It is not easy to write an inaugural column; there are no tracks to follow and many potential pitfalls. So, when my good friend Rick Bush asked me to write the first contribution to this column, I was a little apprehensive. But, he has the power of persuasion.
I am grateful to Rick for giving me an opportunity to share insights I have developed during my involvement with the electricity industry. I hope my remarks are taken as sharing the benefit of hindsight rather than taking parting shots at an industry that has contributed more than any other to raising standards of living throughout the developed and developing world. In most countries, electricity industry reforms have seen T&D — the so-called wires businesses — being separated from the competitive retail and supply businesses. We were encouraged to believe that market-based reforms would provide efficiency gains inherent in competition. Unfortunately, issues critical to the reliability of supply were too often ignored or given too little consideration.
Absence of Coordinated Planning
Of singular concern to me is the absence of purpose-driven central generation planning in a competitive market environment. In Australia, as elsewhere, we have consequently seen increasing erosion of generator reserve margins below what is necessary for ensuring the reliability that is in line with customer expectations or with that of an industrially developed country. This should be a grave concern for governments, industries and other stakeholders critically dependent on reliable and secure electricity supply.
Unbundling of electricity prices has increased consumer awareness and scrutiny of network charges. In particular, interconnections have varying impacts on the commercial interests of market participants. In general, generators face more competition and customers get lower prices from stronger interconnections; thus, there is an issue of wealth transfers between winners and losers. Consequently, both groups take a keen interest in all new interconnection proposals. It's not hard to guess which group has the clout to tilt the balance in its favor.
The result is that proposals for network development often require extensive justifications and consultations. These invariably result in delays in project approvals and completion. We are edging toward a situation where network reliability is being ignored, where overregulation is bringing about paralysis, where self-interest is creating unwarranted interference, and where we are seeing a consequential escalation of project costs.
I am relieved to observe that, as a result of the recent blackouts in North America and Europe, people are acknowledging that the primary responsibility of our industry, its regulators and governments is to provide a reliable electricity supply, or to paraphrase “to keep the lights on.”
Inadequate Reactive Power
Another critical issue in almost every mature network is adequate availability of reactive power needed to ensure proper voltage levels. Even more critical, we must secure sources of dynamic reactive power to control potential voltage collapse in the event of critical multiple contingencies. At the same time, we must also juggle issues that include managing aging infrastructure and meeting continuing growth in demand, while minimizing adverse environmental impact and meeting the demands of our customers and our companies, whether privately or government owned.
Perhaps the biggest change for T&D in Australia in the next few years will be the introduction of a single regulator, the Australian Energy Regulator, and a new policy-maker, the Australian Energy Market Commission. The hope is that these two bodies will eventually provide consistent regulation of the electricity market in Australia. This will undoubtedly drive the various state-based businesses toward the achievement of national standards and allow better efficiency comparisons across the whole nation. The challenge will be to overcome state and regional interests in order to achieve a national approach to issues facing the industry.
Reliability of Supply: A Critical Issue
The primary role of transmission is to ensure reliability of electricity supply and, at the same time, promote competition in the contestable parts of the industry through the provision of a reliable delivery infrastructure on a transparent and nondiscriminatory basis.
I am confident that the Australian electricity sector will build on its success to date and achieve continuing performance improvement. My confidence stems from the growing awareness of the need for a strong and efficient transmission network as an essential enabler to electricity market performance. But I firmly believe that the reliability and security of supply is far too important to be left to unpredictable market forces. As owners of this critical infrastructure, our task is to ensure the lights remain on.
David Croft recently retired as the chief executive and managing director of TransGrid, Australia, after leading the organization since its inception 10 years ago. He played a key role in the structural reforms in the Australian electricity supply industry, including implementation of the State Electricity Market in New South Wales.