“I’ve got the power”: The pros and cons of electricity privatisation

It’s no secret that rising electricity prices is one of WA’s biggest cost of living pressures. Many argue that the answer to reducing power bills is privatisation of the electricity network, like the eastern states. But is it all it’s cracked up to be? And how does it all work?

 

First, let’s get up to speed…

There are four components to Australia’s national electricity network.

  1. The generators
    Power stations that generate electricity.
  2. The transmitters
    Large transmission towers that carry high voltage electricity from power stations to substations.
  3. The distributors
    Power lines and poles that distribute low voltage electricity to homes.
  4. The retailers
    Companies that meter electricity use and sell it to homeowners.

In Australia, all the state governments once owned and ran all four components of the network, from power stations to poles and wires. However, that changed in the 90s in an ‘everything must go’ sale, with various components sold to privately owned operators.

Who owns what in 2022?

Here’s a breakdown of which states and territories have privatised their electricity network.

Fully privatised

  • Victoria
  • South Australia

Partially privatised

  • NSW
  • Queensland
  • ACT

Fully public

  • TAS
  • NT

Ok, so what’s the deal in WA?

Three state government owned corporations control the majority of WA’s electricity network.

  1. Western Power
    Builds, operates and maintains the electricity network infrastructure (in the South West)
  2. Horizon Power
    Generates, distributes and sells electricity (outside the South West)
  3. Synergy
    Generates and sells electricity (in the South West)

The rest of electricity in the South West (less than half) is generated and sold by privately-owned electricity generators.

Should WA privatise its electricity network?

Privatisation promises some compelling advantages that homeowners should ultimately benefit from.

  1. Show me the money
    Straight away, selling public assets to the private sector gifts government coffers (and therefore ratepayers) a healthy revenue boost. Instant gratification.
  1. Waste not, want not
    Governments are often weighed down by bureaucracy. Privately owned electricity corporations are profit driven, giving them more incentive to operate with maximum efficiency.
  1. Economics over politics
    State-owned enterprises are more vulnerable to political pressure and will often make reactive decisions that aren’t necessarily based on smart financial management.
  1. Power polls
    Publicly owned entities are often guilty of thinking in election cycles and may be reluctant to invest for the long-term benefit of ratepayers.
  1. Pressure’s on
    Unlike state-owned companies, private companies are held to account by shareholders who will initiate a takeover if they don’t get results.
  1. Survival of the cheapest
    As more companies enter the industry, increased competition will naturally motivate efficiency improvements.

Right, so I guess privatisation will work in WA?

Not so fast.

According to analysts, the privatisation of Australia’s electricity industry is arguably the biggest failure of the many government monopolies that were replaced by competitive markets in the early 1990s.

Research shows that in the nearly two decades between 1995 and 2012, the cost of electricity increased by 170 per cent – four times higher than the rise in the consumer price index. That’s not ideal. Just ask David Richardson of the Australia Institute, who reckons every electricity customer is effectively paying a $100-$200 a year premium to use privately owned electricity.

But wait – there’s more…

Reports also show that there is in fact no consistent link between privatisation and power prices in each state, whether you compare electricity bills, electricity prices, or the relative price index of electricity.

The real culprit?

Rising transmission and distribution network costs, regardless of whether the companies managing them are publicly owned or privatised.

The takeaway

Australia is the perfect case study for public vs private ownership in WA. If there’s no tangible benefit to home power bills either way, the sooner you go off grid, the better.

No wonder Australian homeowners are flocking to rooftop solar systems. We now have the highest uptake of solar in the world, making up 7% of the energy going into the national electricity grid – up 40% from 2020-2021.

 

Solar My Home WA are here to help you find the perfect solar panel solution for your home. Call today for an obligation free quote – (08) 6209 7709 or email info@solarmyhomewa.com.au

 

REFERENCES
https://theconversation.com/the-case-for-renationalising-australias-electricity-grid-73951
https://www.wa.gov.au/organisation/energy-policy-wa/electricity-industry
https://www.abc.net.au/news/2015-03-25/fact-check-does-privatisation-increase-electricity-prices3f/6329316?nw=0&r=HtmlFragment
https://www.accc.gov.au/system/files/The%20Australia%20Institute%20%28attachment%29.pdf
https://www.ablison.com/important-pros-and-cons-of-privatization/
https://redflag.org.au/node/7326
https://www.abc.net.au/news/science/2021-09-19/solar-panels-why-australia-stopped-making-them-china/100466342

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