking} large scale, distributed and intermittent power sources will /enable/ us to remove the emissions currently produced by electricity generation.

    Exactly. The last thing we want is a bunch of neo-Thatcherites putting up micro wind turbines in cities to make their personal electric fiefdoms more resilient. Or worse, buying cheap generators and burning oil to recharge their batteries. Then, not everyone has the space for 20kW of PV on top of their apartment.

    The whole “grid death spiral” thing is overblown, because most people don’t have the money, let alone the time and energy, to take their home off grid. For a lot of people step one would be buying that home, and a great many people can’t even afford that.

    I think renationalising the grid is going to prove necessary, hopefully before we get too far down the Enron path – I think it’s obvious we’re already seeing supply manipulation to increase prices/profits, and arguably we’re not getting the resilience we’re already paying for, let alone the resilience we need.

  29. Moz of Yarramulla :
    Exactly. The last thing we want is a bunch of neo-Thatcherites putting up micro wind turbines in cities to make their personal electric fiefdoms more resilient. Or worse, buying cheap generators and burning oil to recharge their batteries. Then, not everyone has the space for 20kW of PV on top of their apartment.

    Yeah. I live in a large old house (in a rural town near Canberra) that I own, with lots of roof space, and when I actually spoke to solar installation companies they looked at my roof and reckoned we could fit /maybe/ 7kW, and some of it would be shaded by nearby trees for part of the day. That /might/ be enough, with big batteries, particularly when it’s sunny and not too hot or cold, but there’s no way that would cover our total energy use during winter. It probably would contribute meaningfully to the grid during the kind of heatwave we had last month, when we were significantly cooler than parts of Sydney, significantly further west (pushing peak production later in the day), and probably damn close to the maximum possible solar insolation for our area.

    Sharing the production of electricity is critical, and there’s no way that we can realistically tackle climate change without a broader and smarter grid than we have now, let alone with no grid at all.

  30. @Simon Fowler

    We have 3kW on our roof, because it’s an old clay tile hip roof shaped to be easy to fit tiles to. If we wanted more PV we’d have to replace it with something more sensible (I would have fitted that first if we could have afforded it… council permitting). An awful lot of stand-alone houses could boost their PV collection that way, and I’m starting to think that that would be an excellent government project – rather than trying to insulate and generate from existing roofs, subsidise removal and redesign – gable roofs oriented E-W rather than hip roofs with angles and slopes every which way. Which would also solve the council approval problem.

    My fear is that we continue to build our grid around a few large generators, rather than using grid funds to build a more modern distributed-generation grid. But I suspect that runs into “commercial realities” from having lots of privatised bits working against each other. Hence the call to nationalise it.

  31. Smith :
    @Simon Fowler
    Section 51(xxxi) of the Constitution says that the acquisition of property has to be on “just terms”.

    I think that only applies to the Federal government. I think the only constraints on state governments are political

  32. @Moz of Yarramulla
    I think we should always target low-hanging fruit first, of which insulation and other energy saving measures are generally the lowest hanging and easiest to pluck. Rebuilding roofs is a significantly bigger task, but I could see a solid argument for something like a government subsidy if you were already redoing your roof and you chose to do so to the “solar standard” – that makes it far less of an imposition. New builds, though, should either be required to meet the standard, or have some kind of subsidy available if they’re built to meet it.

    This is part of the point of my argument with Smith – we’re heading into a period where there’ll be a lot more imposition on people in order to be able to respond meaningfully to climate change. Right now forcing everyone to rebuild their roof so that they’re more suited to large solar arrays sounds like a ridiculous idea (though encouraging people to do so through a subsidy doesn’t sound anywhere near as ridiculous). In fifteen years time I could see it sounding sensible, and if we don’t act appropriately then in twenty or thirty years we’ll /have/ to, simply because rebuilding older housing will be necessary to keep it livable through severe heatwaves. Quibbling about a national spend of $50 billion or $100 billion or whatever it ends up being to regain control over a large part of our climate change response will seem like a sad joke if/when we get to that point.

  33. Thats a good point about the complicated roof designs now fashionable not being well suited to solar panels. Also panels like the temp less than 30 deg -more sunny and hot is not better ,and, efficiency is drastically reduced when even a small part of the panel is shaded – they rely on uniform exposure. There are some panels in the US (hand made by researchers) that are about 30 years old and still near 80% efficiency. Panels shade the roof and so help keep a house cool on hot days. Check out solar book called ‘The Switch’.

  34. @Simon Fowler

    I was careful to say “subsidise” rather than “compel”, because there’s already so many minor changes to building regs that haven’t been made that restricting roof shapes is unthinkable. We still allow black tiles and “as designed” environmental performance, for example, with no sanity checking (ie, the house is nominally designed so that 10kW of cooling should be ample, but it has a 15kW unit on the plans). For most houses there are a lot of changes available that have months rather than years payback times. The metaphorical low hanging fruit is lying on the ground.

    I was thinking of the Rudd/Garret pink batts thing, where a lot of the insulation was not well done because the subsidy was low and short-term. It worked as an economic boost, but as environmental policy it was quite poor IMO. The cost of taking clay tiles off a one story house and replacing them with long-run insulated steel is quite low, especially compared to the cost of putting up more clay tile (our house has 50 year old clay times so I’ve done those numbers). Changing the roof shape actually lowered the cost for us because the current shape is a dogs breakfast.

    Sadly council does not like the idea of changing the look of the house, which is where state/federal government would help.

  35. Bruce Bradbury :
    I think that only applies to the Federal government. I think the only constraints on state governments are political

    Eh, kinda: external affairs means that the commonwealth can make nation-wide commitments to furriners that then bind the states.

  36. Section 51(xxxi) of the Constitution says that the acquisition of property has to be on “just terms”.

    I think that only applies to the Federal government. I think the only constraints on state governments are political

    Eh, kinda: external affairs means that the commonwealth can make nation-wide commitments to furriners that then bind the states.

    It is correct that section 51(xxxi) of the Constitution only limits the power of the Commonwealth to acquire property, not that of the States, and the Commonwealth’s external affairs power doesn’t change that. The States are not bound by that specific provision of the Constitution to a requirement that property only be acquired on just terms. The States are of course subject to the requirements of their own individual State Constitutions. I haven’t checked whether any of those include a limitation that property can only be acquired on just terms.

    One part of one of the Constitutional alterations proposed in 1988 would have extended this requirement to the States (and Territories) as well as the Commonwealth, but the proposal, like the other contemporaneous ones, was defeated at referendum.

    If the Commonwealth entered into an international agreement that bound the parties not to permit government acquisition of property except on just terms (goodness knows why), then the external affairs power would enable the Commonwealth to legislate to impose that requirement on the States. But even in that scenario it still wouldn’t be section 51(xxxi) of the Commonwealth Constitution preventing the States from acquiring property except on just terms, it would be Commonwealth legislation made under the authority of a different part of the Commonwealth Constitution.

  37. Ownership should certainly be public but the maintenance could be private. This should be done by having as a minimum three seperate contractors with defined areas or regions to maintain. If one of the contractors is failing to meet performance or cost targets that can be replaced by one of the other contractors. As long as there is no collusion we should get value for money.

  38. @2 tanners

    and the post office.

    how come an organisation with outlets already in place in every locality in the country cannot cover costs?

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