NEGative thoughts

I was asked by Bloomberg to comment on what the future holds for Turnbull and the NEG. My comments:

It’s an established convention in Australian politics that a narrow victory in a leadership challenge implies the need for a subsequent challenge in which the incumbent invariably loses. So, I think Turnbull’s future is either on the backbench or early retirement from politics.  Even if he hangs on, the NEG is now finished.
 It remains to be seen whether the various ad hoc interventions announced or canvassed over the past few days take place. My guess is that most will require legislation and that getting this legislation through the Parliament will prove impossible.
  I think nothing much will happen until Turnbull is replaced, presumably by Dutton. I can’t forecast what will happen after that.
This followed some comments I gave yesterday about rightwing opposition to the NEG (over the fold)

1.  This is primarily a culture war issue.  The immediate cause of the crisis is the refusal of the climate denialists in the government to accept any serious response to climate change.  As is evidenced by the case of the Trump Administration US, this refusal would be just the same even if power prices had not risen significantly.   Supposed concern about power prices is used as a political talking point, to support policies that may or not lead to lower prices.
2.  The increase in prices reflects the comprehensive failure of the market-oriented reforms introduced in the 1990s, including privatisation, the creation of the National Electricity Market and the introduction of retail competition.  The big cost increases have reflected the increased rate of return on monopoly transmission and distribution assets and the large retail margins that have emerged following the introduction of competition
3. Rather than undertake the necessary fundamental reforms the government has bolted on a series of emergency measures including the constantly evolving National Energy Guarantee, ad hoc intervention in the market for gas, and the current price cap proposal
4. The retail cap measure is desirable in itself but undermines the logic behind the National Electricity Market as a whole.
5. It would be preferable to renationalise the transmission, distribution and retail sectors, and use power purchase agreements in place of the spot market. Obviously, this would be a long road and is unlikely to happen. My expectation is that we will continue to see more and more fudges, at least for the foreseeable future.
6. At this point, I’d be highly surprised if the policy was adopted, and even more so if Turnbull lasted long enough to implement it.

6 thoughts on “NEGative thoughts

  1. It is very easy to show that renewables are not responsible for the massive rise in electricity prices. Privatisation was .

    Why is no-one saying this at all?

  2. “Privatisation was”

    The state government-owned transmission and distribution businesses put their prices up just as much if not more than the privatised businesses. The governments than owned them were very happy to receive the dividends from these businesses.

  3. Timely and cogent thoughts JQ.

    Given the political barriers to renationalising the grid, I’m wondering if this will work:

    Reallocate $10b per year from existing expenditure (say from the defense and security portfolios, and cancelled business tax cuts). Use the money to conduct open tenders for emission free grid level power sources. Run the tenders for three years. The tenders would be to build and operate the facilities, with government retaining ownership. Once attached to the grid, the price charged would be just to cover operating expenditure of each facility, which would be minimal, since no funds have been borrowed. This would set a floor price for the market. Allocate the new facilities to NSW and Queensland, where the worst coal fired power stations are operating. Hopefully, it will make them uneconomic and they will exit the market. Could this work?

  4. It seems that climate change is bringing havoc to both sides of politics, with no winners and a compounding loss to the nation. Even the normally denialist AI Group are slamming the govt for its inability to provide direction.

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