Energy is a strange beast, because whilst it’s largely invisible, it is an absolutely essential service. As critical to the underpinnings of modern life as health care and education, it has — for the bulk of contemporary history — fallen to the appendices of life. Only relatively recently, as the energy sector has been driven more by big business and personal ideologies, has energy been brought to the front page of our lives.
Political leaders the world over are currently grappling with how to design meaningful and impactful energy policies which are broadly palatable to all stakeholders. This is particularly topical here in Australia where energy has been treated as a proverbial political football for the past decade. The current policy on the table, called the National Energy Guarantee (NEG), is under intense debate at present, but appears set to become the basis for the governing party’s future energy policy.
Energy policy design is particularly topical here in Australia where energy has been treated as a proverbial political football for the past decade.
In the midst of this debate, and with the emergence of consumer energy technologies, it’s easy to get dazed and confused. In the words of Cicero “to be ignorant of the past is to be forever a child” — translation: to know where we’re going, we need to know where we’ve come from. In this three part series we’ll step back in time to investigate where our energy sector has come from and how we’ve gotten to where we have. Part three of this series will take that history and project forward to imagine what the future of energy in Australia might look like, be it under the NEG or an alternate policy which has yet to be conjured up. So, join me for…
Part one: A brief history of everything… in energy
The “Luxocene” Epoch: 1840s–1920s
My grandparents (and probably yours too) grew up in a time before electricity was considered an essential service. Indeed, even where there was an electrical service, it was limited to urban areas and would be deemed very unreliable by today’s standards. The Luxocene Epoch started a couple of generations before my grandparents’, though, in the early 19th century. Gas was the primary energy source available and Australia’s first (and still largest) energy utility was formed. Australian Gas Light Company Pty Ltd (AGL) started selling gas for street lighting in Sydney Town in 1841. It wasn’t until the late 19th century that electricity started to power lighting in Australia. For the decades to come, electrical systems were confined in scale to municipalities. Today we might call these systems “microgrids”, as power was transmitted within one low voltage network across a relatively small and confined geographical region, usually from a small number of power stations. Diesel became the fuel of choice, and these systems were effective in powering Australian communities from urban to peri-urban and regional areas. Indeed a friend of mine lives in a (now) heritage building which once housed the DC diesel generator for their regional town, which commenced operation in the early 20th century.
Worldwide, electricity was starting to have a revolutionary impact on people’s lives. New industries and products emerged and the widespread adoption of electrical systems spurred economic growth and an unprecedented uplift in the quality of life. The late 19th century saw an historically important debate, and arguably the first ideologically charged battle, over electricity.
The so-called “war of the currents” between George Westinghouse and Thomas Edison centred around the topic of alternating current (AC) which was favoured by Westinghouse and direct current (DC), favoured by Edison. Apart from providing inspiration to one of the world’s favourite rock bands, the battle saw AC win out as the technology of choice for power systems in the USA and, later, other parts of the world.
This was critical to facilitate the outcomes of the next epoch (and is something we’ll come back to in part three of this series).
The “Lignocene” Epoch: 1920s–1990s
The emergence of Australia’s remarkable resources sector and the growth of industry ushered in the Lignocene Epoch.
As our capital cities grew in population, so did the size of their municipal energy systems. Our thirst for electricity grew too. Electricity proved invaluable, not just for lighting and heating, but also for refrigeration and entertainment. Spurred on in part by the rise of western consumerism, electrically powered household appliances in Australia were increasingly affordable and were starting to proliferate.
By the 1960s approximately 94% of Australian households had a fridge. Many of these had a television too, and later a microwave — all of which required electricity to operate. Where did all the power come from?
Australia, ever the “lucky country” has been blessed with extraordinary natural resources which have historically formed the foundation of our economy. Luckily for us, most of our major cities are located within a few hundred kilometers of some of the richest coal and gas deposits in the world. NSW and South East Queensland have mostly high energy content black coal (anthracite) and Victoria has mainly dirtier brown coal (lignite). These resources were perfect for powering the growing east coast capital cities because humankind had now perfected the use of high voltage AC transmission lines (thanks Mr Westinghouse!) to move power very long distances with relative efficiency. So rather than dig the coal up and transport it to the cities to burn there for generating electricity, we were able to build the power stations next to the mines and transmit that power to the cities. Post World War II Australia had also started to combine those municipal microgrids into interconnected systems, meaning the new centralised power plants and transmission lines could now connect to whole cities.
