After unplanned power outages impacted hundreds of thousands of customers across the southern states last week, you could be forgiven for wondering what has actually changed since South Australia’s state-wide blackout in 2016.
Sure, fewer homes and businesses across VIC & SA lost power during last week’s high temperatures, but it’s a sad indictment of the current energy system when an advanced economy like ours has to celebrate blackouts affecting ‘only’ 200,000 customers.
In fact, the only reason more customers in Victoria didn’t suffer, was that the biggest power consumer, Portland aluminium smelter, turned down demand for the peak period. It was a pretty smart commercial outcome for the company, who regularly gets paid more by the energy market not to run than they would have made from producing aluminium.
But before we accept rising temperatures and added strain on old generators as the new normal, let’s look at what smart energy investment could do for Aussie consumers if it wasn’t being spent on Portland – one of the biggest polluters in the country.
Time to give the customer a break?
By reducing non-essential demand, Victoria’s energy system will run more efficiently and avoid situations like last Friday. Low-cost technology which lowers grid voltage to the recommended 220 volts for homes and businesses will reduce demand by 10%. Better still, it will also reduce bills by 10%.
Customer can also see for themselves which appliances are using the most power and make informed decisions on what they can switch on, off or delay running until a cheaper time. There’s another easy 10% saving for every household and small business.
Rather than adopt new technology to reduce usage, the energy market’s rampant ‘sell more, earn more’ mentality incentivises large generators and retailers to increase demand, driving higher usage and higher prices.
Amidst the endless cycle of power outages and political finger pointing, I’m less concerned about the ideological debate between renewables and baseload power. Instead, I’m looking at the big generators and wondering whether the regulators really understand what is happening.
Higher demand drives higher prices, resulting in the spectacular spot market prices we saw last Friday, when lots of money changed hands among those larger generators. As a residential customer my electricity tariff didn’t actually increase on Friday afternoon.
However, when retailers come to justify future residential tariffs those high wholesale prices will be cited as the principal reason behind next year’s tariff increases. In many ways it’s not that different from how the banking sector looks at interest rates and mortgages – there’s always a reason not to pass on cuts, but those rises show up immediately.
Given this direct relationship, it is essential that the regulators ensure that operational and bidding behaviour by the large generators is not manipulated to drive decade high price outcomes which will have such an adverse effect on everyone’s future retail electricity prices.
This means looking at what supply is available for the market, whether maintenance outages are really necessary on the hottest day on record, and whether bidding behaviour is being managed to drive unnecessarily high price outcomes.
The recent experience of the banking sector and the regulator is pretty relevant here as well.
Last year Energy Security Board chair Kerrie Schott described the Australian energy market as being ”in a state of anarchy”. We saw exactly that last Friday. It’s time for the regulators to take a closer look at the behaviour of the main participants in the market as well as the underlying operating rules of the market.
Technology is changing, which means regulation should change with it. We do not need wholescale re-regulation, but leaving electricity market traders to sort out the mess is simply not the answer.
Richard McIndoe is executive chairman of Edge Electrons, and a former CEO of EnergyAustralia.
