Chapter 6 - The Electricity Industry in Australia: Problems Along the Way to a National Electricity Market

Abstract

This chapter describes how the Australian electricity market drew from the experiences of the United Kingdom and forged a national electricity market (NEM) out of the five interconnected states. In Australia prior to 1994, virtually all electricity was supplied through vertically integrated state monopolies. A decade later, the integrated monopolies disaggregated into different businesses with the competitive aspects of supply (generation and retailing) reconstituted into dozens of independent firms, many of them privately owned and the rest “corporatized” and operating at arm's length from their government owners. The NEM has proven effective in providing adequate incentives to encourage appropriate levels of new investment and the increased competition has driven prices down. Part of the system, which prior to 1994 was exclusively government owned, is now privatized, while some states have maintained government ownership. Despite shortcomings of government ownership, increased efficiency is observable throughout the industry; the available data does however, indicate that the private businesses have lower costs and better reliability. Future risks include government intervention, which might discourage optimal investment decisions, may increase costs, and could threaten reliability.