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The national electricity mess is another example of why voters have lost faith in politicians

The NEM has become the National Electricity Mess, nee Market – more broadly, power mess – a national embarrassment.

The market is clearly failing and its management rules are archaic. Major players are gaming the system, exploiting the consumer by "gouging" excessive prices and profits, while supply is no longer guaranteed. Genuine reform is being undermined by incessant, irresponsible, short-term, partisan politics. It cannot just be patched up. Reform must begin with a blank sheet of paper, preferably with bipartisan support.

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It was based on the British system of some 20 years ago, which has since been jettisoned. It didn't contemplate renewables, storage, or disseminated distribution. The current political debate is riddled with opportunistic, often factually incorrect, political comment and point-scoring. Yet, reform is fundamental to our essential "transition" to a low-carbon society.

It stands as another classic example of poor, short-term, government – no forward thinking or planning. It has been accepted for decades that our ageing, coal-fired, now mostly privatised power plants will, indeed must, close, as fundamental to this essential transition, to be progressively replaced by renewables. But there has been little or no planning. Extreme weather events are now exposing the structural weaknesses, resulting in blackouts, or "load shedding", and excessive prices to consumers. Indeed, rising power prices, and restricted supply, are already threatening the viability of many industries.

It is largely pointless to attempt to apportion blame, as there are many faults, many are at fault. A major issue has been the exaggerated benefits of renewables, wind and solar. While the reduction in emissions and price are mostly indisputable – when the wind is blowing, mostly at night, and the sun is shining, for a few hours a day – the system is left to cope with the morning and evening peaks in demand, the so called intermittency.

These peaks are mostly met by drawing on coal-fired supplies, or increasingly, by open cycle gas turbines (OCGT), that can significantly reduce the overall emission reductions and price advantages of renewables. Indeed, it can be the case that emissions from OCGT generation, used to balance out the intermittence from renewables, creates more emissions, and at a higher retail price, than if the renewable energy source didn't exist.

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So, renewables have been allowed to develop, indeed have been subsidised to do so under the Renewable Energy Target (RET), leaving the NEM to pick up the slack, and consumers the cost.

The solution is cost-effective heat and battery storage, to spread wind and solar capability over a day, the technology for which is only about one or two years away. A reasonable policy response, apart from incentivising the development of storage technologies, would be to mandate that all new wind and solar projects to have effective storage (or their own OCGT backup) and all existing wind and solar farms to be retrofitted with storage within a specified period, not unreasonable given the subsidies they have enjoyed.

There is also a reasonable prospect, over a similar timeframe, for the development of cost-effective, solar thermal to provide 24/7 base load power, ultimately at a cost per kWh competitive with coal.

Mostly for political reasons, given the significance of the coal industry to our economy, and particular regions, the Turnbull government has recently sought to rekindle interest in coal, by notionally supporting "clean coal", and suggesting the need for a new "ultra-supercritical" coal-fired power plant.

By "clean coal" it means carbon capture and storage, but this is unlikely to be commercially viable, even if it can be done at scale, without a carbon price of about $100 a tonne. It is also highly unlikely, unless government funded, that a new, ultra-supercritical, coal-fired plant would be built, as it would cost about $3-4 million per MW, and take about four to five years to build.

Another major weakness of the NEM is that AGL and Origin are generators and retailers. As such, they have been able to operate old coal-fired power plants, not having to cover capital costs that have already been written off, while being able to charge excessive retail margins, and also exploit the generosity of the RET.

Of course, combined cycle gas fired power plants represent a "transition" possibility, but with the mess that is the gas market – with most gas committed to export, and restrictions on conventional and unconventional gas exploration and development –the rapidly rising domestic gas price is killing the prospect and further threatening a host of gas dependent industries.

In many respects it is already too late to minimise the near-term impacts of the collapsing power sector on power prices and supply, as coal-fired power plants close (the next Hazelwood on April 1), gas prices continue to rise and weather events compound.

It stands as a clear example of just why the electorate has lost faith in our politicians and in our political system.

John Hewson is a professor at the Crawford School of Public Policy, ANU, and a former Liberal opposition leader. He has business interests in the development of storage and solar thermal technologies.

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