Reviewing reviews
Do major reviews of our electricity market work?
Currently Speaking has been caught up in the writer’s strikes (Alex had a child and I’ve been travelling). We should be back to regular programming soon!
In electricity market circles, everyone can probably remember the first time they heard/got involved in a Major ReviewTM of the electricity market. Like notches in the trunk of an old tree, your first Major ReviewTM is a marker for when you got into energy politics/regulation.
I started working at the Australian Energy Market Commission (AEMC) in a graduate role in 2016 and in September of that year the entire state of South Australia blacked out (these two events are unrelated… probably). That day is seared into my memory, crowding around the communal monitors in our Elizabeth St offices, speculating about what happened, and what it meant. A total statewide blackout of this scale hadn’t really happened in Australia since the 1950s (although there have been other blackouts impacting hundreds of thousands of people).1
Before the South Australian lights were back on, calls for a review had already begun — enter the Independent Review into the Future Security of the National Electricity Market (a.k.a the Finkel Review), chaired by then Australian Chief Scientist Dr. Alan Finkel. In the small world of electricity bureaucracy, this was the start of a period of major upheaval. It was also my first Major ReviewTM experience.
Since the Finkel Review, we’ve had the Post-2025 Review run by the Energy Security Board and a series of major reviews by the Australian Competition and Consumer Commission (ACCC). Sometimes people refer back to the Parer Review in 2002, the Vertigan Review into energy market governance or the multiple reviews of the Renewable Energy Target since its inception. In May a review commenced into the Western Australian Electricity Market. Last year the UK ran a comprehensive review of all aspects of their electricity market. Likewise in reviews have recently been conducted in Texas, Ireland, Vietnam… I think you get my point — the sun never sets on a review of an electricity market.
But I’ve recently wondered how successful these major reviews are?
Note: By success, I’m referring to the perspective of whoever called for/runs/implements the review. Of course, the views on what constitutes success diverges massively when you start thinking about it from the perspective of consumer groups, industry, the various LinkedIn lobbyists etc.
In my short career, having worked for the regulator and in industry, it seems unclear at best. They certainly don’t seem to live up to their own fanfare. The initial excitement slowly fades away as the review is dragged down into the overlapping webs of minutiae that make up the electricity market and energy industry. It’s not like the reviews aren’t achieving anything, and at the same time momentous things are happening in electricity. But I can’t shake the feeling that these reviews are not effective vehicles for change.
So why does it feel like this? Am I actually completely wrong? Does everyone else think the same thing or am I being pessimistic?
What is a Major ReviewTM and where do they come from?
A Major ReviewTM usually comes about when there’s appetite to “get some things” done in energy regulation. Typically there’s some dissatisfaction with the normal, incrementalistic style of regulatory reform or because some event has galvanised enough political interest.
Loosely defined, a Major ReviewTM works out why the system/market is broken or not fit-for purpose - it’s a handy way for politicians and regulators to say: “don’t worry, we’re gonna look into that.”
Reviews of energy markets are typically set up through some combination of an independent reviewer and politics. Take the two most recent examples — the Finkel Review started after the federal government tasked Alan Finkel, an independent and trustworthy authority, with leading a review; and the Post-2025 Review started after the Energy Security Board was tasked with making sure the NEM is fit-for-purpose as the global energy context evolves.
Measuring success
Sometimes, it’s really obvious when a regulatory review fails. The National Energy Guarantee, intended to link energy and emissions, became a signature policy resulting from the Finkel Review. It swelled to a crescendo before imploding under its political weight, dragging Malcolm Turnbull’s prime ministership down with it.
Reviews don’t ever seem to come out as clear winners. They never seem to make a big difference — far from breaking the wheel, they tend to deliver more incremental regulatory change.
But “success” depends on what you want out of the process. Governments might be most interested in a diversion until electricity cycles out of the news. Or you’re trying to set up an energy business and "success” is that the regulatory framework doesn’t change and create new regulatory complexities for you to ponder. And if you’re an energy consultant, success probably looks like another multi-year review.
From the perspective of the reviewers, the two most recent reviews (Finkel and Post-2025) feel like they’ve fallen short of their own expectations.
The Post-2025 review (which I worked on in some capacity when I worked at the Australian Energy Market Commission) started in March 2019 when the Energy Security Board was tasked with advising on “a long-term, fit-for-purpose” design of the energy market. It’s been over four years, and not much has been achieved. There were four main workstreams: one petered out, one was taken over by the federal government, and two are still ticking along. Of all the work that’s been completed, a lot had already been underway and was subsumed into the Post-2025 Review.
When the energy ministers tasked the Energy Security Board with the review, they said:
“By the end of 2020, the ESB needs to recommend any changes to the existing market design or recommend an alternative market design to enable the provision of the full range of services to customers necessary to deliver a secure, reliable and lower emissions electricity system at least-cost.”
By that measure at least, the review was not a success. The timeframes to comprehensively consult, review and recommend changes to the energy market were short and the ESB didn’t make these deadlines. To be clear, I don’t want to imply this is the fault of the people working on these reviews — they were put in an unreasonable position. Instead, I think the failure sits with any expectation that a Major ReviewTM is some magical process for setting out major reforms (that may or may not be needed!) in a short timeframe.
