Renationalise the electricity grid

Despite yet another round of policy announcements from the Morrison government, energy policy in Australia is still stuck in the morass created by a combination of climate denialism and the failed reforms of the 1990s, of which privatisation was a critical element.

I’ve argued for some time that the grid should be renationalised, and the case is even more urgent now.

The case for renationalisation has been massively strengthened by the fact that real interest rates on government debt have fallen below zero, and seem likely to remain there indefinitely. That makes renationalisation of monopoly infrastructure assets a bargain at any plausible price. Let’s look at the numbers

It’s estimated that we will need $100 billion of new investment in the grid to make the transition to renewables by 2035. It’s far from obvious that this will happen under the existing system.

Suppose, however, that the grid had remained in public ownership (say, under a joint Commonwealth-State setup like that for the original Snowy Hydro). The current rate of interest on Australian government bonds is about 1.8 per cent: inflation-adjusted, it’s close to zero. So, if this were a public project, financed entirely by bonds, the debt service would be less than $2 billion a year, or about $200 per household.

But what about the existing grid, privately owned outside Queensland. Excluding Queensland, it’s valued for regulatory purposes $50-75 billion to the existing private owners, who are getting regulated returns close to 5 per cent per year as well as enjoying the benefits of asset price inflation. This friendly treatment would probably push the market value close to $100 billion. So, renationalisation would require another $2 billion a year in debt service, for a total of $4 billion.

With a regulated rate of return pitched between the bond rate and the private-sector “Weighted Average Cost of Capital” used in our current failed model, it would be possible to lower costs for consumers while returning a virtually risk-free profit to the public owners of the network and supporting comprehensive decarbonization of electricity supply (this would require a mix of public and private investment in carbon-free generation).

The only question about all this is how much demand there is for long-term $A bonds, and how much debt could be issued without pushing up rates. There is certainly quite a bit of demand A recent issue of $15 billion in 30-year bonds was massively oversubscribed, so there’s no reason to think we couldn’t raise hundreds of billions over the next ten years or so, without offering significantly positive real returns.

27 thoughts on “Renationalise the electricity grid

  1. From a distance, it does look as if the current Australian system has too many agencies and commissions sending long reports to each other. You need one grid operator / market maker – no idea why Germany has three – and one regulator. The savings from rationalisation would be modest in money, more significant in scarce managerial time.

  2. I agree. But will it happen? I was an opponent of all the original privatizations in Australia from the 1980s onwards. I mean those of the Commonwealth Bank, Australia Post, Telstra, Qantas, CSL, Medibank and parts of the electricity grid.

    Unfortunately, the model of privatization and market fundamentalism started to take over the world just at the time we realized that the limits to growth and the limits to exploitation of the natural environment were real, imminent and existentially dangerous. This takeover was no accident. It was orchestrated by the major owners of capital. What this has done is progressively destroy the natural world systems on which we depend. The use of present and past tense is justified. Most of what we depended on / depend on has already been destroyed or is being destroyed right now. The collapse has begun.

    The current conformation of capital, or rather of the ownership of capital, prevents action. It has been preventing action since circa 1980 and still prevents real action today. Indeed, it pushes the system further in the wrong direction. To save the world, or realistically to salvage some remnant of it as a livable world, the conformation of the ownership of (large) capital(s) has to be changed. Nationalization of all natural monopolies and all strategic infrastructures and environmental management and responses is an absolute necessity; a necessary but still not sufficient condition for saving the planet.

    Other necessary conditions will include (eventually) the removal of financial economics from ecological and social decision making. What things cost in money terms is meaningless for existential decisions (life and death decisions for humans and for the whole web of life on earth). Money is a closed, formal system parameter only. Where money affects only variables in the closed system of finance, the use of money has a system-internal validity (which validity is entirely formal). Where money affects real, open (physical) system variables it ceases to have any measurement validity. Hence, it has no predictive or prescriptive validity or capacity. It cannot tell you what to do in or with natural real systems.

