The return of public power to Victoria?


For several years now, high-ranking Victorian Labor figures have been publicly lamenting the loss of the state’s electricity assets. In the lead-up to the 2018 state election, Premier Daniel Andrews said ‘Privatisation has not worked. It’s only made things harder for families.’ At a Victorian Trades Hall climate conference several months ago, Energy Minister Lily D’Ambrosio said ‘Victoria was the big experiment in electricity privatisation and half of the problems we’re now having now can be tied back to privatised electricity.’

However—despite the fact that Victorian Labor has been in power for most of the time since the State Electricity Commission (SEC) was sold off—the party has only recently put forward a policy that bring public ownership back to any part of the grid. Significantly, their promise to revive the SEC was front and centre of the state election campaign.

For most of the twentieth Century, the SEC owned nearly all of Victoria’s electricity infrastructure—the Latrobe Valley’s coal-fired plants and the network of wires that transmitted electricity to the rest of the state. Under a succession of Labor and Liberal state governments in the mid-1990s, the SEC was broken up and sold off. Most of the latter happened under Liberal premier Jeff Kennett. This was part of a nationwide process of reform in the 90s and early 2000s. Single companies that handled power generation, distribution and retail were separated and either sold off or expected to compete with private companies in their layer of the market. At least, that was the theory.

Labor’s plan to revive the SEC’s was promoted as a major political turning point. One of Andrews’ recent Facebook posts read ‘Out: Privatisation. In: Government-owned renewable energy’. Labor’s candidate for Morwell, an electorate in the heart of Victoria’s coal country, called the election ‘a referendum on privatisation’. Supporters of privatisation depicted the policy in similarly stark terms. One Australian Financial Review headline screamed: ‘Andrews Nationalises Electricity. Kennett called the plan ‘the clearest indication we have seen yet that this Labor socialist premier is so totally irresponsible that he would put forward a political gimmick ahead of the needs of the community’.

Effective political rhetoric supposedly has to be simple, so we can forgive Vic Labor and their opponents for glossing over the finer points. However, if one does read the relatively small amount of publicly available finer points, it’s clear that the current plans for SEC mark II are largely just the state dipping a small government-owned toe back into the waters of a largely unchanged private market.

Labor isn’t planning to take back the transmission and distribution lines, and it has only said that it will ‘consider’ opening a publicly owned retail division. Most of the SEC’s activity will be building solar and wind farms, in which the state will own a controlling stake, with the rest held by ‘like-minded’ private investors—most likely industry super funds. These SEC-super fund renewable projects will compete with private companies selling power into the wholesale electricity market.

Unless the state is willing to chip in a lot more money, Labor needs to keep private investors on side too. Energy and Climate Change Minister Lily D’Ambrosio recently went on the RenewEconomy podcast—the outlet perhaps most closely aligned with green capital—to remind private investors that the SEC only plans to build around 4.5 GW of renewable generation and reaching Labor’s target of 95 renewable energy will require 17 GW. As such, she emphasised that there ‘would be more than enough room for the private sector’ and that her state would remain ‘a great place for them to invest’.

A minority government with the Greens may have led to the state government going further with the SEC plan. However, given Labor’s thumping return to majority rule, the plan is likely to be no more radical than press releases have so far indicated. Still, the foregrounding of anti-privatisation messages in Labor’s election campaign was significant, and the revival of the SEC may represent a meaningful point in a longer-term turn away from neoliberal economic policy.

 

State-Ownership and Lower Prices: The Queensland Experience  

After a winter of bank-account-withering electricity prices—and the longstanding political aversion to climate policy that might impose any cost on the public—it’s no surprise that Labor has also promised that a revived SEC will lower power bills. The argument is helped by the fact that prices have largely continued to rise since privatisation began, although there’s a confusing morass of debate regarding the degree to which privatisation caused those price rises.

According to Labor, there are two mechanisms via which the SEC will achieve this goal.

Firstly, as Andrews put it, ‘if something is abundant, it will cost less. If something is very, very scarce, it will always cost more’. While it’s true that more renewables could mean cheaper prices, basic neoclassical economics can’t be neatly applied to Australia’s wholesale electricity market. Under the current rules, the cheapest sources of power are deployed first and the most expensive last. However, all generators are paid the price of the most expensive source required to fully meet demand.

This means that when dirt-cheap renewables are supplying 90 per cent of power, but expensive gas generators are required for that last 10 per cent, the price will be set by gas. Between July and October this year, wind and solar set the price at 11 per cent of the time, which is roughly the same as gas. As more renewables enter the system, they will set electricity prices more of the time. To the extent that they do, Andrews’ supply-side theory will be correct. However, achieving lower prices will also depend on the cost of maintaining reliability in a grid dominated by intermittent wind and solar.

