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.