The misunderstood market that lights our lives

A $20 billion a year market is hard to budge let alone reinvent. A better understanding of the nation's power framework reveals an imperfect but admirable beast.

Who am I?

I am about to turn 15 and I am one of the most important features in the lives of some 20 million Australians, most of whom have never heard of me.

Many of those in the know consider me an exemplary servant of the nation but others want to see me off as soon as possible.

Billions of dollars are won and not won every year through me and hundreds of millions more are saved every year simply because I exist.

I hold a world record.

Who am I?

Clue: my nickname is 'NEM' even though I am not what it says I am.

The answer, of course, is the so-called national electricity market, which isn’t national because it doesn't serve Western Australia or the Northern Territory.

John Pierce, chairman of the Australian Energy Market Commission, the rulemaker and chief watchdog for energy supply, said this month: “It’s a market still in its teens and continuing to develop.”

On the other hand, the Clean Energy Council’s policy manager, Tim Sonnreich, told the Fairfax compact papers recently: “It’s not a question of how the market can continue (in its present form). It’s already changing. The question is: how we want it to change.”

The NEM serves 89 per cent of electricity consumption in Australia today and the majority of this demand is concentrated in a relatively narrow band within 100km of the east coast – but stretching 5000km (that’s the distance from Moscow to Lisbon) from north Queensland to Tasmania in the south and South Australia in the west.

This makes it the longest interconnected power system in the world.

The market covers six jurisdictions covers and includes 200 large generation units, five state-based high voltage transmission systems linked by cross-border cables and 13 distribution networks carrying electrons to homes, schools, hospitals, offices and factories.

There are so many aspects of the NEM that are lost to view for the nine million electricity account holders (residential, commercial and industrial) on the east coast that it would take a small book rather than a commentary to do justice to them all.

Like the fact that some 30,000 people are employed in the NEM, from workers on coal mines, gas fields, dams and wind farms along the supply chain to men and women in offices operating computer systems – and thousands more are working for service businesses whose sales to the power sector are worth about $8 billion a year, ranging from multi-billion dollar transformers to laptops and ballpoint pens.

A failure in the quality of work on the supply chain can ruin your day – whether through a blackout, a glitch that fritzes your fridge or a miscalculated bill that nearly gives you a heart attack.

Their relatively few mistakes are the topic of media headlines. 

The fact that, collectively, they provide some of the world’s most reliable and affordable power passes virtually unnoticed.

The fact that their emergency crews – known in the trade as 'line workers' – are on call 24-7 to keep the electrons flowing and do their best work when floods, high winds and fires have done their worst gets very little recognition.

Our surf lifesavers are collectively national icons – who even knows the power crews exist until the lights go out?

Another of the things your average consumer doesn’t appreciate is that the NEM is a giant casino, its workings increasingly influenced by computer systems calculating who will want supply when, where it can be most cheaply sourced and how it can be sold to greatest commercial advantage.

Some $20 billion a year is wagered in this market with the energy retailers at the sharp end of the system.

Very few retailers have 'come a gutser' over the 15 years of the NEM and there are elaborate systems in place to cover a commercial disaster but there is lingering concern in the industry and among regulators that, given all the fiddling with policies and rules, one of these days a larger retailer may trip and fall with consequences much more difficult to resolve.

Something everyone knows these days is that billions have to be spent on infrastructure to keep the NEM going – we know it because the past five years has seen more than $43 billion spent on networks alone, resulting in highly unpopular price spikes.

The people of the NEM are paying twice as much for electricity today as they were a decade ago and to say they don’t like this is an understatement, but every power engineer knows they would like blackouts and brownouts even less.

Keeping the NEM going is not just a matter of network capex.

The market has seen more than 13,000 megawatts of new power station capacity constructed since it began operating in 1998-99 – that’s around another $20 billion in capital outlays and the Gillard government-imposed renewable energy target is going to need another $20 billion spent on wind farms (mainly) over the rest of this decade.

What the NEM will look like when it turns 30 – in 2028 – is a topic of fervent (some would say feverish) discussion with radical environmentalists wanting to feature more and more renewable energy, some engineers and others arguing for a shift to nuclear power and existing suppliers warning continuously of the costs and risks involved in massive change.

The hardheads argue that, notwithstanding all the noise from the green corner, the NEM at 30 is most likely to be much the same as today, highly reliant on black coal, brown coal, gas and hydro-electric generation linked to customers by more than a million circuit kilometres of cables and some 700,000 transformers.

How many wind farms it will have then will be more than a little dependent on what a Coalition government, in office from September this year for perhaps another decade, decides to do about the RET, carbon pricing and subsidy schemes for green energy.

Whatever these decisions, few things are more certain than that most Australians will still have their lifestyles dependent on the NEM for years to come.

That the teenager can be improved is a given.

Just designing an effective demand-side response structure is estimated to be capable of saving NEM consumers $2 billion a year – but how to effect worthwhile reform rather than pursue risky ideological flights has been an issue from the get-go and the task is not getting any easier.

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