    There is a wrinkle here of course. Money can be used on and with human systems (individuals, societies) because it is an information process in those (agent-based) systems. Money is information as a pattern which affects the patterns of agent behavior and the patterns of their production and consumption. The trick is to conform money (capital) operations to real (human and ecological) needs. If cheap capital (low interest rates) did not currently exist for government needs, it would be necessary to invent it. Indeed it is being invented (electronically “printed”) right now for the COVID-19 crisis. But the key going forward will be to keep cheap capital out of the hands of the private sector and to permit cheap, cost-less or negative interest capital for sovereign democratic governments only. Productively invested private capital must pay a moderate positive interest rate. Private capital invested in the provision of non-essential consumption items must be charged a punitive interest rate and/or taxed in pigouvian fashion.

  3. Thought experiment:

    Keep current pricing model, depreciated optimised replacement cost DORC.
    As grid moves from centralised generation to distributed sources, the value of a highly centralised transmission model falls.
    The optimised replacement cost is lower.

    With falling revenue and no prospect of recovery, maybe lots of willing sellers.
    —–
    Also note the ESB strategic plan calls for introduction of firm transmission rights FTR for new transmission assets.
    This is going to make a lot of programmers rich.

  4. I fear Harry Clarke is right. Too bad. Australia will go down the gurgler just like the USA and UK are doing. Neoliberal nations are doomed… unless and until they abandon neoliberalism. The USA’s and UK’s recent failures to deal properly with every significant crisis from climate change to COVID-19 are indicative of the comprehensive failure of neoliberal capitalism. The USA and UK are heading pell-mell for total collapse. It’s a pity Australians also appear to have lost theri capacity to think for themselves and throw off a failed model.

    The rise of China now is so fast and the decline of the Aglosphere so precipitate, that the world is very likely to change totally within a decade or less. Mind you, China could also falter within this decade as well. Any endless growth system model is doomed and along with it the human race if it doesn’t wise up.

  5. Perhaps a good way to kick of such a campaign is to ensure the NBN is not sold off once the roll out is complete. This is the intention of the current government. I have yet to hear or are unaware of any objection from the Labor opposition. The fact that such a proposition is being seriously entertained after the train wreck the Telstra privatisation became gives some idea of the challenge faced. To any thoughts of renationalisation I would say this. If the NBN gets sold off dream on.

  6. One of the ways the privatised electricity outfits scam a profit is to get fit young unemployed people to dig holes for cash. Whereas the unionised lads might dig 12 poles a day for inspection and get paid a decent wage, the new crowd will do 36, exploit the kid and the public purse at the same time. In this case its a wealth transfer from the young exploited digging adept, and the public purse, to the top executives and international investors ………. rather than any kind of superior management. I’m not saying that superior management doesn’t play a part. But we have to look out for fake gains from privatisation as well as possibly some real ones.

    For example the revenues from sale: That turns out to be another fake gain if we look at things more closely.

  7. “It’s been suggested that in sufficient quantities EVs could act as grid storage, sufficient to resolving intermittency issues with renewables.”

    That certainly makes sense conceptually. But its pretty urgent that we need to get the storage leading the renewables all the way up or we’ll discredit the program. Storage leading renewables equals cheap energy. Renewables leading storage equals expensive energy and giving the opposition an even break.

    “Just win baby.” Don’t passively wait around for more electric vehicles. But yeah great idea. If we get people timing the recharge of their cars just so. I suppose one reason we need re-nationalisation of the grid is to encourage exactly what you propose akarog.

    When the sun is shining send out the free electricity alert. Get everyone charging on the cheap when you have that excess. Man would that ever be a beautiful thing. So while the renewables surge electricity becomes a free good. That would be far superior to anything the private sector would ever offer. Am I wrong?

    To me that would be one of the best arguments for re-nationalisation you could possibly have. Make electricity a free good when the sun shines and everyone and his grandfather will be putting that money into storage. I think this would have excellent national defence implications. Privatisation advocates would have nothing to offer thats anywhere near as good as this.

  8. Whenever there is a storm, powerlines are brought down by trees mainly, causing direct costs and indirect costs due to power outages and disruptions of various kinds. Why hasn’t the allegedly competitive market structure resulted in most power lines being put under ground, in particular in urban and suburban and country town areas? I am not sure whether this persistent problem in NSW is also a problem in other States.

