• NSW energy market open to abuse, but no cartel action found
NSW energy market open to abuse, but no cartel action found
07 Dec, 2017, No Comment

Summary: Average monthly energy prices have doubled in New South Wales in the past 12 months and the electricity market is ripe for abuse, but there is no evidence of coordinated market manipulation, the industry watchdog has found.....

The Australian Energy Regulator carried out the study into competition in the NSW wholesale electricity market at the request of Federal Energy Minister Josh Frydenberg.

AER chairman Paula Conboy said there has been a noted ‘step change’ in the state’s wholesale electricity prices since October 2016; this was due to a range of factors but has not been driven by co-ordinated behaviour by electricity companies, or ''extreme price events'' such as heatwaves or floods.

Instead the rising cost of black coal and gas, coupled with the limited number of generators in NSW and plant closures in Victoria, was found to be the reason for increased prices.

NSW generation is dominated by black coal so is sensitive to rising coal prices.

 “The current sustained nature of high wholesale prices in NSW is not being driven by extreme price events, but rather fuel costs and supply issues unique to NSW and structural change across the entire National Electricity Market,” Ms Conboy said.

The AER also pointed to lower Victorian generation as a cause of NSW’s power price woes, due to the high level of energy NSW imports from Victoria.

“We have found the closure of Hazelwood power station in Victoria is having an impact on electricity imports into NSW and increased the output of generators in NSW, and that increased gas costs and hydro preserving water for summer has reduced the competitive pressure gas and hydro generators can place on coal generator’s offers,” Ms Conboy said.

Ms Conboy said wholesale spot prices were previously between $30 and $65 a megawatt hour, but have since shot up to an average of between $80 and $110 a megawatt hour for every month since the start of 2017. Spot prices even exceeded $5000 a megawatt hour three times in February, however, they have only spiked above $300 a megawatt hour twice since March.

However, it noted that the domination of NSW’s market by five ‘gentailers’, who provide both generation and retail services, had an ongoing impact on energy prices.

“This makes the NSW market more susceptible to outcomes that are not competitive than markets that have numerous competitors,” it said.

“There are features of the NSW market that likely provide participants with the opportunity to exercise market power and potentially abuse this market power.”

These five gentailers – AGL, Origin, EnergyAustralia, Delta, and Snowy Hydro – raised their prices, from a base of between $0 and $30 per megawatt hour to an average of $70 per megawatt hour.

Snowy Hydro saw the highest peak price, offering energy at between $150 and $300 a megawatt hour.

While there is less competitive pressure in the market on wholesale prices, the Australian Energy Regulator did not find opportunistic bidding that would indicate the major electricity companies using their market power to sway prices.

“There is no evidence to suggest that prices are being driven by rebidding close to dispatch or physical or economic withholding - behaviours more usually associated with the exercise of market power,” the AER stated.

Looking forward, the Australian Energy Regulator expects prices to fall in 2018, after a summer spike in demand.

“We have observed that some generators have revised their offers downwards in more recent months, although they are still higher than historic levels,” the AER said.

The Australian Stock Exchange has forecast a future baseload price of $107 a megawatt hour for the 2018 March quarter, dropping to $97 for the June quarter.

smh.com.au 6/12/2017

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