By Dr Cameron Murray and Aidan Morrison, cross-posted from Fresh Economic Thinking.

How Australia’s electricity market got POLITICAL and cost us BILLIONS

Why didn’t our experts get the same answers as those abroad on the cheapest way to generate and distribute electricity?

Australians will pay hundreds of billions of dollars for new investment in the electricity grid—generation, transmission, firming, and stability services—over the coming decade via their electricity bills or via taxes.

Breaking down how much of this investment is necessary regardless of generation type (e.g., coal, gas, renewables, or even nuclear) and how much is a cost premium for solar and wind is an important first step for understanding if these renewable energy sources are worth the cost.

Surely our independent experts have done this exercise?

Alas, no.

This is why the popular story in Australia that renewables are the cheapest way to power the grid contradicts the findings of much of the rest of the world.

In the article that follows, Aidan Morrison explains how the organisations we trust to find the lowest-cost way of keeping the lights on have avoided this.

Aidan previously explained here at FET how billions of dollars of costs to deal with the intermittency of renewables were left out of the analysis of costs by CSIRO. Since then, I have hosted electrical engineer Ben Beattie on the FET podcast, digging into the engineering problems from intermittent generation in the grid.

Mark Diesendorf was recently on the podcast defending the case for a renewables grid, addressing many claims. Ben has provided the information in the attached document in response to many detailed points made.

These details matter.

Getting them wrong means billions more on our electricity bills and higher electricity prices, which undercut the incentive for electrification and reduce the competitiveness of energy-intensive industrial operations.

Now, over to Aidan.

It was a blistering attack launched against the Coalition for the alleged crime of eroding the checks and balances of democracy.

In the wake of the firebombing of a Melbourne synagogue, Climate Change and Energy Minister Chris Bowen took to the ABC to reinterpret the words of an Opposition senator:

“And for James Paterson to suggest … that the Prime Minister and the Home Affairs Minister should be sitting down with the federal police and instructing them about who to arrest and what to prioritise, I thought was just an unbelievable misunderstanding deliberately of the separation of powers between politicians and the police.”

The principle is good.

Politicians should debate policy, enshrine it in legislation or statutes, and then maintain a degree of separation from the executive agencies that administer it.

But Bowen’s words are wholly inconsistent with his deeds.

Over the course of his term, Bowen has used something of a unipolar moment among energy ministers—a slew of Labor state governments and Matt Kean—to bend the priorities of supposedly independent energy market bodies to his will.

He’s even created a paper trail and filed it in forgotten drawers.

Thanks to the work of the Senate Select Committee on Energy Planning and Regulation, chaired by Senator David Van, the evidence is emerging.

At the centre of the story is a shadowy organisation called the Energy Advisory Panel, which recently faced questioning from the Senate committee on its final day of hearings:

“(The Energy Advisory Panel) operates by the delegated authority of energy ministers and is accountable to energy ministers,” Clare Savage, chair of the Australian Energy Regulator, acting in her capacity as the chair of the Energy Advisory Panel, told the Senate committee.

Here we have the effective chief of police for all things energy, with a statutory obligation to serve the interests of consumers, admitting to chairing an organisation that is quite literally an extended arm of ministerial power that bends back around to feed the minister’s secret advice.

What could possibly go wrong?

Alongside her were fellow members of the Energy Advisory Panel, Anna Collyer, chair of the Australian Energy Market Commission, the organisation that writes the rules the regulator is charged with enforcing, and Daniel Westerman, the chief executive of the Australian Energy Market Operator, which not only operates the market, but write the Integrated System Plan (ISP), the nation’s energy transition roadmap. The ISP’s preferred scenario is now de facto Labor policy for the energy transition.

All three have signed up to make themselves effectively private advisers to ministers under the Energy Advisory Panel. All their advice is confidential. There are no minutes. Even the Energy Advisory Panel’s charter and operating principles have never been published.

