Electricity and socio-economic policy settings

This section of the paper provides a brief overview of the electricity and socio-economic policy settings for Australia, with the aim of developing a contextual backdrop for assessing the policy, regulatory and institutional settings for renewable energy in Australia. This overview is carried out for three-time periods, to coincide with major changes in these policy settings. These time periods are: early years of the electricity industry (1880s and 1890s), era of state interventionism (1900s to 1970s), and market reform period (1980s to the present). Assessment of broader policy settings in these three-time periods – this paper argues – will provide insights into the underlying influences that have shaped these settings, and how these settings have shaped the policy, regulation and institutions for promoting renewable generation.
1880s and 1890s : In the years following the emergence of electricity industry in Australia, the policy setting of the industry mainly emphasised furtherance of business interests, through recourse tolaissez faire precepts, namely, private ownership as the best way to promote economic and social progress (Wilkenfled and Spearritt, 2004). This emphasis was consistent with the socio-economic policy settings of the time that prioritised the creation of a socio-economic order in which investors (especially, British) were given freedom to pursue their self-interest with British colonial government assuming a supportive role (Butlin, 1959). This priority essentially reflected British interests, for example, developing the continent as sources of raw materials (Attard, 2008), and as outlets for surplus capital and labour (Steven, 2000; Trainor, 1994). It also received substantial support from domestic capitalists whose existence and prosperity were closely linked to accelerated urbanisation and trade fuelled by British capital and technology (Gilchrist, 2017). Guided by the private-oriented policy setting of the electricity industry, private investment was drawn to the industry; most of this investment was made in coal-based power projects, due to the abundance of domestic coal resources and the existence of well-established coal mining industry (Saddler, 1981).
1900s to 1970s: Prompted by concerns about Australia’s economic vulnerabilities to external threat (such as, significant fluctuations in international demand and prices for primary commodities) and growing public appeal of Keynesianism, the policy priorities for socio-economic development began to shift in the early 20th century towards state interventionism, protection of the infant industry, and creation of a welfare society (Bell, 1997). These priorities were essentially reflective of a consensus between the labour and the business, known as the Australian Settlement (Kelly, 1992). The essence of this consensus was that protectionism could promote domestic industry, and create employment opportunities for urban professionals and factory workers (Castles, 1988). In order to subserve these priorities, state electricity authorities were created, and made responsible for managing power systems within the state territories (Sharma, 2003). The electricity authorities were deliberately encouraged to procure cheap and reliable indigenous fuels (especially, coal) for power generation – essential for promoting industrial growth and social welfare improvement (Rosenthal and Russ, 1988).
1980s to the present: Australia embraced economy-wide neoliberal reforms in the 1980s, indicating a fundamental shift in the policy priorities for socio-economic development towards market competition, private investment and deregulation (Quiggin, 2002). This shift was assisted by several developments that undermined the public appeal of Keynesianism. These developments included: the end of post-war economic boom and the onset of economic recession; the need to revive economic growth in new economic circumstances typified, for example, by stagflation and increasing economic globalisation; a view that revival of economic growth in these circumstances can only be achieved by improving international competitiveness of the national economy; an argument that improving international competitiveness requires improvement in domestic competitiveness first; a strong belief that domestic competitiveness is best measured in terms of economic efficiency; and a faith that this efficiency can be best improved through recourse to free market principles (Argy, 2002; Bell, 1997). The neoliberal reforms also received substantial support from internationally competitive, export-oriented industries (especially, resource industries), whose interests were well served by market liberalisation and de-regulation (Bernard, 1994).
Electricity reforms have been implemented in Australia as integral extensions of the economy-wide reform programs. These reforms led to significant changes in the Australian electricity industry, for example, vertical and horizontal unbundling of existing vertical-integrated electricity authorities, creation of competitive markets for electricity trading (i.e., National Electricity Market, NEM), establishment of sector-specific regulators (i.e., Australian Energy Regulator, AER), and privatisation (Moran, 2006). These changes have encouraged electricity companies to use cheap indigenous fuels (especially, coal and gas) for power generation, and to rehabilitate some old less-efficient coal power plants, with the view to minimise short-run marginal costs of electricity (MacGill and Healy, 2013; Sharma, 2003). Even in the recent years, the growing pressure for the Australian government to act on climate change has not led to a fundamental shift in the generation technology-mix, which continues to be dominated by coal-based capacities (IEA, 2018).
Based on the above discussion, some points are identified that will need to be considered in the assessment of the policy, regulatory and institutional settings for renewable energy in Australia. These points are as follows:
The electricity policy setting in Australia has, over three distinctive time periods (namely, classical, Keynesian, and neoliberal), focused on cheap and reliable fuels for power generation. This focus has tended to favour coal-based technologies, resulting in the formation of a coal-electricity compact. This compact trace its origin to the late 19th century, when private investment was drawn to the industry, as a response to the technological advancements in electricity and the business opportunities it offered. Most of this investment was made in coal-based power projects, due to the abundance of indigenous coal reserves and the existence of well-established coal mining industry. The coal-electricity compact was consolidated in the era of state interventionism (1900s to 1970s), as state electricity authorities were deliberately encouraged to procure indigenous fuels (especially, coal) for power generation to promote supply reliability. The coal-electricity compact was further strengthened after market reforms, as these reforms tended to encourage cost-minimisation and profit maximisation behaviours of electricity companies. These obviously favoured generation technologies using cheap indigenous fuels, especially coal.
The underlying electricity policy setting in each time period has predominantly reflected the wider socio-economic policy setting and associated interests. This implies that the coal-electricity compact is likely to remain dominant in Australia in the years to come, especially in the absence of a national consensus of developing a low-carbon economy. This is so because the coal-electricity compact is essentially reflective of the electricity policy setting, which derives its legitimacy from the underlying policy setting for socio-economic development of the country. Change in the coal-electricity compact (through, for example, promoting renewable generation) will lead to socio-economic and political consequences, which may in turn cause public concerns, and hence reservation, about further policy support for renewable energy. The recent announcement made by the Victorian government to extend the licenses of two large coal-based power stations in the Latrobe Valley for 17 years may lend some credence to this viewpoint.