Why distributors can’t (or won’t) deal with renewables

December, 1998, heralded a new era for Australia’s eastern seaboard and SA the extension cord plugged in Tasmania in 2006. It was the time when the electricity from one state was shared amongst their neighbours, the governments sold this as an important milestone as it was going to provide much better reliability and, because of economies of scale, combined with retail competition, reduced costs for customers who would otherwise be at the mercy of their state governments.

In order to ensure that all the members of this new “footy team” played fair, a set of game rules had to be hatched. South Australia graciously agreed to be the host for these new rules and so they were created. Now we had a situation where no member could be player and referee, so they had to create a referee, and they did.

Going back to 1998, the electricity, and for that matter water landscape looked quite different to what it is today. Electricity and water grids evolved as a necessary public utility, built and managed by local then state governments and the cost was on-charged to the constituents via regulated tariffs. Back then they were a non-profit activity, as one would expect, a public service.

If you were a remote customer, the authority would provide you power if you promised that they would recover the reasonable costs over time. All was fair. One of the first major departures from public utilities happened when Neville Wran tied up a deal to future proof New South Wales electricity needs by buying ten 660 megawatt units from Toshiba in one deal, and another deal for Transfield to build them.

To get the deal through he needed a hand so State Owned Corporations were formed, and acts, such as the Eraring Power Station Act came to being, thus heralding a new era for this essential utility. It took fifteen years for the last unit at Mt Piper to come on-line. This was a time when coal was king and CO2 was the stuff that made soft drinks fizzy. Another legacy of the Wran era was irreversible contract with Transfield for the Sydney Harbour Tunnel, a key piece of infrastructure; the only issue is the lingering and constantly rising tolls. (Search Eraring + Cobbora in google for some insights on privatization of electricity.)

The creation of this new referee meant that uniform standards and practices needed to be drawn up, and regulated, information had to be sourced about who had to paid for providing what, most importantly an overarching watchdog to ensure enough electricity was being made and reliably distributed.

So over time we now have evolved to a world class and world scale referee team made up of AEMC, AER and AEMO. They now have to deal with a plethora of for profit generators, distributors and retailers, all within a topsy-turvy political environment. The whole concept of competition has now become mired in bureaucracy, with the NEM legislation ensuring that a given model is to be steadfastly maintained.

There is currently no scope for the NEM to contemplate embracing renewables because of risk aversion; they are there to avoid risk. They must ensure that the players in the game play by the specific rules, going back 5 years, the team consisted only of the forwards, big hitters, a little bit dopey, but had the force to get the ball through. Now we have the forwards and the backs, the referee only knows rules for the forwards, so can’t deal with these new fast moving detractors, (the backs), they are a risk.

With ‘economic imperatives’ now displacing the climate change agenda, the free ride for renewables looks like it’s over, it is now more important than ever to bring N-1 into the renewables conversation: N-1 means reliable storage, batteries at the small end and pumped hydro at the big end, maybe even HVDC to make sure the sun is always shining, and the wind always blowing.

Until this situation is resolved, we will still fall short in the big argument and the coal generators will have a case. Thanks to the evolution of bureaucracies, legislated return on investment, and corporate ownership, electricity prices are now so high renewables (with N-1) are a genuine economic reality. It would be a very game government who would dare to tax or otherwise impede an economic model for renewables. Germany has, but this is because renewables still lack the “N-1 factor”.