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Tag: Economics

27/02/2021

Electricity Pricing in Crisis Situations

27 February 2021

Texas just had a major problem with electricity supply caused by an extreme weather event and the fact that their grid was not connected to the rest of the USA to allow them to import power to the state. But Australia has a similar market-driven model where generators bid to put electricity into the grid. The price is set by the last bid to get to the quantity that is needed. This allows the gaming of prices by collusion between generators, which is probably the reason that prices have remained high- the competition that is supposed to lower prices is ‘imperfect’. Interestingly, no one gives this as a reason.

Most Australian retailers buy power, average the wholesale prices and sell to the consumer. Wholesale prices on the National Energy Market vary widely and can be watched for free in real time on apps such as NEM Data.

When a massive weather event occurred in Texas the wholesale price went through the roof. Would our bills be similarly affected? Possibly, as when South Australia had a similar problem their connection to the national grid was blown down.

A few electricity retailers in Australia merely sell at the wholesale price and take a fixed supply fee, which is cheaper unless huge price spikes come due to unforeseen events.

One aspect that has been neglected in public discussion in Australia is Demand Management, which involves cutting demand, rather than increasing supply. It would be possible, for example, to have customers notified that prices were very high and have them shut off unnecessary power, such as air-conditioning. This could be refined to be more selective, turning off the cooler but not the fan intermittently. It could even be done remotely and houses could have circuits that could be cut off if power was short, and circuits that were considered vital, like lights and frigs.

It would be possible to get an SMS us to tell us that power was very expensive and to turn off whatever was possible. This assumes the customer is on wholesale prices- otherwise it is the retailer’s problem. But the issue and some technological and behavioural options need to be discussed.

In the meantime I am on wholesale pricing and am writing to my retailer about SMSs.

https://theconversation.com/texas-was-a-warning-australia-needs-to-rethink-the-design-of-its-electricity-market-155856?utm_medium=email&utm_campaign=The%20Weekend%20Conversation%20-%201874518280&utm_content=The%20Weekend%20Conversation%20-%201874518280+CID_4970c3abdf247db828ca44fdfbdfbc9a&utm_source=campaign_monitor&utm_term=Texas%20was%20a%20warning%20Australia%20needs%20to%20rethink%20the%20design%20of%20its%20electricity%20market

27/02/2021

The Cost of Colonialism

27 February 2021

Most of the wealth of the West is built on the labour of countries that are paid less.

The British Empire was built on exploiting other countries. India the most, being the biggest, but the gold of Africa and the riches of Australia and Canada were not trivial.

Colonialism pre-1900 insisted that the coloniser took over, and in Britain’s case put their flag on the colony’s flag. After 1900, things became a bit more subtle. The financial arrangements were made, but not advertised on flags. The US in the Philippines is a good example, or its efforts in South America.

It is good that this is discussed as in the article below. It is the first step in change, though note that the article is from 2018, so the discussion is by no means inevitable.

As there is free trade since WW2 top level capitalists get stuff made in low cost countries then sell it in high cost countries. The rip-offs continue but there is still a gradual transfer of both capital and expertise to developing countries, as well as the transfer of jobs, that is squeezing developed country jobs.

The greatest challenge for the next generation is to have justice between nations without the West’s lifestyle being destroyed; you could call it a controlled climbdown. Some method of evening the wealth within Western countries might be a start.

www.aljazeera.com/opinions/2018/12/19/how-britain-stole-45-trillion-from-india?fbclid=IwAR0JosFy8foda9iCMA-arjrccEEgsNUeQVINetrH3PoILVAGutePbgNHEMo

12/02/2021

Value Capture and Equity in Infrastructure Development

3 February 2021

One of the ways to finance new infrastructure projects is to capture the extra value that they produce. A rail line makes a suburb far more valuable, particularly the areas around the stations. As it is planned some areas can be sold, or the government can develop the central areas and charge higher rates or a percentage of the increase in value when the land is sold. Simply to buy the land, built the railway and let the developers make all the profit is just plain dumb and is why there are so few rail lines in Western Sydney.

