Australia’s electricity infrastructure undermined by $1 billion per year underinvestment

The resilience of Australia’s electricity infrastructure is being undermined by a chronic pattern of underinvestment in maintenance and upkeep, the result of rent-seeking by private electricity producers and a deeply flawed regulatory system.

That is the conclusion of a detailed review of empirical and qualitative data on the transmission and distribution system contained in a new report from the Australia Institute.

Key findings:

  • The electricity grid is facing increasing challenges: including increased severe weather events, bushfires, and the need to reliably integrate new renewable energy generation into the system. But years of underinvestment in capital and maintenance have left the system vulnerable to disruptions, failures, and disasters.
  • The report shows that maintenance and operating costs across the system should be increased by at least $1 billion per year, to match historical levels of real spending per electricity customer.Real per capita operating and maintenance expenditures have been slashed by 28% (in distribution) and 33% (in transmission) compared to 2006 levels.
  • The electricity industry is allocating just 15% of its revenues to capital spending, despite the needs for new capacity and upgrading – down from 25% in 2007.
  • Within this shrunken envelope of operating and maintenance costs, the industry’s focus has shifted away from hands-on upkeep of the grid in favour of managers, sales staff, financial experts, and other overhead functions. There are now 40% more office managers and professionals working in the industry (mostly in finance and sales) than electricians.
  • With this expansion of unproductive corporate bureaucracies, productivity in electricity has performed worse than any other sector in Australia’s economy: real output per hour worked has fallen one-third since 2007. This trend is worsened by chronic underinvestment in hands-on maintenance and upkeep, causing greater vulnerability to outages, accidents, and shut-downs.
  • A perverse pattern of behaviour has emerged in the regulatory system, whereby transmission and distribution companies submit requests for operating expenses which the AER seemingly rolls back – only to have those artificial budgets underspent by the companies, who are allowed to keep some of the savings. This artificial process has padded already-rich profits of energy companies, while ignoring the real needs of the grid for improved equipment and reliability.
  • The statistical analysis in the report is supplemented by evidence gathered from 25 front-line power industry workers, who attest to their personal experiences with underinvestment, poor maintenance, safety hazards, and environmental damage.
  • The report makes 7 recommendations for regulatory reforms that would allocate more resources to the real work of maintaining and upgrading the grid (so it is better prepared for future challenges like climate change and growing renewable generation), while reducing the waste of unproductive financial and speculative activities.

“The stresses on Australia’s electricity grid are becoming more severe – including climate change, bushfires, and integrating renewable energy. We should be investing more in the quality and safety of the grid, not less. But the combination of energy company greed and deeply flawed regulatory practices is producing systematic underinvestment in this vital piece of electrical infrastructure,” said Dr. Jim Stanford, director of the Australia Institute’s Centre for Future Work.

“Australia’s fragmented, irrational electricity system has produced soaring prices for consumers, shaky reliability, but soaring profits. It’s time to rethink the fundamental priorities of the regulatory system – starting with channeling more needed investment into the power grid,” Dr Stanford said.

“Over the past 15 years, high-vis maintenance and transmission workers have been replaced by telemarketers, spin-doctors and banking spivs. This has done nothing for network reliability, but has left us unprepared for the challenge of extreme weather and the incorporation of renewables to our energy supply,” said Michael Wright, Assistant National Secretary of the Electrical Trades Union.

“Substantial investment is needed to retool for an unpredictable future. Energy generation and distribution is the backbone of industry and jobs and privatisation has simply cost consumers and jobs. Governments must stop inviting private sector financial parasites to feast on our energy system and instead focus on the mammoth task of preparing for climate change,” Mr Wright said.

This article was publised on 6 May 2021.