  9. Ernestine Gross,
    You ask: “Why hasn’t the allegedly competitive market structure resulted in most power lines being put under ground, in particular in urban and suburban and country town areas?”

    I’d suggest the short-term thinking here in Australia is to do with upfront cost – it cuts into power distribution company profits. It’s more difficult to find faults and fix them in underground cables. I suspect the cost-benefit is probably not sufficiently favourable for most places. With increasing risks of bushfire and storm damage due to climate change, perhaps that might change for more areas?

    Per an Australian Parliament Issues Brief 11 1996-97:

    “It would cost up to $50 billion to put all of Australia’s existing overhead power lines underground. This figure has been conservatively calculated after discussing the issue with executives in a number of distribution systems, and it is based on precise calculations made in specific areas. It is a considerable investment, similar to the current total investment in the nation’s power generation and transmission systems; but if this cost can be faced, the benefits, even in dollars and cents, are considerable.”

    “In New South Wales, the cost of placing the power supply underground is between $1500 and $2000 per residential lot in new subdivisions, while converting existing suburbs doubles this to between $3000 and $4000.”
    https://www.aph.gov.au/sitecore/content/Home/About_Parliament/Parliamentary_Departments/Parliamentary_Library/Publications_Archive/CIB/CIB9697/97cib11#:~:text=In%20New%20South%20Wales%2C%20the,to%20between%20%243000%20and%20%244000.&text=Thus%2C%20there%20has%20been%20a,of%20growth%20in%20underground%20power.

    Are there any recent Australian studies?

    But Sweden (with a smaller population compared with Australia) seems to have the will to put many of its lower voltage powerlines underground.
    https://www.cbc.ca/news/canada/nova-scotia/electricity-power-outages-nova-scotia-power-1.5285643

  10. Geoff Miell, thank you for your reply and the links, in particular the information on other States in Australia.

    I haven’t done any work (including extensive reading) on the electricity market in Australia and therefore cannot make an educated guess as to the merits of re-nationalisation, the specific topic of this thread. However, I have made a few observations, which raise a few questions.

    I live in a leafy suburb of Sydney, the LGA of Ku-ring-gai. Ditches were dug for the NBN. The question arose, why can’t the electricity cables be put under ground at the same time. A technician explained there would be interference. Yes, but an engineer explained insolation is possible. Assuming insolation is indeed technically possible, one would need some form joint ownership legislation (like a strata law) for the NBN and the electricity cables (low voltage) or, alternatively, one owner (setting aside the Federal Structure. A nationally (or State) owned grid system would enable this (too late of course), assuming there is good coordination between ministerial portfolios, within States and across. The latter seems to have suffered a little due to the so-called New Public Sector Management.
    Has the foregoing ‘joint infrastructure project’ been considered?

  11. Ernestine Gross,
    I used to know the LGA of Ku-ring-gai.

    You state:
    “The question arose, why can’t the electricity cables be put under ground at the same time. A technician explained there would be interference.”

    Not if the NBN cable is fiber-to-the-premises (FTTP) – fiberoptic cables are immune to electromagnetic interference from adjacent electrical cables. Heat from electrical cable faults may be an issue, but sufficient thermal shielding or adequate spatial separation with earth in-between would probably do.

    You state:
    “…one would need some form joint ownership legislation (like a strata law) for the NBN and the electricity cables (low voltage) or, alternatively, one owner (setting aside the Federal Structure.”

    It always astounds me when I see that a council resurfaces a road, or refurbishes or adds a new pathway, then a few months later, some contractor acting for a utility company then comes along and cuts through the new work to repair or add new cables or pipes. You’d think the utilities would co-ordinate with the local councils, but it seems to me apparently not.