But there seems no sensible plan. The Federal government paid 10 times as much for some non-vital land to a mate, and now seems to be squeezing smaller landholders as they compulsorily acquire the land. If the land is going to be worth a lot more because of the railway, the people who are forced to move should get a bit extra for their trouble. This is only fair.

What is needed is a public formula that gives a fair price when the land is acquired and some value capture for the taxpayer. Railways should be self-financing, with fairness for all.

It seems that the governments are both corrupt and inept. With all the consultants floating around a formula should be proposed, debated, decided and implemented.

www.smh.com.au/national/nsw/sickening-to-watch-scale-of-acquisitions-for-airport-line-upsets-landowners-20210120-p56vjy.html

05/06/2020

Housing Stimulus: More Middle Class Welfare 5/6/20

Successive governments have used the building industry to pump up the economy on credit. How so? For decades the tax deduction on negatively geared real estate has made housing a favoured investment. It has been the no-brainer way to make money. You borrow to own a property, and as long as it is your, all the capital gain is yours. So the lesser fraction that you own, the greater the percentage rise in your total assets. And since you save on tax and gain rent, it is far better than shares or other assets. If you ask to borrow 90% to buy shares, no bank would lend you 90%. They would fall about laughing, and you would be taking a big risk. If you wanted to borrow 90% of real estate, no problem- all perceived as low risk. How come? Because Australia’s private debt is rising and is now the highest in the world. This little Ponzi scheme has a cost. We have the best houses, which are the most expensive relative to our incomes, and we have a huge national private debt, which means that we pay interest to foreign banks and have no money to develop and own our own country. Like all Ponzi schemes, it is OK as long as you sell out before the bubble pops. The older generation are doing this, cashing out as the younger generation takes up the huge loans that are now necessary.

The tax department got less money to create this mess, so public housing was not built, and there is a huge shortage of public housing. Because prices are so high there is also a problem in affordable housing as wages in the real world have stagnated as globalisation allows jobs to go offshore to be done more cheaply by third world people. The negative gearing thing amounts to middle class welfare, where those who had one house were able to buy more, and those that did not merely saw rents and prices rise. Labor tried to address this and lost the election.

Now we have a recession, worsened by the COVID-19 crisis and the taxpayer has to step in, making more debt for the future. So what projects to spend the money on? More middle class welfare! Those who already have $150,000 to improve their house get another $25,000 from the future taxpayer, the young people of today.

It is merely another example of the Morrison government’s lack of commitment to a fair go for all. This could be a huge opportunity to build social housing to help those who have been left behind. Is the excuse that the projects are not ‘shovel-ready’? The government could pay for the huge outstanding renovations and repair bill on the public housing, which has been neglected for 30 years. Surely these repair lists on yellowed paper could be found and actioned.

Morrison governs for his voters, not for the country as a whole. His policies increase inequality, which stores discord for the future. This last effort will further the Matthew Effect, named after the biblical quote, ‘For to every one who has will more be given, and he will have abundance; but from him who has not, even what he has will be taken away’.

— Matthew 25:29, RSV.

www.theguardian.com/australia-news/2020/jun/03/morrison-government-to-offer-25000-grants-to-help-build-and-renovate-homes

01/05/2020

Submission to Senate Inquiry into Adequacy of Newstart, 30 May 2019

Author’s CV I am a medical doctor and retired NSW MLC with some practical experience of the welfare systems and some knowledge of economics. Currently I am working with injured people who receive (or do not receive) Workers Compensation or CTP insurance benefits and who transfer to or are rejected by Centrelink for the DSP […]

28/04/2020

Limits to the Market and a Solution for Australia? 15/5/17

Since the last two world wars were over markets, it was assumed at the conference at Bretton Woods that if there were free markets everywhere there would be no wars and countries who did well would prosper. It worked. Germany and Japan traded in markets that had been denied to them pre-war and ‘won the […]

26/04/2020

Capitalism-How Will it End? 1/2/17

Capitalism is so entrenched as the major aspect of social organisation that when anyone in the Greens questions it, this is assumed to be electoral doom. But there are intelligently argued essays about its limits and its problems. I recently discovered Wolfgang Streek asking, ‘How Will Capitalism End’ in a heavy but still readable essay […]

