The Australian Energy Market Operator says Sydney could face blackouts as it enters 3 days of intense heat. The reason for this is that air-conditioners will be turned on as people arrive home and there is insufficient electric generator capacity. 

It will be impossible to prevent people from using those air-conditioners and in some ways it is unjust to; many older and younger people experience severe distress in very hot conditions, and air-conditioning can literally be a life saver. What's more, the fact that today will be an extremely high demand day is testament to the fact that we don't use our air-conditioning all the time.

The reason why this is a policy failure is because energy policy has shifted dramatically back and forth over Labor and Liberal governments. This uncertainty makes it hard for companies to invest in generation capacity, as there is risk in investing both in renewable and coal based energy capacity.

With energy demand spiking, we need the option to turn on more generation power. Nuclear and coal can be gradually turned on to meet demand as predicted by weather. Gas turbines are useful in attenuating spikes and troughs in renewable energy production because they are fast to turn on. They are also useful in matching high demand scenarios.

What could have been done better? The insistence from the Greens that Labor use a carbon tax instead of an emissions trading scheme (ETS) meant that it was easy to undo. With a carbon tax, the only ones with direct skin in the game are the ones who pay tax, and they argued strongly against it. With an ETS, market participants, such as those who hold carbon credits, would be strongly in favour of maintaining a price on carbon.

The result of this undone legislation and uncertainty is a lack of investment in electricity capacity.