Ross Gittens in his recent article in Fairfax press outlines four market-based approaches to setting the price of electricity. All assume there is a market, and the market sets the price. There are no markets setting prices. The prices are regulated, and more regulation moves us further from the market ideal. All attempts at market-based reform are expensive and open to gaming and manipulation.

A lower-cost, difficult to game approach is to set prices by consensus and remove interest costs and the cost of inflation. We do this by coming to an agreement on prices. We, the consumers, agree to fund infrastructure and buy electricity from a supplier, if they give us a high discount on the electricity they supply.

A few quick calculations show that using this approach reduces the cost of providing electricity from long-term low-operating cost renewables. It is cheaper than from high-operating-cost existing fossil fuel plants. Discounts provide a return on investment, and the cost of interest and inflation goes away.

The mechanics of changing to this approach are remarkably simple and can be deployed and operating almost immediately. The billing and operations of existing systems remain in place. What will happen is that renewables will replace fossil fuel plants as fast as we can build them.

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