Tasmania wants to quit “broken” NEM as major parties agree it needs reform

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Tasmania’s Liberal government flags plan to quit NEM, as bipartisan Parliamentary report concludes electricity market is broken, needs rebuilding.

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The Tasmanian government has revealed plans for the island state to opt out of the National Electricity Market, cutting all ties with mainland pricing mechanisms even though it will still export and import power over its sub-sea cable.

Tasmania, which only joined the east coast states and South Australia on the NEM in 2006, is closely linked to Victoria’s mainly coal-powered market, both by undersea cable and by that state’s pricing structure.

But Tassie’s Liberal Premier, Will Hodgman, has promised to cut those pricing ties if his government is re-elected, to ensure the mostly hydro-powered state is not exposed to future market fluctuations caused by power stations closures or system failures on the mainland.

“With Tasmania charging toward 100 per cent energy self-sufficiency … now is the time to take back our competitive advantage and break away from inflated mainland prices, and to drive down the cost of living of Tasmanians,” Hodgman said this week.

The announcement casts further shade on the state of the NEM, which has been clouded by concerns over regulatory and physical market failures that have led to “obscene” wholesale price spikes and ever increasing consumer bills.

This has been exacerbated by the shift from ageing coal-fired power stations to an increasing amount of distributed wind and solar generation and supporting energy management technologies, and the increasing divide between the state and federal governments on how to manage this.

The South Australian government, for example, has frequently declared the NEM to be broken, and clashed with the federal government over how to go about fixing it.

The latter question, of course, is the focus of a bipartisan parliamentary Standing Committee, which – despite featuring some of the Coalition’s most fervently anti-renewable politicians, including Craig Kelly – has more or less reached the same conclusion as South Australia: the NEM is broken.

“It has become increasingly apparent that modernising this essential piece of infrastructure is necessary to future-proof the grid,” Committee chair and Nationals MP Andrew Broad said in introduction to a report tabled on Monday.

“The reliability of the grid at times of peak demand has become of particular concern. Consumers are also concerned about recent increases to their electricity and gas bills.”

The report points to the need to meet Australia’s climate change commitments under the Paris Agreement, ensure a stable supply of energy, and mitigate rising electricity costs.

“Australia is not alone in this work. Every major economy in the world is encountering the same trilemma and working out ways to meet this triple-challenge,” it says.

Greens MP Adam Bandt, who is also on the Committee, said in a statement on Monday that the report showed there was now political “consensus” that grid was broken, and the next step was to start fixing it.

How exactly this would be done, however, is less than clear, and far from bipartisan.

The report’s 23 recommendations are broad-ranging, and vague, moving from the importance of resolving policy uncertainty on emissions reduction in the electricity sector, to investigating the benefits of virtual power plants – something that already being done, particularly in South Australia.

As it is, most of the NEM’s Labor state governments have shown little sign of agreeing to the federal government’s National Energy Guarantee, and states like South Australia and Victoria continue to “go it alone” on renewables in the absence of federal leadership.

Meanwhile, the Greens have just last week proposed re-nationalising the NEM, by buying back all of the networks that had been sold off to private companies.

“The rules are not working. Privatisation has failed. It’s time for Labor and the Liberals to admit that,” Bandt said in comments on Monday.

“It’s clear that the Cayman Islands company and big corporations who own our grid are not interested in a 21st century grid, they’re interested in shareholder profit.”

Now, the suggestion that Tasmania’s Liberal government will quit the NEM threatens to throw another spanner in the works.

Tasmania, while suffering its own unique brand of energy crisis in 2016, is rich in renewables, with more than 80 per cent of its locally generated electricity coming from hydro plants, and with a strong wind resource too.

Last year, a plan to double Tasmania’s hydropower output by re-using water, and thus turn it into a “battery for Australia” was launched with much fanfare, including from Prime Minister Malcolm Turnbull who announced new feasibility studies to investigate.

As we reported at the time, the significant expansion of the state-owned Hydro Tasmania system would be likely to require a second electricity connection across Bass Strait.

How this would work with Tasmania detached from the NEM, and setting its own prices for energy exports, is unclear. But it’s a blow to the Turnbull government, regardless, and one that the federal opposition has chosen to pounce on in what could be an election year.

In a statement released on Monday, Labor energy spokesperson Mark Butler said the Tasmanian Liberal government’s plan to quite the NEM had “belled the cat on Malcolm Turnbull’s failed energy policy.

