Tasmanian Wholesale Energy Market Needs a Spark of Inspiration

/, Uncategorized/Tasmanian Wholesale Energy Market Needs a Spark of Inspiration

Tasmanian Wholesale Energy Market Needs a Spark of Inspiration

Today the TSBC has launched a twelve month investigation into Tasmania’s Wholesale Electricity Market structure and have found it to have the capacity to be problematic in the coming years.

TSBC Executive Office Robert Mallett said that ’the situation has come about as a result of our island geography, a successful dominant and environmentally sustainable generator and successive governments which could control the market’.

‘With industry even more global than envisioned in the halcyon Hydro era, future governments need to plan on a long term strategy to make business in Tasmania more confident of a major input cost to their business.’

Following are some points made in the report.

  • The wholesale electricity market is important to Tasmanian small businesses
    • Wholesale costs make up around 37% of small business electricity bills, making them the second biggest component after network charges (43%).
    • Wholesale prices increased significantly in 2015 (due to the low hydro dam levels and the prolonged outage of Basslink), fell after the crisis and they more than doubled from $60/MWh to $125/MWh in the year from May 2016 to May 2017
      [1] (due to large wholesale price increases on the mainland which impact Tasmania).
  • Accordingly, the TSBC commissioned GOANNA Energy to provide it with a detailed report on the Tasmanian wholesale electricity market and it’s impacts on small business. We welcome Goanna’s report. We should also acknowledge the important contribution of Energy Consumers Australia who provided funding for the project.
  • The report finds that Tasmania has the most regulated and least competitive wholesale electricity market in the National Electricity Market (NEM) apart from North Queensland. It is also the only wholesale market in the NEM where the State Government still owns all of the significant generation assets.
  • Hydro Tasmania literally controls the Tasmanian wholesale market. It therefore has extreme market power, which it can use if it chooses.
    • Consumers are vulnerable to this and must rely on regulation of the wholesale market, the benevolence of Hydro Tasmania and/or the State Government (or some combination of these) to help keep Hydro Tasmania’s monopoly power under control.
    • Whilst this has worked to some extent to date, circumstances can always change due to, for example, changes in the financial position of Hydro Tasmania or the State Government.
  • Fortunately for small business and household consumers, intervention by the State Government in both 2015 and 2017 has prevented all of the large increases in wholesale electricity prices from being passed through to consumers. We welcome this.
  • Even so, in 2017 wholesale costs in small business electricity tariffs still inreased by 35%. As a consequence, the large reductions in small business electricity prices we were expecting due to large reductions in network charges and reductions in network price cross-subsidies (that we had lobbied to remove for a long time) were diminished by those wholesale price increases that were passed through.
  • Should wholesale prices increase again it is doubtful that reductions in network charges or other components of the electricity bill will be able to offset such increases.
  • Forward wholesale electricity prices remain high (around $80-90/MWh), albeit somewhat softer than in 2017. Modelling in the report also shows Tasmanian wholesale prices remaining high in 2018, 2019 and 2020, with some softening apparent. Victorian prices soften faster and by more than in Tasmania.
  • The outlook for wholesale prices in Tasmania and the NEM is influenced by factors such as the further expected exit of large amounts of thermal (coal and gas) generation from the NEM (somewhat offset by new renewable developments), changes in the flow of interconnected that link the various NEM regions (itself a function of changes in the mix and location of electricity generation plant), high gas prices and tight gas supply.[2]
  • The report finds that the lack of competition in the Tasmanian wholesale power market disadvantages small business. Unlike our peers in most other parts of the NEM, Tasmanian small business does not have access to competitive prices and discounting of electricity bills, and cannot exercise any choice of electricity retailer. Aurora is basically it. Our choice is in name only.
  • It is entirely possible that real retail competition would provide small business with cheaper electricity prices than the regulated tariffs that we are currently on, even though the Government has helped to keep wholesale price increases in check.
  • The report finds that the dominance of Hydro Tasmania is a significant deterrent to new electricity retailers entering the Tasmanian power market and providing competition for small business consumers. The risks and costs to them, particularly of an unfriendly wholesale market, are too high.
  • To change the status quo would present significant political challenges.
    • In all probability Hydro Tasmania would need to be separated and sold off. We recognise that there would be significant community resistance to this.
    • Regulated tariffs would probably also need to increase in order to create ‘head room’ for new entrant retailers to compete prices down. Again this requires a change in regulated electricity prices that the community may find difficult to accept, but with the prospect of lower prices.
  • The Tasmanian Treasury is currently reviewing regulation of our wholesale electricity market and it’s report is due mid-March year. It is important that the review establish a more sustainable and competitive basis for the Tasmanian wholesale electricity market going forward that benefits electricity consumers.
  • The Goanna report provides an important body of information about how the Tasmanian wholesale electricity market works and impacts small business. The forthcoming State election provides a timely opportunity to debate and discuss its contents and to develop appropriate policies, including ones that will benefit our vibrant small business sector, allowing it to contribute to jobs growth and investment through competitively priced electricity.

ENDS

Tasmanian Wholesale Electricity Market Study Final Report March 2018

[1] 2017/18 Flat Swaps.

[2] Gas is a significant fuel for electricity generation.

2018-08-06T15:40:33+00:00February 3rd, 2018|

Share This Story, Choose Your Platform!

Leave A Comment

Toggle Sliding Bar Area