    It needs preferably one national standard, or failing that state/territory-based, but you perhaps could enable local councils to build and manage the electrical and telecommunications cable conduits and pits along the street adjacent to the property boundaries, that include adequate room for some additional expansion). Local roads and footpaths are already managed and repaired by local councils. Cables owned by utilities like the NBN and electricity distribution (in NSW: Ausgrid, Endeavour Energy, and Essential Energy) occupy the conduits and junction pits for a rental fee to council. I don’t see it happening for existing suburbs – all too late, but new suburbs could be a different proposition. It requires a coordinated effort to reduce duplications/multiplications of effort, but perhaps it’s all too hard for the relevant parties involved?

    My council manages its town water and sewage infrastructure, included in council rates. It’s different for greater Sydney, Illawarra and Blue Mountains regions where Sydney Water is responsible.

    I don’t see the need to continue to maintain a residential gas supply. An all-electric home is already cheaper, cleaner, healthier and more energy efficient, and you also save on not having a gas connection fee.
    https://www.thefifthestate.com.au/columns/news-from-the-front-desk/on-how-the-all-electric-net-zero-horse-has-already-bolted/

  12. “I don’t see the need to continue to maintain a residential gas supply. An all-electric home is already cheaper, cleaner, healthier and more energy efficient, and you also save on not having a gas connection fee.”

    The gas water heaters are efficient because its on the spot. You are not trying to keep a whole lot of water heated at all times. Plus if you don’t use the gas where you have it, it may likely be burnt off as a waste product.

  13. Its only quite a recent thing where gas has been fully used. The key sign of an oil-well at night was the gas being burnt off. Thats was pretty much everywhere even in the 70’s. Such a crying shame. It will happen again if we start subjecting gas to some sort of carbon-price on-sale. People won’t sell it. They’ll just burn it.

    Plus if we leave coal alone, it will stay in the ground. If we leave oil alone most existing wells would take decades to build up pressure. But failure to use gas will see it coming to the surface one way or another. Its objectionable to see gas transported long distances except by pipeline. But on the other hand its much worse to see the gas wasted.

  14. Real John Bull,
    You state: “The gas water heaters are efficient because its on the spot. You are not trying to keep a whole lot of water heated at all times.”

    Compared with what? All I see is ‘hand waving’.
    Here’s a comparison between gas storage, gas instantaneous, electric storage, solar thermal/gas boosted, solar thermal/electric boosted, and air sourced heat pump, at: https://www.aef.com.au/news/aef-news/2020/03/gas-hot-water-vs-heat-pumps-how-do-they-compare/

    Coupling the heat pump with electricity generated from rooftop solar-PV provides greater savings.

    Although there’s currently a global oil and gas glut, I’d suggest that’s unlikely to last.

    In 2019, USA was the world’s largest oil producer (17.9% global share), and world’s largest gas producer (23.1% global share), per BPSRoWE-2020.

    “Tight oil has allowed U.S. oil production to double from its 2005 lows, and shale gas has similarly
    allowed a major increase in U.S. gas production. However, the nature of these reservoirs is that they decline quickly, such that production from individual wells falls 70–90% in the first three years, and field declines without new drilling typically range 20–40% per year. Continual investment in new drilling is therefore required to avoid steep production declines.” – Shale Reality Check: Drilling Into the U.S. Government’s Rosy Projections for Shale Gas & Tight Oil Production Through 2050, by J. David Hughes, published Winter 2018
    https://shalebubble.org/

    US tight oil and gas productions are in the process of steep declines, due to current low drill rig count, which is an early indicator of future production. US rig count was 261 at week ending Sep 25, up 6 from the previous week ending Sep 18, down 599 from week ending 27 Sep 2019 (or down 70% compared with same period last year).
    https://www.reuters.com/article/us-usa-rigs-baker-hughes/u-s-drillers-add-rigs-for-second-week-still-down-for-seventh-quarter-baker-hughes-idUSKCN26G2Q2

    Humanity needs to leave oil before oil leaves us.
    Humanity needs to leave fossil gas before gas leaves us.
    Humanity needs to stop burning all carbon-based substances (50% human-induced GHG reduction by 2030, and eliminate them by 2040) to mitigate escalating dangerous climate change and to avoid the risk of civilisation collapse within this century.

  15. Compared with anything else at all. Thats the most efficient situation you can possibly have on this planet. Where the gas comes out of the ground locally, is transported by pipes only, and is used to cook or heat water right away without any kind of stored heat.