“The NEM is in crisis and the Tasmanian Liberal Government has no faith in the Turnbull Government’s ability to fix it, seeing ‘de-linking from inflated mainland electricity prices in the National Electricity Market’ as the best strategy for the State,” Butler said.

“This decision follows the Energy Security Board warning late last year that the health of the NEM is in ‘intensive care’ and is currently delivering an electricity system where ‘reliability risks are increasing, electricity bills are not affordable, and future carbon emissions policy is uncertain.’

“If the Tasmanian Liberal Government has no faith in Malcolm Turnbull’s energy policy, how can Australian households and businesses?

“(The Coalition’s) National Energy Guarantee, three months after it was first flagged, is still nothing more than a thought bubble that promises to strangle renewable investment and boost the position of the big power companies.

“The NEM is desperately in need of credible energy policy that supports the transition to a cleaner, reliable and affordable energy system. It doesn’t need more Liberal blame shifting and empty slogans,” he said.

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36 Comments
  1. Chris Schneider 10 months ago

    I was wondering when this would happen! They have all the power they need but are paying crazy amounts! Tas and SA are both being screwed by Victoria’s terrible approach!

    • david_fta 10 months ago

      So the National Energy Market is a mess, including the National Energy Guarantee which Turnbull was contractually obliged (the deal with the pro-Abbotts in the LNP to keep his job) to put up.

      If Turnbull is smart, he might be able to use the present mess the same way as he did the Same-Sex Marriage debacle – oops I meant to write “debate” but my computer’s truth-check insisted on debacle – to prove to the right-wingers that, (as usual) they are wrong.

  2. JoeR_AUS 10 months ago

    As too why TAS wants to leave the NEM.

    I read that for two days VIC and SA needed power from the NEM and the price was 390million.

    So who ends up paying for this as the report said it was not SA or VIC directly?

    • David 10 months ago

      naah- not $390 mill for 2 days! source please

      • JoeR_AUS 10 months ago

        Terry McCrann
        Victorians and South Australians didn’t just swelter through two consecutive days of 40 degree heat on Thursday-Friday two weeks ago, they also had to pay an extra — and hidden — 390 million to keep their air conditioners and lights on…..

        • Barri Mundee 9 months ago

          I’m convinced. Terry McCrann is an impeccable source – not!

  3. Tom 10 months ago

    It’s a bit like saying “We’re going to break all trade agreements with South Korea, but they’re still going to buy are beef”.

    For a state that is dependant on energy imports from the mainland, especially in a below average rainfall year, it’s a pretty silly thing to say. By breaking from the NEM, are generators really going to sell us (Tasmanians) their product for lower than market price?

    Even more significantly, if Tassie ever does become, say, 110% renewable and therefore a net exporter, then the high and fluctuating Victorian energy prices should be a financial boon for our state-owned energy companies.

    Yes, the NEM is broken – no argument there. But Tassie with our massive dispatchable energy reserves is in pole position to capitalise from the broken NEM if we played our cards right. Which we haven’t.

    • Chris Fraser 10 months ago

      So true. I don’t see a need for Tas political masters to make political comment on the NEM. It is just a single commodity market. Either participate – or do not.If Tassies are confident they can avoid expensive supply from Victoria, they also wish to ensure their energy independence shields them. This is a good thing if they’re serious. Beneath a seemingly throwaway promise to provide for themselves is a commitment to developing that Roaring Forties wind.

      • Tobias Merz 10 months ago

        As I understand it, right now even if they don’t export or import anything their prices are still heavily influenced by the NEM. Since all their demand and production is bid on it as well.

        • Tom 10 months ago

          That’s true, but as the generator, the transmitter, and the retailer are all government owned, the government has the power to run the retailer at a lower profit margin or even a loss if they want, subsidised by the bumper profits of the generator and transmitter whose revenue is governed by the market rules.

          • Jonathan Prendergast 10 months ago

            Rather than ‘run at a loss’ they have to decide whether to charge the market price, or cost price. Right now there is a big difference.

    • Mike Westerman 10 months ago

      Tom, as you well know, the NEM is reliant on agreement between all the COAG governments. For SA and Tas to quit is to simply bring that dinosaur to the end of its very unnatural life. The states could then sit down and negotiate a more robust, equitable and forward look way of trading energy and capacity, that, in this day and age, ought to include the possibility of peer to peer trading, with equal access and burden to all, and truly cost reflective pricing, complete with genuine standby and congestion charges. If Tas dispatchable capacity has value, the customers will come. It could’ve been in surplus in drought well before this. It should get rid of its dependency on insecure imported fuel. Bravo that a worm like Hodgman at least tells his Fed counterparts to stop dreaming.

