The energy white paper is privatisation under the guise of competition
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Version 0 of 1. The federal government’s energy white paper, released on Wednesday, might be “new”, but it is pushing the same old ideological agenda – justifying privatisation under the guise of greater competition. Does the government really want more competition in electricity markets, though? The minister for industry, Ian Macfarlane, seems confused about this question. Related: Climate change ignored in energy white paper that lets market rule future policy While his white paper says privatisation will increase competition, at the same time he tells anyone who will listen that the renewable energy target (RET) is leading to an “oversupply” of electricity. “Oversupply” is another word for strong competition. Oversupply is caused by new players entering the market and competing with the existing players. Existing players don’t like competition, as it means they work harder for customers and make less profit amid the “oversupply”. Clearly the profit-maximising strategy for the current players is to try to reduce the competition they face – by lobbying people like MacFarlane. Competition is exactly what the RET is promoting: more electricity from new companies and from new renewable sources. This competition is already having an effect. It has forced down the wholesale price of electricity, putting downward pressure on consumers’ power bills. Study after study has shown that consumers are the winners from the RET – the most recent study being the government’s own review. Consumers win because the “oversupply” means they get lower electricity prices. While the RET is highly effective at introducing real competition in electricity generation, it has been met with hostility from Macfarlane’s government. Even now they are trying to cut the amount of renewable electricity that is being generated. So the government wants less competition from the RET but claims it wants more competition in the energy white paper. Competition with renewable generation is bad, it claims, but if privatisation of state electricity assets will boost competition, that’s good. Confused? There’s more confusion to come. There is actually very little competition in parts of the electricity market because it is dominated by large players like AGL, Origin and Energy Australia. Other parts of the electricity industry are highly regulated because they are network businesses, based on “poles and wires”, which are natural monopolies. No real competition is possible here and privatising state assets is not going to magically create any. Most of the claims during the recent NSW election campaign around privatisation of electricity networks were little more than noise. The opposing claims by both parties – that the prices charged for the use of poles and wires would either go up or down – failed to appreciate that this price is set by a regulator. Public or private, the price is going to be the same. Privatisation will not lead to more competition or lower prices. Transferring the ownership from public to private hands will simply see the profits flow to shareholders rather than to the government. The reason the electricity price is regulated in poles and wires is because there is no real competition. The reason the electricity price is regulated in poles and wires is because there is no real competition and the market can’t be relied on to set a competitive price. If it was left to the market then current businesses, both private and public, would use their market power to gouge their customers. Rather than being about promoting competition, the energy white paper is an ideological drive by the government, which believes that the private sector can always do it better. This is about ideology rather than any sound economic advice. If the government was really interested in lower prices through competition then it would boost the RET. If the government is instead interested in pushing profits towards private firms then it would focus on further privatisation. The white paper does propose the introduction of smart meters and time of day pricing which highly engaged customers might be able to use to lower their electricity bills. Unfortunately, most electricity customers are not well-engaged, but are apathetic about their electricity use and electricity provider. Electricity customers could save money now if they shopped around, but the reality is that few do. And this is how electricity companies like it. As banks, super funds and insurance companies can attest, apathetic customers are profitable customers. Ideology is not just driving privatisation; it is also driving the government’s desire to cut the RET. Competition driven by new entrants supplying new sources of electricity might be effective at lowering prices but it doesn’t seem to fit the government’s ideological agenda. Related: Australia needs the renewable energy target (and should increase it) | Alexander White The government needs to decide if it really wants to increase competition and lower prices or if it just wants to pass profitable firms in a low competition market to the private sector. The government’s claim that it wants more competition in electricity rings hollow when it tries to cut policies that are achieving exactly that. |