If any institution needs to go, it should be AEMC, not AEMO

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The problem in Australia’s energy market is that – uniquely in the world – we have separate rule making and operating statutory bodies. Only one of them is based in reality.

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It’s déjà vu all over again, as we see Frontier Economics and Danny Price continue to push the purist economist’s view of the energy market. See yesterday’s story: Energy divide: Frontier attacks AEMO, wants it abolished.

The problem in our energy markets, as has been shown repeatedly by contributors to RenewEconomy, is that – uniquely in the world – we have separate rule making and regulatory bodies: the Australian Energy Market Commission (AEMC) and the Australian Energy Regulator (AER).

Our market operator, AEMO, funnily enough, is finally realising that its role is – as the clue in its name suggests – the operator of an actual electricity supply system.

Historically, AEMC had seen itslef as the lever pullers in the electricity market, based on the false premise that the market is a valid and effective proxy for the real system.

So if we get that right, it will be all OK on the night! This is the very core of Frontier’s claim, and the fundamentalism of John Pierce’s AEMC (and it is very much a purist economic culture in AEMC).

That is a massive disconnect from reality! If one of the energy market institutions needs to go, as our submission to the Finkel Review recommended, it is the AEMC. A new combined regulator and rule-maker would be consistent with practice everywhere else in the world.

The AEMO’s draft plan – the Integrated Supply Plan – that has caused so much angst among some commentators – is about as sensible a document we could get, given the various constraints under which it operates.

AEMO’s proposal of what should be an unremarkable concept – that transmission should be ordered and planned on a “ least regret” approach – is welcome.

As all of us know, and AEMO recognises, uncertainty exists in any approach.

But AEMO also sits in the real, current world, where the time-cost of money is at a consistent low; the transition to a decarbonised grid is inevitable; and where planning and building ahead incurs costs, but also adds significant benefits if we increase the rate of change.

The AEMC has said itself, in the past: “The heart of the structural reform in the energy market was the creation of the wholesale market.” This is the very base that the National Energy Guarantee, created and supported by that same AEMC, wants to undermine.

The use by AEMO of an emissions profile that is consistent with science is logical, and is consistent with good business practice worldwide – it is the AEMC and the Australian government who are the outliers on this.

Good public policy is complex and hard work, and it is refreshing that we have a leader like Audrey Zibelman bringing a key market institution into the 21st century.

The Smart Energy Council seeks sensible policy to clean up our energy system and lower prices, while retaining the reliability and security of supply. AEMO is not without its flaws, but has a direction that looks to those same objectives.

Steve Blume is President of the Smart Energy Council; Treasurer of the Global Solar Council; and Director of the Australian Institute of Energy

 

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11 Comments
  1. Ken Dyer 9 months ago

    The AEMC was established in 1998 under Howard. Subsequently, it accumulated more power in subsequent years. It assumed control of the National Energy Retail Rules under Abbott, when the current commissioners were appointed. It is an out of date and somewhat redundant organisation set up under former LNP COALition governments, and its increasingly out of date organisation works to slow the uptake of renewable energy, a desirable objective of the current Federal COALition government.

    After the disaster of the NEG, it can no longer justify its existence and once Labor is elected to Government at the next election the AEMC should be eliminated, and replaced by a strategic government organisation that is responsible for renewable energy, and that can work proactively with AEMO to speed up the implementation of renewable energy and to also speed up the demise of coal as an energy source in this country.

    • wideEyedPupil 9 months ago

      Hopefully someone within LEAN is reading this and pushes for AEMC to be axed, including it’s personnel and it’s rule making capacity rolled into the AEMO. Three cheers for Audrey Zibelman, seems to be doing plenty right in a regulatory space that historically bets on doing bad 9 times out of 10.

      Neoliberal economics never got it so bad as in energy markets. Too bad even economic incompetence and ideological wilfulness can’t hold wind, solar and storage back any more.

  2. Malcolm M 9 months ago

    Would AEMC be OK if it were dominated by electrical engineers rather than pure economists? If the minimum criteria for a board position were at least 10 years of experience in electrical engineering across gas, wind and transmission?

    In economics 101 I was taught that assumptions of a market are (i) many buyers, (ii) many sellers and (iii) perfect knowledge. The electricity market fails on all of these, which means that compromises from a perfect market are required to make it work. In making these compromises, some intimate knowledge of the underlying engineering is required.

    • wideEyedPupil 9 months ago

      Engineers can be bent to submission the same way economists are. It’s just that economists like to pretend it was their idea and they love it when they get manipulated by corporate interests (greed) and politicians (power).

      • Ken Dyer 9 months ago

        As J.K. Galbraith said, “Economics is extremely useful as a form of employment for economists.”

    • Ray Miller 9 months ago

      Disagree, Australian engineers are somewhat lacking in their thinking process and training. Engineers may be good at solving problems but suck at defining and identifying what problem needs to be solved!
      The AEMC not only needs to go but many of the existing leadership need to face criminal investigation, the AEMC cannot show that much incompetence over so many years without any consequences.

    • Peter F 9 months ago

      Being both an engineer and economist I can see both sides but if you go down to the Latrobe Valley and I assume the Hunter you will find many engineers particularly the retired ones who swear black and blue that wind and solar are just ornaments or even a nuisance to a proper coal based grid.
      You need both engineers and economists but mostly you need people with open minds

  3. Hettie 9 months ago

    Oh how true. AEMC, vowing that no change to 5 minute settlement periods is possible before 2021, wedded to technologies that were sort of appropriate when fossils were all there was, dominated by the fossil fool incumbents; that is the body that must go.
    AEMO has moved to catch up with reality, and must at all costs be preserved.

  4. Stan 9 months ago

    Who to believe? The bloke who designed and implemented the NEM in the 1990s or the solar council? The economist or the rent seeker? The policy wonk or the swindler?

    • Matt V 9 months ago

      Given the abysmal failure the NEM has been for consumers, I’d be inclined to believe the Solar Council…

  5. Les Johnston 9 months ago

    I do not agree that AMEC has a purist economic ideology. I consider AMEC ideology to be driven by patronage and nepotism. A critical economic evaluation of AMEC’s hand will reveal that it gives no support for free market and fully informed players. AMEC sets the rules and those rules favour fossils pure and simple. That is the only thing pure about AMEEC. Cost and benefit, market valuation are very low on the list of AMEC priorities.

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