26/04/2020

Economic Ruminations on the COVID-19 epidemic 29/3/20

All governments are very concerned about the economic effects of the COVID-19 pandemic as well they should be. The medical costs will be huge but as is being belatedly acknowledged the whole of society is to shut down. Most industries will stop. Few will work; nothing will be produced and there will be much less […]

02/08/2019

A Law is Coming to Get Ready for Negative Interest Rates 2/8/19

Recession Alert! A Law is Coming to Get Ready for Negative Interest Rates, but it being sold as just another move against the ‘black economy. The bill is the ‘Currency (Restriction Use of Cash) Bill 2019’.

Cash is used in the black economy to avoid tax. But when the GST came in, the obvious time to restrict cash transactions, this was not done. Now it is coming in the above bill, banning cash transactions over $10,000 apart from a few exemptions which can be turned off by regulation, (i.e. without going back to Parliament). This bill was announced last Friday afternoon 26 July, and not picked up by the mainstream media. The consultation period is very short- 26/7/19 to 12/8/19.

It begs the question; ‘Why restrictions on cash now?’

It seems that the answer is that when the economy will not grow, interest rates are lowered. They are at 1% now, so cannot go much lower till they get to zero. How do you stimulate the economy when the interest rates are zero?

One way is to tax people who are not using their money and give it to the banks, who presumably will give people money to take the stored cash and use it.

Some countries already have restrictions on cash. The 500 Euro note was withdrawn by the European Central Bank. France has banned transactions over 500 Euros, Italy 3000, Spain 2,500. Some long-term interest rates are already negative.

From the public’s point of view, if you are going to lose money by putting it in the bank, it would be better to keep it in cash and put it under the mattress or in a home safe. Even bullion has a storage cost. How retirees will manage is hard to say. They will be losing cash just by holding it and they simply have to spend their capital to survive. Naturally it means that all the cash in the world will be available to stimulate industry as the owners of cash will have immense financial pressure to put it into investments.

There is an IMF paper ‘‘Enabling Deep Negative (Interest) Rates to Fight Recession- A Guide’ IMF Working Paper April 2019 by Ruchir Agrawal and Miles Kimball’ which is a ‘how to’ guide for governments to use negative interest rates. At a political level the advantage pointed out is that people will blame the private banks rather than the government. The paper also suggests that a short sharp shock with ‘deeply negative’ rates might get a better response than a longer period of mildly negative rates. This gives an idea of the thinking- it is all about countering recessions. The IMF paper even canvasses the possibility of the abolition of paper money transactions!

The convenience of cards has been lessening cash use, but this new bill looks as though it is following the IMF guide and getting ready for the possibility of negative interest rates. It is not really about stopping the black economy.

The government put out a call for a discussion of this bill on the Treasury website last Friday afternoon, the crowded news day, presumably in the hope that it would not be noticed. They seem to have succeeded- There has been nothing in the mainstream media, apart from old articles referring to controlling the black economy. The Treasury seems to want people to believe that this is all part of counteracting the ‘black economy’ the email address for submissions is blackeconomy@treasury.gov.au. But it would seem that this is simply dishonest. The IMF is worried about a long-term global recession. Presumably our government is also, so they are getting their legislation in place on the IMF recipe. They just thought that you had better not know. It says a lot about how we are governed.

This information was given to me by a ‘freedom group’ called, ‘In the Interests of the People’. At youtube.com paste ‘/watch?v=770M2s6ZD8Y’ to see the video. I do not want to be the vector for conspiracy theories, but the implications of this really need to be understood and discussed. It really is not just about stopping the black economy.

The Treasury website that gives the bill has no discussion- merely explanations of the Bill, and even this is quite incomplete as the Part 2 which has the penalties is missing.

The IMF paper that seems to be the origin of the bill is fairly dry reading also but is at:
www.imf.org/en/Publications/WP/Issues/2019/04/29/Enabling-Deep-Negative-Rates-A-Guide-46598

19/10/2017

A Response to the Libs’ Energy Plan

19 October 2017

The energy plan proposed by the Lib/Nat government has several major flaws based on either their poor understanding of how an electrical network works or wilful misrepresentation. It is a government sanctioned, long term price fixing agreement.