The second mechanism is that all of the SEC’s profits will be invested back into the network. Unlike the supply-curve explanation, this is a way in which the actual attributes of public ownership, rather than technology type, may lower prices. However, with no details about what this means beyond a single sentence in the press release, the degree to which it will achieve this aim is hard to say at this point. Having money that would otherwise be private profit directly re-invested into the energy transition is good in its own right but, by that logic, it would be even better if the projects were wholly government owned. Under the current plan, a large chunk of the profits will instead be returns for private investors.

Public ownership of electricity can have other effects on electricity prices, as shown by states that didn’t get wholly swept along by neoliberal reform.

Unlike Victoria, Queensland’s state government retains ownership of a large swathe of the grid, including three generation companies, transmission, distribution, and a large retail business. State-owned generators provided almost 70 per cent of the state’s power in 2021, although this is down from around 90 per cent in 2005. These generators are still primarily coal plants, but Labor says it will shut down the state’s coal fleet by 2036 and is also investing in state-owned renewables.

Queensland Labor governments often point to their ‘Asset Ownership Dividends’ program as one benefit of state ownership. According to Energy Minister Mick de Brenni, any profits that state-owned power companies make ‘are given back to Queenslanders’ through these dividends. However, Queensland residents don’t receive annual dividends as if they were company shareholders. Instead, the dividends go into the state’s coffers and can be spent in any way the government chooses. Despite this, the Queensland Labor government often draws a direct line between these dividends and its program of providing rebates to lower power bills.

These rebates—which are given to retailers and then deducted from household bills—have reportedly totalled around $1.19 billion over the past four years ($575 per household). According to my own quick analysis of state budget papers, Queensland has received over 2.6 billion in dividends from its energy companies over the same period of time. However, the state provides other electricity subsidies for concession-card holders, which cost roughly 200 million per year, so including that brings the total figure a lot closer to 2.6 billion.

The Queensland treasurer has said that these payouts are ‘only possible because Queenslanders own a significant stake in the state’s electricity assets’. However, seeing as the rebates don’t have to be drawn from public ownership dividends, any state government can do the same thing. The Victorian government offered all households $250 in 2022 and has promised to do the same in 2023, which is more than the Queensland government has paid out in any recent year. However, to curry support for its SEC policy, it’s likely that Victorian Labor will take a leaf out of their Queensland colleagues’ book and start drawing a link between public ownership and these subsidies.

I would be remiss not to mention that Queensland’s state-owned companies have often been accused of driving electricity prices up as a form of ‘taxation by stealth’. The claim is that, rather than announce an inevitably unpopular tax hike, the state government surreptitiously asks its companies to push up electricity prices, delivering big annual dividends for the state. The Queensland Labor government has always strongly denied this, and the Australian Energy Regulator (AER) has never issued any infringement notices against their companies for this type of price-gouging. However, some reports from the Australian Competition and Consumer Commission and other experts have suggested that the generators may have used their market power to act in a ‘non-competitive’ manner.

Following several years of high prices, political pressure on the Queensland government reached a tipping point in 2017. In response, Queensland ordered its state-owned generators to place downward pressure on prices, which quickly dropped by 25 per cent. The state then had the cheapest average wholesale electricity prices of any east coast state between 2017 and 2020. This directive was reportedly dropped in 2019 and, while other factors have almost certainly contributed, Queensland has had the most expensive prices of any east coast state for the last couple of years.

Such directives are another way in which public ownership can lead to lower power prices. They also go against the idea that state-owned corporations should operate at arm’s length from the government, which some influential commentators are arguing should be the model for the new SEC.

However, unless there are changes in the market rules or Labor’s plan, such dynamics are unlikely to play out in Victoria. With only 4.5 GW of renewables, the SEC won’t have anything close to Queensland’s 70 per cent market share. This means that, regardless of whether the SEC has a similar mandate to lower prices, it will have far less ability to do so. The fact that private investors will own a significant stake in SEC projects also makes it less likely that the government will offer such price-lowering directives, because they would cut into the returns of their financial partners.

In 2017, Queensland’s energy minister defended state-owned generators by saying that they were ‘operating just like the private generators under national electricity rules’. Perhaps he was right, and this may explain why the AER never penalised them. Still, it takes some of the sheen off Labor’s anti-privatisation rhetoric if publicly owned companies supplying an essential service are allowed to act just like private companies. This suggests that transparency, political engagement and public pressure are necessary to make public ownership work for the people.

 

Image: Yambuk Wind Farm (Ed Dunens)

Zacharias Szumer

Zacharias Szumer is a writer and musician who lives in Naarm/Melbourne. Some of his other writings can be seen on his website.

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