What piece of infrastructure is set to cost Australia’s consumers 50 per cent more over the next five years than the National Broadband Network (NBN), but receives a fraction of the public attention given to the NBN?
It’s the National Electricity Market (NEM), and in the current five year regulatory period consumers will pay $58 billion for its poles and wires alone, aside from the cost of generating and selling electricity, according to the Australian Energy Regulator’s State of the Energy Market 2011.
This compares with the official NBN construction budget of $36 billion. Unlike the NBN – which is 21st century technology – the NEM relies on ageing power supplies that contribute to Australia’s greenhouse gas emissions.
Taking a close lookArticle continues below…
While the NEM was initially intended to have in-built environmental responsibility, this aim was discarded as its regulatory architecture was developed. Its economic designers did not deviate from a certain interpretation of the NEM’s key objective: to promote the long-term interests of electricity consumers.
Previously, there has not been a comprehensive audit of its performance – particularly from the ‘triple bottom line’ perspective.
The first has been released by the Total Environment Centre (TEC), which commissioned the Institute for Sustainable Futures at the University of Technology in Sydney, New South Wales, to survey NEM stakeholders for a special ‘report card’ on the NEM.
Using its own grading criteria, the Institute’s report card shows that the NEM is doing a ‘fair to good’ job of serving those parts of the long-term interests of the consumer that are currently referred to in the National Electricity Objective.
However, with the exception of customer bills and level of competition, the performance of the network for criteria that are not currently included by the regulators ranges from ‘fair’ to ‘very poor’.
The worst ranking the report card gives the network is for its environmental performance. Based on the network’s greenhouse emissions and intensity, and the proportion of renewable energy used in the grid, it gives the electricity network a ranking of ‘very poor’.
The NEM received a mark of ‘D’ for energy efficiency (savings as percentage of consumption) and also for demand management (proportion of peak demand met by management programs).
Designing a new-look NEM
The Institute’s report makes some recommendations on how the network and the objective might be reformed, including annual performance reporting on how well the network is meeting its current objective and how it is faring on issues of concern to customers, as well as amending the objective to incorporate social and environmental criteria.
The current Federal Government may have received the energy efficiency message, with a range of new grant programs recently announced and the likely implementation of a National Energy Savings Initiative in late 2012.
Australia still needs urgent changes to the rules to give energy companies and consumers more incentives to save energy. The rules are skewed so that the networks can make more money by avoiding investments in demand management in the short term because they can make more money in the long term by building new poles and wires instead.
More importantly, we still need the objective to complement national climate change policy by recognising environmental and social outcomes, so that the Australian Energy Market Commission and the Australian Energy Regulator can broaden their brief.
The regulators say that their job is to implement, not make, government policy. The NEM is ultimately the responsibility of the Standing Council on Energy and Resources.
Matching policy to the public
What do Australians think about energy prices and efficiency? The TEC recently completed a Newspoll survey to find out:
- Almost all respondents (96 per cent) think electricity prices will increase in the next few years, with the majority of respondents (78 per cent) thinking they will increase by a lot
- “Energy suppliers increasing their profits” was most commonly selected as the major reason why electricity prices are increasing (64 per cent), followed by implementing the Federal Government’s carbon pricing mechanism (59 per cent)
- 80 per cent of respondents said that they could reduce their household electricity use by being more efficient.
Australia needs its national energy policy to be in sync with climate policy, giving efficiency the top priority ahead of exploiting the country’s coal and gas reserves in order to meet the Federal Government’s emissions reduction targets of 5 per cent by 2020 and 80 per cent by 2050.
The things that can make the biggest difference most quickly will also save, not cost, Australia money – such as energy conservation, and using the energy we do consume more efficiency, including smoothing out the peaks in demand. Australia needs its politicians to tackle the biggest barrier to this – the NEM.