The Finkel Review’s final report was published in June 2017 and made 50 recommendations. Most of the smaller ones were progressed (including the introduction of the Energy Security Board). Some of these changes were helpful, some not so much. Finkel also recommended the introduction of an emissions policy, which, following a series of unfortunate events, led to Prime Minister ScoMo — not quite a success in my opinion.2
In judging whether the review as a whole was a success, Dr. Finkel made it pretty easy for me. The executive summary said:
We will know that we have been successful if, in three years from now, our electricity system is no longer a topic of discussion in the general community, but is instead taken for granted.
There were a few other topics in the news cycle in 2020, but I feel comfortable saying the electricity system is still a significant topic of discussion.
Why do they seem to fall short of expectations?
There are two broad buckets of regulatory change. There’s the small, incremental improvements, and there are the big changes.
We’re really good at doing small changes and they don’t require a Major ReviewTM. However, with retrospection, a Major ReviewTM typically delivers a collection of small, incremental changes. This isn’t bad per se, but it’s definitely underwhelming and not really the vibe of the Major ReviewTM.
It’s the legitimately big, difficult reforms where Major ReviewTM tend to fall down. In the Post-2025 Review, the two biggest reforms were changing how we pay generators for supplying electricity, and introducing locational pricing on the transmission network. Without getting into the guts of them, both changes would have major impacts on energy markets and thus caused massive amounts of consternation amongst industry stakeholders trying to plan long-term investments. Changing how we pay generators (by introducing a form of capacity market) was scuppered, and locational pricing is going through its roughly 30th design iteration with no guarantee of success. The limited success of the Energy Security Board in these areas can be attributed to the near universal dislike of the proposals. It can also be chalked up to the Energy Security Board not having the political buy-in or capital to push through its ideas.
The biggest recommendation made by the Finkel Review was a price on carbon (at least in the energy industry). In this case, the independently run Major ReviewTM arrived at a recommendation that actually had some industry consensus. It did not have political consensus though. So, despite a bunch of minor recommendations from the Finkel review progressing, the biggest recommendation was anaesthetised by a Prime Minister who’s signature energy achievement was brandishing a lump of coal in parliament as a political stunt.3
In review
Major ReviewsTM hold some special, grey space in the broader transition of the energy industry.
They don’t neatly fit into clear cut failures or successes. Long lists of recommendations inevitably mean some will be implemented, some will be ignored and others forgotten. Kinda like watching a movie you were hyped for only for it to fall short of your expectations, as much as you want to enjoy the good parts, it hard not to focus on the shortcomings.
Sometimes a minor recommendation from a Major ReviewTM can be seen as significant by microcosms of industry, while passing unnoticed by the broader sector. The Finkel Review recommended that generator governor settings be tightened, which eventually lead (via the ESB) to the implementation of the Mandatory Primary Frequency Response, which has been a small but significant change to the operation of the power system and on large-scale generators.
Maybe this is all just how it is meant to work. Reviews could be commenced with the knowledge that they’ll achieve something but not everything. Or maybe it’s an inevitability that reviews never really get to achieve everything they set out to achieve — either they don’t find big problems to solve, or they do and the political appetite is lacking to actually implement it.
Despite all my whining, I’m not I can suggest a better alternative. Is it getting the “right” review? The “right” reviewer? Or do we just try over and over until the stars align.
Maybe the next Major ReviewTM will prove this entire post wrong. Perhaps more likely, some old industry veteran will tell me they had the idea for this blog post back in the 1980s.
Things happen
The Victorian government has progressed its gas transition roadmap and announced a ban on new residential gas connections from January 2024 (The ACT passed legislation last month allowing it to ban new gas connections, but hasn’t yet set a formal date). The peak body for energy networks have pushed back on decisions being made and would much prefer decisive action is deferred in favour of a review.
The world has been heating up. Vox writes a good (USA-centric) explainer on what’s exacerbating the heat waves.
Former chairman of the US Nuclear Regulatory Commission writes a scathing article on the future of small modular reactors.
I’m sure someone will correct me.
My cowriter Alex suggested he wouldn’t put this so diplomatically.
He did this when he was still the treasurer, but given his later propensity for silently assuming ministerial responsibilities, it feel safe to assume he was secretly PM at the time.
Yes, I think it is Churchill that is credited with the phrase, "never let a good crisis go to waste"! Major Reviews are the tried and tested way of taking the heat out of a crisis. The problem is, the electricity supply is a service that is deliberately set up to fail because you could spend 10 times the amount we do now and I doubt the number of crises would go down very much. Yet, I don't see anyone regularly telling people that truth day to day, let alone during or even after a crisis.
And we need to consider the incentives of review teams. Investigations seem to run on the idea that "no stone, no matter how small, will remain unturned" (ie little consideration of how small a role it might play) . Recommendations seem to follow the mantra, "no idea will be left behind" (ie little consideration of their value).
Finally, once the review report is published, it becomes politically difficult for bodies on the receiving end of the recommendations to push back on them. This can be constitutionally fraught because those bodies are usually required by legislation to be open-minded and consultative when considering regulatory changes and only implement them if they meet strict objectives (eg NEO).
Maybe it's time for a Major Review of the reviews