Will bringing back the SEC benefit Victorians?

Dan Andrews made the claim that Jeff Kennett’s privatisation was bad for Victorians and the promise that re-establishing the SEC will be better.

Firstly, was privatisation bad?

The prices realised by the sale made a major contribution to budget repair. Wholesale electricity prices were generally low for the following decade. And the Victorian network businesses delivered electricity at lower cost than their government-owned counterparts in NSW and Queensland.

Over the past 10 years, wholesale prices have been on a rollercoaster ride as policy uncertainty, the ageing of the coal-fired power plants, and the unexpected closure of Hazelwood created a challenging environment for new investment in the electricity capacity needed to reduce emissions while maintaining reliable supply.

The power generation workforce in the Latrobe Valley declined significantly in the 1990s. The SEC’s own restructuring meant that the numbers employed in electricity production in the valley fell by more than 50 per cent between 1989 and 1995. This was before the SEC was privatised. Through this period and beyond, productivity gains benefited the new owners and, arguably, Victorian consumers. But the costs were borne by the workers and their communities.

Privatisation continued the trend, and it was maintained in the drive to renewable power to reduce greenhouse gas emissions. Asset write-downs and early closure of coal generation plants would have happened regardless of ownership.

Premier Andrews referred to $23 billion as the cumulative profit to the private companies. The implication was that this money could have flowed to pensioners and families, had there been no privatisation. This figure is almost certainly wrong, at least since it appears to refer to an estimate of the companies’ earnings before they paid their financiers and tax.

Secondly, what are the proposed benefits of SEC 2.0?

The plan that SEC 2.0 will replace coal with cleaner, cheaper renewable energy to lower energy costs is appealing. However, the government has not made the case as to why this outcome would not be delivered through the current market with clear, consistent policy. Emissions from Victoria’s electricity generation fell from 2005 to 2020 by 34 per cent, more than the national average, through private sector investment supported by government policy.

Solar and wind power cost less than coal and gas. But lower generation costs will largely be offset by the cost of supporting the reliability of a power grid dominated by wind and solar. We should not expect big price reductions.

The government suggests SEC 2.0 will support the creation of 59,000 jobs. It is unlikely that SEC 2.0 investment in renewable energy could create this many jobs itself, although it is plausible that job creation of this magnitude will be necessary to achieve the government’s target of 95 per cent renewables by 2035. Again, it is equally plausible that clear policy would deliver these jobs through the private sector.

The proposal’s key difference is that SEC 2.0’s profits will be reinvested back into the network. Premier Andrews wants industry superannuation funds as investment partners. They will expect healthy returns – as should you and I, if our super is in one of those funds. How much profit would be left for SEC 2.0 to reinvest is not clear. The government should publish the business case as soon as possible.

Given these arguments, could a reincarnated SEC be a good thing?

The government is not proposing that SEC 2.0 will replicate the monolithic structure of the old commission. It will compete in an energy market very different to the market of the 1990s: the east coast electricity system is highly integrated, financially and physically, with a mix of new renewable generators trading energy across borders, retailers servicing different customer needs, and legacy coal generators finding they can’t compete.

If SEC 2.0 is going to deliver real benefits for Victorians, it should be as a state-owned corporation operating at arm’s length from ministers. It should have an independent board with energy expertise, not just political appointees. The government should provide the remit and then leave the corporation to make decisions without political interference.

The best case for SEC 2.0 may be to help drive an energy transformation moribund due to policy failure at a federal and state level. Regardless of SEC 2.0, Victoria’s energy minister must work with the national council of energy ministers to create a clear and predictable energy and climate change policy framework.

Reincarnating the SEC is a popular policy – it got the biggest cheer during Dan Andrews’ victory speech on Saturday night. But it won’t contribute to the cheapest possible electricity for Victorians unless the government gives it a clear investment mandate and avoids the temptation to interfere in its management.