Ageing infrastructure the symptom, not the cause, of creaking energy market

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it is not ageing infrastructure holding Australia’s energy market back. It is ageing institutions that have failed to get a grid on technology change.

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Last week, ABC news reported that it is Australia’s old powerlines holding back a renewable energy boom. But this appears a symptom, not the cause, of Australia’s creaking energy market. My supporting argument goes like this.

The Australian Energy Market Commission is currently consulting on reforms to transmission network access and pricing. It looks like that process kicked off in March 2019.

The strange thing is, I participated in what feels like a remarkably similar process, some time ago. How long ago?

The internet tells it would have bee in 2008, when the AEMC ran consultation on energy market design, in light of the then CPRS and MRET schemes – you can read the consultation paper here. If you like, jump to page 34, or just trust me when I say the consultation flagged the potential for clusters of new generation assets to face unnecessarily high cost and inefficient connection process.

I distinctly remember that consultation, sitting in a well appointed conference room, lots of intelligent people grouped in tables, all coming up with good ideas for how to solve problems like bringing on clusters of new renewable energy generation efficiently. I met some good people on that day and have stayed in touch with some.

The thing is, I don’t remember much changing by way of energy market rules on the back of it, but my memory is unreliable. Instead, by powers of deduction, given that in 2019 we are facing the same problems flagged in 2008, I suggest we can be quite confident that not much has changed. I do wonder if AEMC still has the notes from the consultation in 2008?

I contend it is not ageing infrastructure holding Australia’s energy market back. It is ageing institutions that have failed to get ahead of, let alone keep pace with, technology and consumer preferences and how they relate to energy market design.

It is not just transmission networks where we face the problem of institutional inertia.

We are seeing projects being approved for significant Government funding, that can’t go ahead because they are at odds with energy market rules. We see recurring problems caused by concentration of market power at the wholesale level, that have been warned about for years.

We see rapid uptake of rooftop solar hitting constraints in the distribution grid, and distribution network pricing largely stuck in business as usual mode – again, problems that have been warned about for years.

In some cases, like rooftop solar, the institutional response has been blunt force – lets upgrade street level distribution assets, to make room for these rooftop solar subsidies.

I have participated in many (at one point I counted about 50) stakeholder workshops with Government, market institutions, industry stakeholders, where all of these problems and more, as well as their potential solutions have been discussed and thrashed out.

It is frightening to think I am just one of perhaps hundreds at least, and potentially thousands of well meaning individuals that have participated in this way, for very little evidence of meaningful market reform. My experience of this started around 2008, with many others I am sure starting some 15 years earlier.

Institutional inertia is a perfectly normal phenomenon – it shouldn’t surprise us, or even cause indignation or worse, outrage. It is not the fault of individuals, but a function of how complex systems behave, and typically, how they fail to get ahead of changes to their operating conditions.

Our frustration shouldn’t be levelled at the institution per se, or the individuals within them, but at the designers of those institutions.

What happens to complex systems over time, particularly as their operating context changes? Be they forest ecosystems, large companies, or broader combinations of private and public entities working in a socio-technical system, they all typically fail, often spectacularly, laying the groundwork for a complete redesign from the ground up.

An incredible example of this system pattern is the city of Eindhoven, which saw collapse coming in the massive restructuring of its dominant employer – Phillips – and has turned itself into the worlds most innovative jurisdiction measured by patents per person. And ironically, a powerhouse in the understanding of complex system behaviour.

The thing is, the energy market is too important, particularly at this point in time, to let fail.

How else are complex systems proactively managed to prevent their collapse?

In socio-technical systems like the energy market, typically structural change at the institutional level is key.

Structural change enables better connection and organising power, in the case of energy markets, from the level of the individual consumer, through to the head of institutions running the market, and everything in between.

It is structural change at the organisational level, that enables insights and data at the granular level, to flow through to decision making at the top. It is structural change at the organisational level, that facilitates proactive risk taking and learning.

And it is structural change at the organisational level, that cuts through the competing and diverging interests of complex stakeholder groups, whose appeasement is the very thing that threatens the system’s performance.

The AEMC is also currently consulting on the design of a “sandbox mechanism” – the idea being roughly speaking, this mechanism could help “the market” bend or break the rules, in order to prove a rule change could have benefits that outweigh costs.

It is an important idea. Perhaps an extremely important idea. But its execution depends on the structural design underpinning its implementation.

Specifically, of the staff responsible for delivering the sandbox mechanism, who will they report to? And what is the chain of command beyond? What rewards will be in place for those who take risks and fail? Or what fate lies those same people, or the structure that houses them, when failure is reported to their boss.

There is no better alternative than experience for learning, but in lieu of that, I commend reading “Loonshots” by Safi Bahacall– detailing the organisational structures that have proved so successful over time, or the other thing, when it comes to deep innovation and simply getting ahead of the curve.

Tosh Szatow is Director and Co-founder of BOOMPower, an adaptable software platform designed to serve the new energy market, and Energy for the People, working towards an energy market that serves the consumer since 2012.

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