The way back to affordable electricity
The University of Melbourne, ACCC chair Rod Sims, Grattan Institute’s Tony Wood and Dr Leslie Martin from The University of Melbourne’s Department of Economics and the Centre for Market Design presented to an audience of energy enthusiasts and professionals the state of National Electricity Market; problems and potential solutions. The discussion included:
· ACCC report and its recommendation to government on solutions.
· Grattan institute Report on causes for current high wholesale prices.
· Retail price and influencing factors
Electricity prices have increased by 56% in the last 10 years and today customers are paying more than they should due to excessive regulated network asset base; one proposed solution on ACCC’s report is to write down the excessive regulatory asset bases in Queensland, NSW, Tasmania and remove the network tax in Victoria.
Excessively generous solar feed-in tariffs have resulted in customers without solar panels subsidizing excessive benefits for those with solar panels. ACCC’s report recommends government to take the cost of feed-in tariffs in its budget. However, this cost will ultimately will come from tax payer’s money. So, a balance in equation would be required.
Considerable market power in generation has led to higher wholesale prices. ACCC recommends limiting the future generation market share to 20% for any entity, creating an environment for a competitive market in electricity generation and government to provide price support for generation by small players.
To meet the Renewable Energy Targets (RETs), providing high subsidies for generation assets which may not be able to provide energy when the markets need it, has added to the increase in wholesale prices. A properly designed National Energy Guarantee (NEG) scheme can do the job.
Tony Wood discussed the Grattan Institute’s report on the causes for increase in wholesale prices and concluded that:
· Increase in gas prices has resulted in increase in the price of all generation.
· The closure of Hazelwood and Northern power plants added to the impact in supply, increasing the prices.
· Gaming: Generators can create artificial scarcity resulting in market to respond on spot pricing through rebidding. Gaming is against the intent of the market which creates profitable outcomes for some players.
Dr. Leslie with her team of PhD students carried out a survey where they hired actors to call to switch retailers. The study concluded that:
· Retailers offered cheaper rates when customers said they want to switch retailers rather than when they said they are moving to a new house.
· Large variation in prices
· Complex bills
· Marketing based on discounts
Simpler and easy to understand bills should be provided by retailers to customers and default tariff should be set by AER to not let the retailers market based on discounts.