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

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.