Australians are witnessing a sudden collapse that has taken years of sluggish incompetence to bring the nation’s energy market to a halt.
What just happened? After almost a quarter of a century of letting the market operate freely, the energy regulator imposed total national control of the electricity grid for the first time in its history.
After years of slow failure in plain sight, the Australian energy system has hit the wall.Credit:Paul Jones
This is about much more than the factors the Australian Energy Market Operator blames for its unprecedented intervention: the rapid onset of cold weather, the shortages at coal-fired power stations that are out of action for maintenance, the high prices for coal and gas.
It is about a disgraceful failure in Australian politics over a long period of partisan fighting without a solution.
After years of slow failure in plain sight, the Australian energy system has hit the wall. This is a moment like the collision at the end of a slow-motion crash test video when the car crumples under pressure. Anyone watching could see the jolt coming for the crash test dummies.
But this is no test: Australian customers are in the passenger seats. This is a live experiment with an electricity market that is no longer up to the essential task of serving households and businesses.
Australia has not installed enough renewable energy quickly enough and has failed to provide enough storage for that energy. The withdrawal of coal-fired power has been under way for years and the country is still not ready despite the warnings. The high price of gas has been forecast for years and is sending electricity prices soaring.
While the Russian invasion of Ukraine put even more pressure on fuel supplies and prices, the trends were foreseen long ago.
There is no shortage of blame because the problem has spanned state and federal governments and all sides of politics. But it is a national crisis after nine years of federal Coalition rule. The country is paying the price for the divisions within the Liberals over the transition to clean energy and the outright denial in the Nationals of global warming and the need to act quickly to reduce the reliance on coal.
The immediate issue is the inability of the national electricity market, created in 1998, to handle the pressures that have inevitably followed the absence of a settled agreement at the political level.
The head of the Australian Industry Group, Innes Willox, summed this up neatly on Wednesday without any reference to the convoluted rules of the regulator or the workings of the spot market.
“The detail of the AEMO market suspension will be completely arcane to most business and household energy users. They need confidence that the physical electricity system they depend on will not collapse,” he said.
“They need as much guidance as possible about what they will pay and whether it will be reasonable.
“Energy users also need confidence that all market participants are working to the common good.”
That last point is crucial because that confidence no longer exists. The design of the market gives generators the incentive to play the system rather than deliver reliable energy. This is not new – it is just that the sudden cold weather has highlighted the problem.
Confronted by high demand and low supply, the regulator took the logical step of applying a price cap to protect consumers. This was met by a rational response from generators to stop supply because they believed the cap was too low when they wanted to maximise profits. Their withdrawal led the regulator to order them to supply the energy, triggering compensation to get them back into the market.
It has all been perfectly rational. But not in the national interest.
In a country with abundant sources of energy, the white-collar traders sitting at a computer have become more important than the blue-collar workers generating the power.
Voters have no reason to trust the energy generators and no reason to care whether the national electricity market continues in the way its creators dreamed up in the 1990s when deregulation was supposed to serve the national good by matching supply and demand.
Australia, a country with abundant energy, is now telling some citizens to turn off the lights to prevent a blackout. It is actually shameful. The nation’s political system has been unable to prepare for changes that everyone could see coming.
The people in power could not agree on a solution. So the people who need power have to go without.
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