Our love affair with coal power blossomed and in the twenty years between 1965 and 1985 we built 19 coal fired power stations, representing some 21.5 GW of capacity. For the uninitiated the technical term for that much power is “epic” ;)
During this epoch, we also realised that coal and gas was in high demand from our international neighbours which bolstered our growing economy and created jobs (“jobs and growth!”). Indeed, it may have served to depress domestic energy prices during this epoch by helping to fund the massive infrastructure projects required to access the resources, but this strategy would soon prove to be a double-edged sword, as we’ll discuss in part 3 of this series.
The Lignocene Epoch wasn’t all ancient organic matter and hot air (coal and gas), though. Australia also has phenomenal mountain ranges which form the backbone of our river systems, and proved excellent for the application of hydro electricity generation. Small-scale hydropower was utilised as early as the late Luxocene Epoch, but hydropower really came into its own with the establishment of the Snowy Hydro Scheme in the late 1950s. A mammoth infrastructure project, “Snowy” was (and still is) a significant contributor to powering the southeast of Australia. Hydro power formed the foundation of Tasmania’s electricity system as well.
The construction of power stations, and the poles and wires to support the transport of electricity usually fell to the state governments, though in some cases the federal government as well. The municipal energy systems of the Luxocene Epoch were combined to create state-owned utilities. These utilities performed three main roles — they:
- built and managed the power stations (and sometimes sourced the fuel required to power them). We’ll call this “generation”;
- built and managed the poles and wires. We’ll call this the “network”; and,
- put all those system costs together and apportioned them to customers via a bill. We’ll call this “retail”.
These “vertically integrated utilities” — so-called because they do everything from making the power to sending you the bill — worked reasonably well until the state and federal governments determined that each of these roles were really different businesses, with different required functions and different risks. This coincided with a national drive towards privatisation of what were historically government functions in a push for efficiency. So in the 1980s and 1990s the states gradually re-regulated the sector to separate the monopoly utilities such that an entity could do 1 (generation) and 3 (retail) but not 2 (network).
Why this regulation? Networks are what’s known as “natural monopolies” — like roads, it only makes sense to build one set of poles and wires. A second set may improve competition but would result in an inefficient use of resources (not to mention a doubling of the eye-sore factor!).
Regardless of the amount the network is used, the network business is guaranteed to receive a regulated return on the value of its asset base.
So the regulations required that an entity could do the generation and send out the retail bill but a completely separate entity had to do the network. In most cases the state government continued to carry out this function because it was (and is) a very expensive exercise to build and maintain networks, so the taxpayer was best placed to make the investment. To ensure it was a good investment for the taxpayer and reduce the risk of capital intensive investments in what underpins an essential service, the regulations also mandated a fixed rate of return. That is, regardless of the amount the network is used, the network business is guaranteed to receive a certain percentage of the value of its assets from the energy consumers who use the network. If you haven’t already cottoned on to the flaw in this plan, it will become apparent in the next epoch, discussed in part 2 of this series.
It’s noteworthy that for most of the Lignocene Epoch there was no computerised management of electricity infrastructure. This means that managing supply and demand (which must be matched with near-perfect accuracy in electrical systems) was not automated and the system operators had to moderate supply to critical accuracy levels with very limited information on how much energy was being used at any point in time. This is akin to driving a car with only the speedometer to tell you how to use the accelerator, without being able to see the road! Whilst blackouts were more common than they are on today’s more automated grid, the operator of yesteryear should be commended for keeping the lights on most of the time with remarkably few control tools.
The Lignocene Epoch was in general the most peaceful of all the epochs. The price and reliability of electricity services were as un-noteworthy as the policy required to govern them. This extended period of unprecedented peace was — for better and for worse — about to come to an end…
Stay tuned for part two in which we investigate the more recent epochs that have crafted the system we have today, and significantly shape the system we’ll have in the future.
Footnote:
Energy everywhere is driven by three main factors: geography, economics and demographics. Thus, energy history varies by location. This article is based on Australia’s National Electricity Market (NEM) which consists of Queensland, NSW (+ACT), Victoria, South Australia and Tasmania. If you reside in WA, NT or access off-grid power, your energy system likely evolved differently.
Posted by Darius Salgo, CEO of Nexergy.
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