We use cookies to improve your experience on our site and to show you personalised advertising. To find out more, read our privacy policy and cookie policy

Skip to Content
University of Wollongong Australia. Logo. University of Wollongong Australia. Logo. University of Wollongong Australia. Logo.
  • Search
  • Give
  • Library
  • Current Students
  • Staff
  • UOW Global
    • Our global presence
    • UOW in Dubai
    • UOW in Hong Kong
    • UOW in Malaysia
  • Menu
  • Study at UOW

    • Courses
    • Apply
    • Scholarships & grants
    • Accommodation
    • High-school students
    • Non-school leavers
    • Postgraduate students
    • International students
    • Moving to Wollongong
    • Study abroad & exchange
    • Global sport programs
    • Campuses
    Study at UOW
  • Engage

    • Future student
    • Alumni
    • Visit UOW
    • Woolyungah Indigenous Centre
    • Volunteer
    • The Stand Magazine
    • Community Members
    • Grants and funding
    • Give to UOW
    • Visit the Library
    • Key contacts
    • Educators & school teachers
    Engage with us
  • About UOW

    • Welcome
    • Our people
    • Services
    • Contacts
    • What's on
    • Global presence
    • Media Centre
    • Faculties & schools
    • Our vision & strategy
    • Our Aboriginal & Torres Strait Islander Strategy
    • Our reputation & experience
    • Locations, campuses & partners
    See more about UOW
  • Research

    • Our research
    • Researcher support
    • Research impact
    • Partnership & collaboration
    • Graduate Research School
    • Commercial research
    • Global Challenges
    • Media, news & events
    • Find an expert
    • Our people
    See more about research
  • Industry

    • Generator Lab
    • Advantage SME
    • Success stories
    • Industry research engagement
    • Equipment & Labs
    • Funding opportunities
    • Intellectual property
    • Collaboration for business
    • Collaboration for researchers
    See more about Industry
  • Alumni

    • Benefits
    • Outlook Magazine
    • Events & webinars
    • Volunteer
    • Awards
    • Honorary alumni
    • Testamurs & transcripts
    • Update your details
    • Your career journey
    • Contact us & FAQ
    See more about alumni
  • Quick links

    • Contact directory
    • Staff Intranet
    • Campus maps
    • Transport & parking
    • Key dates
    • Events
    • Password management
    • Jobs
    • Accommodation
    • Policy directory
  • Library
You are here More Pages
  • Home
  • About UOW
  • Media Centre
  • 2022
  • Should Australian governments nationalise the electricity sector? It’s not that simple

Media Quick Links

  • Contact UOW Media
  • Visiting campus
  • Image library
  • UOW key facts
  • Find an expert
  • News Corp subscription
  • Sign up for the latest news from UOW Media

June 20, 2022


  • Story By
  • Rabindra Nepal, School of Business
  • Photo By
  • Paul Jones
Share
Type
Opinion Pieces
Category
Business and Economy
Tags
EconomicsSDG 7: Affordable and Clean Energy

UOW in the News

Should Australian governments nationalise the electricity sector? It’s not that simple

To operate most effectively, the sector needs to balance the roles of private competition and government regulation


The shock suspension last week of Australia’s wholesale electricity market rekindled an age-old debate about whether the energy sector should be nationalised – in other words, owned and controlled by government.

The calls came after electricity prices spiked and supply tightened along Australia’s east coat, triggering a chain of events which eventually forced the Australian Energy Market Operator (AEMO) to suspend the national electricity market.

So should the flow of energy in Australia come under public control? And even if it’s feasible, would it prevent crises like the one we’ve just seen?

I’m an academic in energy economics with a special interest in electricity network privatisation. As my work has revealed, nationalising electricity is not a silver bullet. To operate most effectively, the sector needs to balance the roles of private competition and government regulation. 

What’s caused the energy crisis?

A recent cold snap meant more people were turning on their heaters, so using more electricity. Compounding that, prices on the wholesale electricity market – where generators are paid for the power they produce – surged for two reasons.

First, Russia’s invasion of Ukraine has driven up global coal and gas prices.

Second, about a quarter of coal power stations feeding the national grid were offline due to unplanned outages or maintenance. At times, renewable energy outputs also fell.

All this caused wholesale electricity prices to surge, which prompted AEMO to impose a cap on prices. The capped price was less than it costs some plants to generate power, prompting them to withdraw their capacity from the market. The situation became impossible for AEMO to manage so it stepped in to suspend the market indefinitely to prevent disastrous blackouts.

Generators must now supply the market with electricity and will be compensated for losses.

Public vs private

The national electricity market was created in 1998, and comprises electricity generation, transmission, distribution and retailers. It covers all states and territories except Western Australia and the Northern Territory, and delivers around 80% of the nation’s electricity.

Since the 1990s, state governments have tended to sell off power assets to private operators. The system is now privatised to varying degrees.

In Western Australia, Tasmania and the Northern Territory, electricity supply is fully owned by state governments. In Queensland, the state government owns most of the electricity supply system and only the retail market has been privatised.

The electricity system is mostly privatised in Victoria and South Australia, and partially privatised in New South Wales. However, governments still regulate electricity prices in Victoria, the Australian Capital Territory, Tasmania and regional Queensland.

