Australia Japan Foundation grant recipient Felix Karmel spoke to ANZCCJ Members and guests at Mitsubishi Energy Corporation on his findings regarding Australia’s energy deregulation experience and what lessons Japan can take from it. Australia began its reform process in 1991, it was not until 1998 however that the national energy market opened. Since the time of reform, Australia has learnt much from the process, and Felix spoke to members about five key lessons the Japanese government could take from the Australian experience.
- Energy markets are complicated due to the mix of the monopolistic nature of transmission and distribution networks but in the generation and retails sectors, there are a number of competitive forces at play. This complexity underpins the need for careful regulation of the industry.
- Federal government and other political factors make it difficult to achieve successful reforms without there being a proper transitional process in place dampen price shocks to consumers and reduce the financial risk to government as well as private investors.
- Australia’s experience shows that there is substantial interest from the private sector to invest into the energy sector, including from overseas.
- Price volatility must be expected. Political instability and environmental policy changes have substantial impact on prices in the wholesale and retail markets.
- Customers may very well experience a price increase because whilst the competitive market will assign resources more efficiently, this does not always correlate to lower prices.
Looking back on research data, Felix identified key moments in which energy prices had increased dramatically, and the causation of price shock. Key factors included: low quality air conditioners joining the market, retailers being allowed to own generators, the introduction of the carbon tax, gas shortage and introduction of federal environmental policies. Felix spoke in detail to members about energy retailers being allowed to own generators. He argued that in his opinion this was a mistake as it allowed retailors to create a monopoly on the market and to price gauge (ACCC findings on the National Energy Market can be found here).
In his presentation Felix noted a number of government benefits that deregulation could bring, including: the freeing of government resources, an increase in private investment into the sector and a reduction in service delivery prices. When asked what the single most important lesson from the Australian scenario that Japan could learn from would be, Felix said it would be that Japan should deregulate the market slowly, don’t go too fast. There are a number of factors to consider, many of these interdependent and hard to predict, so regulators should take their time to deregulate this sector.
Link to full presentation here.