During the hearing on December 5, Labor senator Karen Grogan’s efforts to dispel any idea that there’s some kind of pro-renewables conspiracy emanating from these market bodies couldn’t have backfired any more spectacularly. The conspiracy isn’t pro-renewables, it’s pro-ministers, as revealed by the chair:

“We find the opportunity to come together and talk about the sorts of key policy issues that ministers might be considering useful … it gives us an opportunity to consider what ministers currently have on their plates and to look at our advice in that context. It’s certainly useful to us and, we would hope, useful to ministers as well.”

It was a moment of insight for energy onlookers, who had been confused (and frustrated) by the recent slavish devotion of these market bodies to the policy of the government of the day.

No specific instance could be more important than the decision by AEMO to bind every scenario considered in the Integrated System Plan to assume that Labor’s 82 per cent Renewable Energy Target is achieved by 2030. Given that almost no one considers this target to be achievable, it has single-handedly divorced our most comprehensive energy planning document from reality, and given a cloak of AEMO’s credibility to a purely political policy agenda.

AEMO’s documents confirm that the assumption of meeting this target is now one of the main drivers for the imminent $4.6bn spend on HumeLink, a transmission mega-project in NSW.

This is a concrete instance of a policy ambition driving premature investment in transmission, a risk AEMO has a statutory obligation to consider (National Electricity Rule 5.22.10). But its plans are incapable of comprehending this risk while uniformly assuming that all government policies, like 82 per cent by 2030, are inevitably successful.

Even more perplexing to energy onlookers has been the confidence with which AEMO has defended this clear abrogation of its statutory duties by pointing to other statutory duties it seems to hold in preference.

On October 23, Merryn York, the Executive General Manager for System Design at AEMO, told the Senate committee: “No, we’re only permitted, within the framework that we have as set out in the rules, to take those policies as set out in the target statement as an input …”

On December 5, this defence lay in tatters when Senator Matt Canavan tabled an FOI document obtained by the Centre for Independent Studies. Email exchanges revealed that AEMO reversed its initial proposal to leave the renewables share as a free variable. This happened after representatives from Chris Bowen’s department expressed a “preference” that the 82 per cent target for 2030 be assumed successful in all scenarios.

Not only was AEMO permitted under the rules to consider scenarios that weren’t forced to meet Labor’s renewables target, that’s what it intended and proposed to do. Until that proposal was tested with the government, and it was quickly persuaded otherwise.

The consequences for the energy debate are profound.

The current government has effectively adopted the ISP’s “optimal development path” as its policy, or at least as evidence that its policy is good. With a wink from that government, AEMO has decided to make the ISP model Labor’s policy goals as infallible. Never did an ice-cream cone more directly self-lick.

Other market bodies have willingly shed their statutory independence and shirked their obligations, to make the current government’s priorities a substitute for their own.

Right now, the AEMC (the body charged with writing the electricity rules) should be in the middle of a major review of the ISP. It had a statutory obligation to complete this review by July 2025 written into the National Electricity Rules.

But on September 5, it passed a rule change, requested by Chris Bowen, which pushed back its review by two years—conveniently clear of the upcoming election. The request for the rule change was approved by the Australian Energy Market Commission despite uniform opposition from consumer groups. Only the transmission lobby, the AER and AEMO were in favour.

Furthermore, this wasn’t advanced through the regular rule-change process but folded within the robes of a much larger rule-change that was being advanced on a fast track. Doing this almost certainly broke the National Electricity Law (NEL 96A), which permits fast-tracking only for matters that have been subject to prior consultation

This allowed the ministers to direct their own review more discreetly, shielding the ISP from the kind of deeper critiques that might unsettle the dominant narrative.

The AER effectively sanctioned rule breaches on two occasions to hasten the approval of HumeLink. The chair of the regulator, Savage, vigorously defended her decision to give AEMO two letters approving of AEMO’s intention to skip a mandated consultation. In Senate estimates, Savage said, “We wrote back and said, ‘Yes, we acknowledge that you have done that consultation process’ because to do it again would have been the same process, essentially, duplicative. And it is within our right to do that under law …”

Evidence received by the Senate committee contradicts this entirely. The Australian Energy Market Commission has confirmed that the object of the skipped consultation “has not been consulted on at the time…”, destroying the duplication narrative. And a written opinion from James Glissan KC says, “That discretion does not appear to exist other than in the mind of the regulator. It is not to be found in the legislative instruments.”