      • Tom 10 months ago

        That’s true, but it is still in Tasmania’s interest to keep it going and to profit from it if they were smart (unless a new NEM pays a premium for dispatchable energy over base-cost energy), and apart from our energy imports which we are dependant on due to to chronic underinvestment the NEM cannot be blamed for our increasing retail electricity bills.

        It’s like saying “Look over there – it’s HIS fault” while Hydro’s revenue has doubled or tripled at the expense of the electricity consumer. A new tax by stealth.

        • Mike Westerman 10 months ago

          Except that Salamanca Place is so much closer than Barton: Tasmanians would crucify a Tas government that overplayed that source of revenue, especially given the electoral sensitivity of electricity prices. Taswegians can and should give their government a swift kick over the oversupply of power to the mainland and lack of investment in wind prior to the death of the carbon tax, and utterly reject the LNP for cutting off a major source of income. And the same applies today: the LNP is utterly bereft when it comes to constructive energy policy, with the NEG the lamest initiative to date. At least if no-one else is in the frame, Taswegians can kick a few local door down and take advantage of their enormous legacy. There is no excuse as to why Tas should not be fossil fuel free by 2030, but it won’t happen while the nonsense from Canberra prevails.

          • Tom 10 months ago

            The Tas gov earns a lot more from its state owned energy companies than is immediately apparent.

            1) Dividends – don’t look like that much so Tasmanians are reassured that their electricity bills are only just covering costs, BUT….

            2) Company tax equivalents – SOEs don’t pay company tax to the federal government, but they pay the equivalent amount of money to their shareholder – the state government – to supposedly put them on a level footing with private companies.

            3) Interest – the SOEs borrow money from TasCorp – a state-owned lending institution, and are currently paying about 5% interest. TasCorp gets their money, essentially, from state government bonds, which I think are paying 2.5 – 3% interest. A 2% margin on $3 billion debt adds up to a lot of money.

            4) Government guarantee fees. Hydro pays the Tas Gov about $8 million pa, and TasNetworks pays about $12 million pa for the Tas Gov to guarantee their debt. How this doesn’t bring their interest rate down to the Gov bond rate – I don’t know.

            Numbers 2, 3, and 4 combined add up to around $150 million pa, or about $750 per Tasmanian household per year, which could be considered a hidden tax on electricity consumption.

      • mick 10 months ago

        i would be more than happy for sa to cut the string around 2018/9 and or the nem and the aemc to be demolished having said that i cant think of any one,perhaps audrey zimmerman,worthy of our trust with sufficient knowledge and goodwill to rebuild both the mechanism and trust.

        • Mike Westerman 10 months ago

          mick draw a distinction between the AEMO and the AEMC/ESB/Minister for Obfuscation on Energy Matters. The former are trying to take us forward, the latter to haul us back to the industrial revolution

          • mick 10 months ago

            agreed

    • neroden 9 months ago

      Well, if you put up some solar panels and wind turbines, you should stop being an importer pretty quickly. Even if you’re not in the NEM, Victoria will still contract with you.

  4. JoeR_AUS 10 months ago

    https://uploads.disquscdn.com/images/18d2568e7fa020a5596d71a0d8398a0ae79aa7ad68134f4fe352269cd351dfc5.jpg

    So this is why the AEMO is broken, look at what VIC and SA need to pay on the 18 and 19th Jan to the electricity cartels.

  5. David 10 months ago

    all good to leave NEM- except for the next massive drought when they’ll have to buy more diesel generators

  6. Tom 10 months ago

    If you cut basslink will Tassie fall on Antarctica?

    • mick 10 months ago

      nah the kiwis will steal it

    • Tom 10 months ago

      By the way, there are two Toms on this thread. I’m the other one.

      • Kevfromspace 10 months ago

        You should really use a surname, make a nickname or add a photo. Doesn’t have to be a photo of you, just something to make you stand out.

        • Tom 10 months ago

          Good idea. I’ll try to figure the photo think out in the next week or so.

      • Tom 9 months ago

        Oi I was here first.

