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Powering up the SECV

Victorian Premier Daniel Andrews has announced that his government would revive the State Electricity Commission as an active energy market participant, if re-elected.

The State Electricity Commission of Victoria (SECV or SEC) was established in 1918 to supply Victoria with affordable electricity. By 1972 it had a monopoly on electricity generation, transmission, distribution and supply before most of its functions were privatised in the mid-1990’s. Today’s SEC is a shell of its former self.

Mr. Andrews’ announced that the SEC would be used to generate affordable renewable energy for Victorians. Under the plan, an initial investment of $1bn would be spent to deliver 4.5GW of power. An initial$20m will be spent to establish a new SEC office in Morwell from where projects can be planned. According to the Guardian, Mr. Andrews said that the SEC will “consider all options”, including becoming a state-run retailer, partnering with an ethical retailer or remaining solely in the wholesale market.

The SEC would assist the government with a new target of cutting emissions by 75% to 80% by 2035, via investment and the holding of a controlling stake in the new renewable energy projects. The balance of funding would come from “like-minded entities” such as industry super funds.

This is a welcome development in my mind.

If government is to spend big in renewable energy – and it needs to – then it should be able to recoup those costs as an investor. There is little merit in subsidising private enterprise only for the state to incur the cost and the private sector to run off with the profits. If the SEC operates firstly as a service delivery agency rather than a profit-driven government enterprise, it will put downward pressure on its private sector competitors and stimulate industry efficiency.

Unlike the 1990’s, the electricity market is now national, so it will be interesting to see how the SEC would operate in this changed competitive environment. If the government were really ambitious, it would ensure that competitive neutrality principles would not apply to the expanded SEC. I hope, too, that the SEC would re-enter as a direct retailer and benefit consumers with affordable electricity generated with efficiencies enabled by vertical integration. I’d expect that the SEC would be profitable after a few years and so would not rely on taxpayer funds to operate.

Other states in the national electricity market have government-owned electricity generators and retailers. These remain as remnants of former state monopolies; particularly Queensland and Tasmania. These now compete with private or privatised companies in the national market. What would set Victoria apart would be its re-entry into the market as a direct participant.

Predictably, private electricity interests are aghast. This is exactly how they should feel after price-gauging consumers for decades. The state also needs to take some responsibility after deregulating prices in 2009. Whilst SEC privatisation was the work of Jeff Kennett’s Liberal Party, prices deregulation was the doing of a Labor government. They knew what would happen but they didn’t care.

Now twelve years later, there has been a change-of-heart. Perhaps there’s been a realisation that electricity is an essential service that underpins the entire economy. Perhaps there is a realisation, too, that there is nothing wrong with a government entering an industry in the event of market failure.

Mr. Andrews told the media:

These assets should never have been sold. No one has won out from that except shareholders and private companies who are about profit, that’s their job, this is not a business, this is essential. … Decades ago, the Liberal Party decided to sell off our power to the highest bidder, those companies that bought our coal-fired power stations decades ago … have made \$23 billion in profits off pensioners, off families and businesses, right across our state.

Daniel Andrews

Few would argue that the national electricity market has served consumers or industry well. It hasn’t.

The proposal is not to re-impose a state monopoly, far from it. But the mix of government and private interests will serve each sector well; the private sector will keep the public sector operationally efficient and the public sector will keep the private sector cost-efficient.

For once, consumers will win. Let’s see if the expansion of the SEC ever gets off the ground.

Disclaimer

These views are my own, and do not represent the views of my employer.

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