    This handwaving accusation has always been a crock used by mental defectives. I already told you why it was efficient and I had to repeat myself.

  16. “Humanity needs to leave oil before oil leaves us.
    Humanity needs to leave fossil gas before gas leaves us.
    Humanity needs to stop burning all carbon-based substances (50% human-induced GHG reduction by 2030, and eliminate them by 2040) to mitigate escalating dangerous climate change and to avoid the risk of civilisation collapse within this century.”

    Here we have the religious impulse at work. Degenerate brain damage. Zero science. Fraudulent and baseless claims.

    Lets go over it again. If we leave the coal in the ground it will stay there. So its not necessarily wasteful to slow down coal exports. The oil in most, but not all areas, will take decades or perhaps centuries to build up pressure. So we don’t have that much of a situation where oil will spill out of its own accord any more. But it would eventually happen again given enough time………

    But to fail to use the gas will mean wasting the gas. Because gas pressure builds up all the time. It even builds up on Pluto. They have volcanoes there too don’t you know? Before the volcanic output becomes ice and hits the Pluto ground its gas and gas pressure builds. You should have someone in the house to slap you when you are going batshit crazy.

  17. Real John Bull,
    You state: “But to fail to use the gas will mean wasting the gas. Because gas pressure builds up all the time. It even builds up on Pluto.”

    What’s does “potential” Pluto ice volcanology have to do with petroleum oil and fossil gas in geological reservoirs on Earth? What a laugh!

    Fossil gas and petroleum oil have remained undisturbed for millennia and millennia until the beginnings of the petroleum industry started drilling for oil as early as 1859. Cap all the oil and gas wells and leave any remaining oil and gas safely in their existing geological structures. Problem solved.

    RJB, your preposterous bluster, climate science denial and personal attacks IMO look remarkably similar to another pseudonym character that was banned by JQ from this blog only a few weeks ago. Just a coincidence, eh?

    What makes you think JQ’s discussion policy doesn’t apply to your offensive behavior, RJB?
    https://johnquiggin.com/discussion-policy/

  18. “Fossil gas and petroleum oil have remained undisturbed for millennia and millennia until the beginnings of the petroleum industry started drilling for oil as early as 1859.”

    No thats wrong and idiotic.

    Its to try and get it through your thick head that yes we can slow down both coal exports and oil consumption without wasting the coal or the oil. But if we aren’t going to take the local gas and use it locally its inevitably going to lead to wasting the gas.

    So we’ve been over it a few times now and you still aren’t quite getting it. I think you’d be better off just reading every post five times. At the moment they are forcing more material into many oil wells to get that oil out. Artificially building up pressure. Thats akin to using a bigger straw. In the past the Sauds, for example, used to push down seawater into oil wells to increase the pressure. Which degrades the oil. All these practices are pretty wasteful. It would be much more efficient to allow the oil to come up under its own pressure.

    But if we have all these degenerate science-hating extremists around, trying to get rid of all gas usage, well that gas is going to be wasted. It will come to the surface eventually. As it does even on Pluto.

    “Fossil gas and petroleum oil have remained undisturbed for millennia and millennia until the beginnings of the petroleum industry started drilling for oil as early as 1859.”

    Lets put that myth to an end right here:

    “More than 4000 years ago, according to Herodotus and Diodorus Siculus, asphalt was used in the construction of the walls and towers of Babylon; there were oil pits near Ardericca (near Babylon), and a pitch spring on Zacynthus.[17] Great quantities of it were found on the banks of the river Issus, one of the tributaries of the Euphrates. Ancient Persian tablets indicate the medicinal and lighting uses of petroleum in the upper levels of their society.”

    So you are wrong. So thats what the example of Pluto was all about. To show you that this is stupidity. The coal may indeed be ancient but the oil and gas build up pressure all the time and they find their way to the surface. Or they would do if the oil industry didn’t get to them first.

  19. A technician explained there would be interference. Yes, but an engineer explained insolation is possible. Assuming insolation is indeed technically possible

    Insolation? Insulation? Isolation?

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