Home' Future Building: The Australian Infrastructure Review : Volume 3 Number 2 Contents futurebuilding 63
Volume 3 Number 2
Energy supply is of fundamental importance to
every society and economy. It is technically complex,
highly capital-intensive, and long-lasting. It's also a
topic that is very much in the public eye.
Energy is a fascinating area of public policy
because of the many choices it presents. With the
emergence of climate change as a key public issue,
and rapidly rising energy prices (at least in part)
coincidently, these choices have been brought into
the realm of public debate more than ever before.
Re ecting on the history of the energy supply
industry in Australia, and the choices that were made
in its development, gives us a better understanding of
the present, and therefore better informs the choices
we need to make for the future.
The guiding principle in the development of our
domestic energy markets has been that a sustainable
energy supply is best achieved through a competitive
market, supported by effective regulation.
This has transformed a supply system that
was based on state-owned, fully vertically
integrated monopolies into a sustainable supply
system based on decentralised, commercially
We should be proud of these achievements.
The National Electricity Market (NEM) has
delivered. It has met reliability standards. It has
encouraged new investment. Wholesale prices
(excluding carbon) are lower today than at market
start. At the retail level, we have numerous retailers
competing for customers with some of the highest
churn rates and price discounting in the world.
But is the energy market fully ef cient? Is it as
productive as it could be? Have we reached the
end of the reform journey? I would contend that the
answer to these questions is: 'clearly not'.
We can see this reality in measures of productivity
across the industry. Low productivity today is a result
of low and inef cient capital utilisation across the
energy industry. We have an inef cient mix of plant,
which is poorly placed to respond to changes in
energy demand. This inef ciency is contributing to
the rising energy prices that make for daily headlines
in the national press.
So what's gone wrong? What changes are we
seeing in energy demand that drive this inef ciency?
And what are the responses to ensure a functional
and more ef cient national energy market?
There are certainly a lot of external pressures
on energy markets. While Australian policymakers
have tended to prefer ef cient markets and effective
regulation for the energy sector, there have also been
a series of choices by other external stakeholders that
have affected how we supply and consume energy;
choices that have put the energy system under a lot
As a society -- governments, industry, and
consumers -- we are asking more of the energy system
than ever before. We want our energy greener and
we want to use more of it at peak times, but then
somehow we expect it to be cheaper.
Premium solar feed-in tariffs have provided
a subset of households with access to low-cost,
renewable energy, while making energy supply more
expensive for every other consumer.
A price on carbon -- a measure we support -- also
puts upward pressure on energy costs; however, xed
carbon prices at such globally high levels, together
with restrictions on the use of low-cost abatement,
only add unnecessarily to this cost.
It is also absolutely clear that rising peak
demand is driving up energy prices, and that time-
of-use price signals are needed to address this;
however, governments, who claim to be worried
about energy prices, continue to regulate prices to
prevent these important price signals being passed
through to consumers. As a result, customers are not
encouraged to adapt their consumption patterns, and
the industry needs to invest billions of dollars in plant
and equipment that is used for less than 100 hours
The energy market is resilient. It has survived a
drought. It has survived the failure of a few retailers.
It has survived incredible carbon policy uncertainty.
It has survived the uneasy mix of public and private
The energy market is resilient.
It has survived a drought. It
has survived the failure of a
few retailers. It has survived
incredible carbon policy
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