The Ideal Energy Market

What would the most efficient energy market look like?

It doesn’t require retailers to function. The NEM rules allow for Retailers but does not require them to exist. Getting rid of the retailers is good economics, although most economists couldn’t conceive how this could be possible (they aren’t engineers!), or allow it to happen (hey, who’s running things here?). For the last ten years it has been an economist who has stood between Energy Australia management and the shareholders (represented by the Finance Minister and Treasurer of NSW).

It needs a lot of regulatory trimming. Many efficiencies are simply not possible under the existing NEM regulations. Unlike the UK for instance, Australia has had no substantive regulatory movement in a decade.

The political process is flawed. For example, a policy change that required better network statistics (less outage) is responsible for substantial cost increases (about 25% of each of the recent and future changes). This requirement was opportunistic, and gleefully accepted by the networks (there’s another wad of capital and with guaranteed return of 8.5%).

The AER is supposed to review and contain energy infrastructure costs. In reality it is close to being a rubber stamp. It is an organisation full of economists with no in dependant engineering input. All it does is compare proposals to the basket of Australian network companies; no international benchmarks are used. They are unable to evaluate the alternatives (efficiency, demand side, load shifting etc) because they are no equipped technically, and of course the network companies just want to spend the money.

It would join consumers directly to the market without the retailer interfering with pricing and trying to remove cash from the system. This requires meters that support 5 minute intervals and a suite of applications to support supply and demand at each point.

There is an interesting precedent for this kind of system. Hi-end GPS systems provide real time road conditions so that decisions can be made by each vehicle on the optimum route (based on time, cost, fuel, or whatever). The intelligence is gathered in real time by monitoring taxi transit time all over the city; this data is provided to a central point (the RTA) and then broadcast over an FM-SCA channel.

In the case of WattWatchers WAN-connected AUDITORs, real time information is gathered at each consumer and processed at WAN-connected server where any kind of global statistic can be generated and any kind of application be executed. This enables optimisations that can slow energy price increases, create better conditions for renewables, reduce costs, and (the economists will like this bit) redistribute resources.

About half the increases in energy costs is from increasing gas and coal prices, driven by exports. Maybe the miners should be subsidising national energy costs. Maybe Julia could mention this when she meets the miners next time.

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