David French | 20/07/2011 9:23:23 AM

This article was first published in The Morning Bulletin under the heading Electricity dated 16 July 2011.

Electricity is the ultimate perishable good - It has to be used as it is produced. Coal fired power stations are at their most efficient when producing constant amounts for long periods of time. This is at odds with demand patterns, which fluctuate throughout the day, and in particular, with the weather. Industry says that power stations have to be built to meet peak demand, but coal fired power stations frequently lose money selling electricity in the off-peak, when demand is low. When demand is very high, wafer thin links between the states mean generators can’t even buy in from elsewhere, and in any event the wastage from transmission is high. Further, much distribution infrastructure is not set up to handle the two-way electricity flows necessary for a smart grid.

Solar might be more expensive than coal on a kw/h basis, but it works best when air conditioners are humming, and the electricity price is high. It automatically rests in the middle of the night when the electricity price commanded by generators is next to zero. Gas turbines can be fired up within minutes, and left idle when demand drops.

But let’s not bag coal. It is one of at least three available technologies that could be part of a vastly restructured electricity industry. We could probably take five base load stations out of commission in Australia, and have flexible production and greater certainty that demand will be met.

Why is this not happening? In many states Government monopolies control electricity production and distribution. In its current form, provision of electricity amounts to a tax. There is little incentive to change it.

The Investment Collective (AFSL 471728) is a non-aligned financial planning and investment firm specialising in providing tailored financial and investment advice for individuals and small business. Capricorn Investment Partners Limited's services include financial planning, share trading, portfolio management, insurance broking and self managed super fund administration. Additional information on services provided by The Investment Collective Limited can be found by following this link. Readers are reminded that this document has been prepared for general information purposes only, and any advice contained herein has been prepared without taking into account your financial objectives, situation or needs. Readers are advised to see their financial advisor prior to acting on any general advice.

More articles about business, general, tax, economics.