A decade ago Australia’s National Electricity Market (NEM) was identified as one of the world’s best. Now it is said to be one of the worst-performing electricity markets in the world.
This is because our electricity prices have gone up dramatically. While the Renewable Energy Target and various green schemes have contributed to higher prices, the main reason is due to network costs, which make up about half of our electricity bills.
Households and businesses bear the brunt of these costs and it helps explain why the cost of living continues to be one of the most concerning issues in the community.
I am surprised that the release of the Australian Energy Regulator’s (AER) draft decision on the amount the fully or partially state-owned network businesses in NSW and the ACT spend has not been more widely welcomed.
If applied, NSW and ACT consumers could see up to a 10 per cent reduction in their retail electricity prices. The AER’s work shines a light squarely on the inefficiencies of these state-owned assets and how state-owned electricity networks are poorer performers than privatised ones, like in Victoria.
It does this by comparing the efficiency of networks across the east coast of Australia and equalising differences such as length of networks in the larger states relative to smaller states so that it is comparing like with like.
While in electricity there are many factors that influence electricity prices, it is no coincidence that states where network businesses are state-owned consumers have seen their electricity bills increase more than other states.
They are the worst performers in an underperforming sector of our economy. The capital productivity of the NSW network businesses has fallen by more than 60 per cent in the past eight years.
Labour productivity in these businesses has also fallen during his period. States with privately owned electricity infrastructure are delivering relatively lower electricity prices while still maintaining a reliable supply of electricity. These private businesses continue to be regulated by the AER, which sets the costs that consumers can be charged for the distribution of their electricity. The state-owned networks are miles behind the starting line in terms of efficiency and in addition they have multiple constraints placed on them by governments.
With demand for electricity falling this is absolutely the time we should be looking to make our electricity networks as efficient and effective as possible.
When opportunities to improve inefficiencies in our economy present themselves they should be embraced. The need to privatise our electricity networks has never been greater.
The NSW Government’s plan to lease 49 per cent of the state’s electricity infrastructure is a great win for the people of NSW. It means money can be spent on much-needed infrastructure investment without the need for taxes or cuts elsewhere. Though the AER’s decision may mean less value to the government for a sale of the NSW assets, the full value from the sale will be realised through a more efficient economy for which everyone in the state benefits.
This will deliver greater economy-wide benefits for all NSW businesses and households. Australia’s economic growth will largely depend on our ability to improve productivity and this must start with our worst performers – our electricity networks.