Electric power industry restructuring in Australia: Lessons from down-under. Occasional paper No. 20

Abstract

Australia`s electric power industry (EPI) is undergoing major restructuring. This restructuring includes commercialization of state-owned electric organization through privatization and through corporatization into separate governmental business units; structural unbundling of generation, transmission, retailing, and distribution; and creation of a National Electricity Market (NEM) organized as a centralized, market-based trading pool for buying and selling electricity. The principal rationales for change in the EPI were the related needs of enhancing international competitiveness, improving productivity, and lowering electric rates. Reducing public debt through privatization also played an important role. Reforms in the EPI are part of the overall economic reform package that is being implemented in Australia. Enhancing efficiency in the economy through competition is a key objective of the reforms. As the need for reform was being discussed in the early 1990s, Australia`s previous prime minister, Paul Keating, observed that {open_quotes}the engine which drives efficiency is free and open competition.{close_quotes} The optimism about the economic benefits of the full package of reforms across the different sectors of the economy, including the electricity industry, is reflected in estimated benefits of a 5.5 percent annual increase in real gross domestic product and the creation of 30,000 more jobs. The largest source of the benefits (estimated at 25 percent of total benefits) was projected to come from reform of the electricity and gas sectors.