The current plan is to force energy retailers to buy a minimum amount of energy from “reliable” thermal plant to ensure reliability by reducing the input from “unreliable” renewables. The plan is not a surprise as the thermal plant owners had a big input into it. This effectively puts a base price on energy of about $85 per MWh i.e. the typical wholesale price of power from at thermal plant.

The government confuses reliability with despatchability.

Reliability is a measure of whether a power source will be working over some specified time interval. A better metric is availability i.e. the time period over which the power source is performing within acceptable parameters.

Modern well maintained thermal power stations have availabilities in excess of 95%. But for example if Liddell which has 4×500 MW turbo generators has only been able to keep 3 running consistently its total availability would be 95%x0.75 =70% i.e for 70% of the time over the last few years it has been able to despatch, supply when needed 4×500 MW. Its capacity to despatch 3 x500MW has been 95%. Actually Liddell’s performance has been much worse than this.

Base load is the Coalition’s other favourite subject. It takes about 8 hours to start up a large thermal power station and about 12 hours till it comes up to full capacity. These times are dictated by differential expansion of its components. Hence normal practice is to keep these units running continuously. They also exhibit stability problems when run at less than 30% capacity. At night when the demand for electrical energy drops, continuously running operations like steel mills, aluminium refineries, cement works etc. took up this load generally this was not enough to keep the load above 30% hence the low off peak rates offered for water heating.

The problems of differential expansion also mean that thermal plant cannot respond quickly to changes in load especially load increases.

The above limitations meant that in a system dominated by thermal plant you have to keep enough older plant running at low load so that it could take up the power of the largest unit in your system should that unit be forced to shut down in an emergency i.e. trip. This is system spinning reserve. So the price will be set by the needs of the old fossil fuel plants. This will keep the coal owners happy. It will also keep the renewable generators happy as the high price will give them a massive profit margin. It will keep Labor happy, as thye can make a magnanimous gesture of bipartisanship and when they come in there will be lots of renewables built to get the huge profit levels that have been there for the taking.

The people who will not be happy will be the industries that will go broke because unnecessarily high power prices made them uncompetitive, and the long-suffering homeowner.

Renewable energy power systems and hydro have different characteristics. Hydro is despatchable if you have sufficient water. Australia’s lack of water means that all of our large hydro stations do not operate continuously. They are mainly used to handle short and medium length load peaks as they can respond quickly to load changes. Naturally if the water were pumped up when there was spare power they would act as batteries.

Wind and PV systems are not fully despatchable as their output is dependent on wind strength and sunlight. They can respond quickly to load changes.

Their availability here in Australia is much, much better than the Liberals would have us believe and our ability to forecast wind in the medium term is now very good. Hence their availability is quite high. We can also use concentrated solar thermal plant. Here a heliostat field of several hundred hectares is used to concentrate sunlight onto a boiler mounted in a tower to heat a transfer medium, typically sodium carbonate to about 400 deg.C. The molten salt is pumped into a storage tank and then pumped through a heat exchanger to generate steam which drives a steam turbine. One such plant is planned for the head of Spencers Gulf in SA. Here the energy is stored as heat and the molten salt can be drawn from the hot tank to generate steam on demand i.e. the plant’s capacity is despatchable.

For example a wind farm costs about M$2.00 per MW to install. A 1MW unit running at 40% capacity factor, most wind sites do better, will then generate about 3,500MWh pa at $85 per MWh this will be $300,000. Assuming capital costs of say $85,000 and service and maintenance of $84,000 this leaves a surplus of $207,000 a very good financial result especially when you compare this to a thermal plant which will cost about M$30 per MW to build and take 10 years in the building compared to about 3 years for a wind farm.

Older thermal stations like Liddell are worn out especially their boilers which from a large part of the capital cost the boiler tubes suffer from stress fatigue and start developing fractures. Coal and ash handling plant starts to wear out and even the turbine blades erode due to the aggressive operating temperatures. Eventually the combination of wear and loss of availability makes them uneconomic. Try keeping a 40 year old car road worthy if you use it as a taxi.