  7. Tom 10 months ago

    AER has been quoted in response: “git fukt Tassie”

  8. James Wright 10 months ago

    The NEM just another LNP mess started by the government under Howard.
    The NBN a mess created by the Turnbull LNP government there seems to be a pattern.
    It also seems their claim that privatisation is good for the country and their claim to be good managers is false.
    It must be dificult for the LNP government to make decent decitions when they are run in the background by the far right, the coal loby and their corporate masters/sponcers.

    • Steve159 10 months ago

      “decent decitions” — your misspelling got me thinking, A new word, “deceition”, a deceitful decision. So apt for the LNP.

  9. Jack Gilding 10 months ago

    This whole story about the Libs wanting to “quit the NEM” is a complete Furphy (although the preferred term nowadays seems to be ‘fake news’).
    Despite the language in several news stories and the phrase “NEM Exit” in the Libs statement at
    http://bit.ly/LowestEnergyPrices
    they are in fact not proposing to exit the NEM.
    All they are saying they will do is continue to set the regulated wholesale price by Ministerial decision rather than linking it to forward contracts on the Victorian NEM wholesale price. They have already done this for one year and now say they will continue doing it for the next two years and develop a new mechanism for setting the regulated wholesale price from mid 2021.
    I am all in favour of a robust discussion about the pros and cons of the NEM and whether there is a better alternative. But don’t expect the Tas Liberals to take the lead on this important but complex policy debate.

    • Farmer Dave 10 months ago

      Thank you for that clarification, Jack. It is interesting that the Tas Liberals used such strong language for what is essentially a business as usual decision. They must see an exit from the NEM as being positive for votes, particularly in areas where they can lose votes to the Jackie Lambie Network.

      I don’t have David Leitch’s faith in markets, and I would like to see Tasmania walk away from the rules of the market. The three Tasmanian tiers – generation (Hydro Tasmania), distribution (TasNetworks), and retail (Aurora Energy) are all owned by the Tasmania Government and have separate boards and separate management structures. They are all quasi-independent Government Business Enterprises which report to two shareholder Ministers. I would like to see the three bodies amalgamated and their Boards abolished, so that a single CEO reports to a Minister, with a legislatively guaranteed active oversight role being given to a multi-chamber, multiparty committee of the Parliament. The legislation would need to guarantee a high degree of transparency: for example, all Ministerial directions would need to be made public within 24 hours.

      The new body would be tasked with providing a safe, reliable, high quality 100% renewable electricity supply to Tasmania as a public good, and at the lowest cost compatible with the other objectives and the long term maintenance of the assets. The body would not pay dividends to the Tasmanian Government, and would be encouraged to use its physical and organizational links to the NEM to make as much money out of the mainland as possible, consistent with all the other objectives. All profits would be ploughed back into the system to reduce the price paid by Tasmanians.

      This is a “Make the Hydro Great Again” policy. I have no faith in markets, but I do have faith in good regulation that is well designed, transparent, includes a system of checks and balances, and is run by competent people on both sides.

      • Mike Westerman 10 months ago

        Clearly Dave, the Tas Libs don’t have faith in markets either. But then, despite the passionate defence of the private sector by our Treasurer this morning, the Federal Libs don’t mind a fair bit of intervention either – witness Snowy 2.

        But what you are really fingering is accountability. Humans whether in the private or public sector are no more or less capable of making good decisions if they know they will be held to account – as you say, it needs transparency, and checks and balances. Precisely why the private sector hates regulation and competition, and why when regulators go to water or are given no teeth, markets fail. If we are to have an electricity market, there seem to be a few rules that would go a long way to stopping the current rorts: banning the owners of generation also being retailers, banning ownership of more than 10% of the generation in a region, banning of discounts and special deals unless they deliver permanent value. But I have little hope of such a market – look at the supermarkets!

  10. neroden 9 months ago

    Wow. Nice to see the Tasmanian Liberals breaking ranks with the deranged federal Liberals.

  11. paul 9 months ago

    “With Tasmania charging toward 100 per cent energy self-sufficiency … now is the time to take back our competitive advantage and break away from inflated mainland prices, and to drive down the cost of living of Tasmanians,” Hodgman said this week.

    AND IF THE GREENS EMPTY GORDON DAM ??

  12. MaxG 9 months ago

    It’s a sensible idea… why I have decided to remove myself from provided gird, and do my own thing. I’ll be dead before commonsense kicks in; but will it ever 🙂

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