The energy market suspension isn’t the only energy crisis Australia has faced in recent times. In 2016, the South Australian power market – a mostly privatised system – was suspended for 13 days.

Energy supply and affordability crises in the national electricity market have increasingly coincided with growing private ownership.

Western Australia, which isn’t part of the national market and has a system featuring significant state intervention in gas supply, has avoided the energy crisis currently gripping the eastern states.

My research found privatisation can lead to improved energy market efficiency, but only if coupled with strong regulation of the sector. This suggests states with fully privatised energy markets should shift to more government involvement. It also suggests public-owned states should privatise some assets.

Nationalising isn’t a silver bullet. That’s because market outcomes are the best outcomes for consumers if the market is functioning well. Having competition is the best way to bring retail and wholesale costs down.

But if electricity prices are so high that some consumers can’t afford it, it’s the responsibility of government to provide electricity to them – through subsidies, for instance.

Markets and government should co-exist

Experience from energy markets overseas shows that for a complicated industry like electricity to work, markets and government policies should co-exist.

Chile’s power supplies were state-owned until 1982. Then, it became the first country in the world to adopt a competitive power sector by establishing a wholesale electricity market. Today, that market is well-functioning because energy prices tend to reflect the long-term costs of producing electricity.

The success of this privately owned system is due to strong government-initiated reforms. They include effective regulation of transmission and distribution networks, strengthening sector institutions and modifying auction rules in the wholesale market to encourage new bidders.

Chile has also become a renewable energy champion while having a privatised electricity system, because market reforms were supported by policies to promote clean energy.

Other Latin American countries with market-based electricity systems, such as Argentina, also allowed for varying degrees of government involvement to make the market work.

 

As climate change worsens and countries struggle to reduce their greenhouse gas emissions, market-based electricity systems will become more difficult.

Everyone pays the cost of emissions in the form of global warming. But these costs aren’t factored into the costs of generating electricity. So without a carbon price, there’s little incentive for generators in an entirely privatised market to reduce their emissions.

The United Kingdom has recognised this. It has significantly intervened in the electricity market by introducing a mechanism to keep prices stable for consumers, and guaranteeing extra capacity in times of tight supply.

This helps to meet its climate change objectives by preventing supply shortfalls during the transition to renewables.

What lies ahead?

Australia’s National Electricity Market lacks the right balance between state and market.

The strong push towards the market that began in the early 1990s in Victoria, South Australia and New South Wales now needs to be clawed back somewhat. And in Queensland and Tasmania where markets can be established, this should be done – with policies to support energy security and environmental sustainability.

The experience of the UK and Latin America with partly state-owned electricity systems suggests Australia should not be sceptical of such reforms.

Active government involvement in the electricity sector is necessary for Australia to meet its ambitious climate targets, but this doesn’t mean totally abandoning the power of market forces.The Conversation

Rabindra Nepal, Associate Professor of Economics, University of Wollongong

This article is republished from The Conversation under a Creative Commons license. 


UOW academics exercise academic freedom by providing expert commentary, opinion and analysis on a range of ongoing social issues and current affairs. This expert commentary reflects the views of those individual academics and does not necessarily reflect the views or policy positions of the University of Wollongong.

 

Media Contacts for this article

UOW Media Office

You may also be interested in

Entrepreneurs showcase local business and compete for top prizes
iAccelerate to present regional entrepreneur program for First Nations Australians on NSW North Coast
Teklemariam overcomes challenges to achieve his dream
Services & Help
  • Current students
  • Library
  • Information technology
  • Accommodation
  • Security & safety
  • Pool, gym & retail
News, Media & Events
  • Media Centre
  • The Stand
  • Alumni Magazine
  • Research news
  • Events
  • Find an expert
Faculties
  • Arts, Social Sciences & Humanities
  • Business & Law
  • Engineering & Information Sciences
  • Science, Medicine & Health
Administration
  • Graduation
  • Environment
  • Policy directory
  • Learning and teaching
  • Financial Services
  • Access to information
  • Jobs
UOW Entities
  • Innovation Campus
  • UOW College Australia
  • UOW College Hong Kong
  • UOW in Dubai
  • UOW Global Enterprises
  • UOW Malaysia KDU
  • UOW Pulse
Connect with us
  • Facebook
  • Twitter
  • YouTube
  • Instagram
  • LinkedIn
  • Conversation
  • Contact us
  • Feedback
  • Give to UOW

Northfields Ave Wollongong,  NSW 2522  Australia 
Phone: 1300 367 869 
International: +61 2 4221 3218 
Switchboard: +61 2 4221 3555

  • NUW Alliance: Smarter Solutions for NSW
  • University Global Partnership Network (UGPN)
  • Reconciliation Australia
  • AWEI LGBTQ inclusion awards logo

Aboriginal flag Torres Strait Islander flag

On the lands that we study, we walk, and we live, we acknowledge and respect the traditional custodians and cultural knowledge holders of these lands.

Copyright © 2023 University of Wollongong
CRICOS Provider No: 00102E | TEQSA Provider ID: PRV12062 | ABN: 61 060 567 686
Copyright & disclaimer | Privacy & cookie usage | Web Accessibility Statement

Close