The regulator was also required by the rule NER6A.8.2(e)(1)(iii) to determine “the likely commencement and completion dates” for Humelink.

Instead, it approved a timetable for payments based on a schedule that the applicant’s (Transgrid’s) own analysis suggested has “less than a one per cent chance” of being achieved, with the most likely actual delivery 597 days late.

Because the regulator shirked its statutory duty to call out an unreasonable timetable, Transgrid will be paid early to deliver late. This is a blow to consumers but maintains the illusion that Labor’s 2030 targets (hard-coded into the ISP) can be maintained.

With such consistent decisions made by all three market bodies to protect and promulgate the narrative of government policy, one would think they’d been pressed into direct service to achieve ministers’ own policy objectives, not just those enshrined in statutes.

Indeed, that’s what’s happened. In the Energy Ministers Meeting communique from October 28, 2022, chaired by Chris Bowen:

“Ministers tasked market bodies with taking all necessary measures to ensure the delivery of these nationally significant infrastructure projects, targets, and plans within their specified timeframes…”

Those “projects, targets and plans” include plenty that are most certainly uneconomical or infeasible, such as Victorian offshore wind, and both Marinus Link cables by 2031.

Such an instruction from ministers is akin to the mayor of a crowded wooden shanty-town insisting that New Year’s be celebrated by issuing unlimited alcohol and fireworks to all people of any age. Then tasking the Police and Fire Brigade with “taking all necessary measures” to make that happen.

Just as the police and fire services have a duty to public order and safety that might conflict with such plans, the heads of these energy market bodies all share a duty to protect consumers from inefficient expenditure. But somehow they did not object to being tasked with rolling out a power system planned by politicians, and advancing it all with the imprimatur of supposedly independent expert bodies.

To the contrary, on August 12, 2022, all three of them accepted “Statements of Role” (SoR) issued by the Ministerial Council on Energy. Ever since, the official statutes codifying the role and objectives of those bodies have suffered an interloper—a ministerial hot-take on the official documents that clouds their proper purpose.

Most people don’t know these exist. AEMO’s only appeared on its website in October, over two years after being handed down, and less than two weeks before the Senate committee hearings examining its governance began.

These SoRs effectively codify ministerial by-pass of the boards that should provide a degree of separation between an organisation like AEMO and the ministers.

Before the Senate committee on December 5, Daniel Westerman tied himself in knots trying to explain where AEMO’s accountability did and did not lie: “We are not accountable to members for the performance of those (statutory) functions at all—noting that 60 per cent of our membership is held by governments…”

The SoR says the opposite: “Given AEMO’s important statutory roles and energy ministers hold majority membership of AEMO, this Statement of Role communicates energy ministers’ expectations for the operation and performance of AEMO…”

An unwitting senator Grogan started the line of questioning: “How do you preserve and safeguard your independence?”

Westerman’s responses exposed how badly he’s short-circuited AEMO’s board of directors, whose constitutional responsibility for discharging AEMO’s statutory functions should ensure that independence: “Our accountability is discharged through the ministerial council I attend.”

The burden of these errors was briefly on display on December 5, after Senator Van, in his closing questions, ventured the idea that there’s not a lot of accountability for AEMO.

It prompted a quick, unquestionably sincere reaction from Westerman, who put one hand on his heart and said: “I feel, our board feels, extremely accountable.”

Therein lies the problem. Westerman may feel extremely accountable, but the strain is more likely due to becoming gradually more conflicted. The board, which is responsible for hiring or firing him, should be his shield from the meddling of ministers. But instead, he and the other heads of market bodies have allowed themselves to become perched permanently at the foot of the ministerial table.

The stated reason is for them to provide advice on policy, but this murky relationship has clearly allowed plenty of advice to flow the other way.

Little wonder these organisations have prioritised policy agendas, and not energy consumers, so often.