Lessons from Australia's National Electricity Market 1998-2018: strengths and weaknesses of the reform experience

Australia's National Electricity Market (NEM) commenced in 1998. The centrepiece of NEM reforms was the energy-only wholesale market and accompanying forward markets. For most of the past 20 years it has displayed consistent economic and technical performance. But missing policies relating to climate change, natural gas and plant exit recently produced results that tested political tolerances. Piecemeal and random interventions are now following andwill likelyinflame rather than resolve matters, at least over the near term. Network policy failures in the mid-2000s led to sharp regulated tariff increases from 2007 onwards.These policy problems were largely cauterised by 2012,but regulatory timeframes and business inertia meant network tariffsdidn'tstabilize until 2015. The retail market has been forced to deliver sharply rising prices, and,in consequence,the problem of rising prices has been conflated with pricediscrimination;a largely unhelpful development in an otherwise workably competitive market.