Being cautious about liberalising the domestic electricity market

By Ezra Ho

Last month, the Energy Market Authority (EMA) announced that by 2018, the electricity retail market would be fully liberalised, allowing households to choose from a range of electricity retailers.

According to the experts interviewed in the various reports by ST, CNA and TODAY, a fully liberalised electricity market would introduce more competition among electricity retailers, consequently providing households with more choice and lower prices.

By offering lower prices during periods of lower demand, suppliers also benefit from a more balanced demand for electricity. Shifting electricity demand through such a demand response strategy also presumably paves the way to introducing fluctuating renewable energy sources into the national grid.

Yet such simplistic projections obscure the actual processes and outcomes that underlie privatisation of government services – a debate that has taken on politically-charged dimensions. Market liberalisation could result in lower electricity prices for consumers. Or it may not. The largely privatised Australian electricity market saw the Electricity Price Index substantially increase relative to the Consumer Price Index from 2006-2014.

The twist here is that the privatisation of the Australian network began much earlier, in the mid-1990s, and throughout the 2000s. To assume that private actors have a dominant role in price formation is to ignore the significant influence of government regulation, for example in imposing reliability standards that affect the level of investment an operator needs, which in turns shapes electricity prices. Obviously, there are many more factors that affect prices, but the point here is that simplistic associations between privatisation and benefits such as lower prices are misleading.

More importantly, such assessments reek of a self-congratulatory ethos, based on an ideological worship of market fundamentalism. In this view, the energy consumer makes economically-rational decisions based on individualised calculations of monetary costs and personal utility. Thus, consumers would reduce their demand for electricity during peak periods when prices are higher.

What is flawed with this particular imaginary is that the ‘energy consumer’ unlikely exists. Electricity consumption in the household is largely driven by a complex web of interactions between individuals and the infrastructure. Moreover, people do not use electricity per se, it is the services that electricity makes possible that is in demand, for example, entertainment value from watching television, or the cooling provided by the air-conditioner – all of which are situated within the routines of everyday life. In short, there are significant social dimensions to how electricity is used, or reduced, in the household.

If so, then what are the consequences of policy being guided by an imaginary of the flexible ‘energy consumer’, who reduces or shifts electricity demand, to enjoy lower prices?

Fueling the peak loads for electricity are social peak loads. Using the example of a family with young children, both peak electricity load and the social peak load would occur at the end of the workday, from the late afternoon into the evening as one or both parents return from work, pick up their children, make preparations for dinner, clean up, entertain and relax the children, while simultaneously juggling various household chores.

Naturally, compressing multiple household management tasks at the end of the day requires the simultaneous use of the TV, air-con, kitchen appliances, computer, heater and so on – hence resulting in peak demand for electricity. While this hypothetical family would then pay higher prices for electricity, it is not possible for them to make significant changes to their routine. The way that their everyday life is scheduled, and coordinated with each other, based on institutional arrangements (e.g childcare, school, work), produces a particular rhythm vital for providing a sense of normality and structure to family life. In other words, not only would such a demand-response strategy fail to substantially reduce electricity demand, but it would also financially disadvantage the mentioned household.

Obviously, there are many different types of households, which may or may not be able to shift their electricity demands in line with market prices. And to be sure, certain practices are more flexible than others. The regulated tariff could remain available to households as it is. Or certain households may choose to enjoy cost-savings by shifting their electricity demand, but possibly at the unmeasured decline in their quality of life due to a more hectic everyday schedule. Or what about households already time-squeezed, such as working-class families who work long, though lowly-paid hours? Would we want to exacerbate social inequalities in return for more ‘market efficiencies’?

Rather than debate whether to liberalise or not, the broader point here is that frameworks for interpreting and understanding household electricity demand tend to be framed in technical-rational ways, framings that reflect a parochial and narrow conception of people and society. If policy-makers truly wish to achieve a more ‘efficient’ electricity market, then they need to engage with the messy realities and dynamics of the household to develop effective and equitable interventions.

After all, the Civil Service has a history of well-implemented policies, crucial to Singapore’s success. Policy-makers are regularly exhorted to think ‘long term’, they should be sensitive to complex ground realities, build up a wide range of skills to innovate across different domains, and most importantly, coordinate across the whole-of-government. I certainly want to believe that they are capable of doing that for a system as crucial to our everyday lives as the electricity infrastructure.

The author is a research assistant at the Earth Observatory of Singapore, Nanyang Technological University.