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ACCC delivers recommendations to address higher energy prices

Recently, the Australian Competition and Consumer Commission (ACCC) delivered a landmark report into electricity prices in the National Electricity Market (NEM). The investigation into the competitiveness of the retail electricity market within the NEM resulted in the ACCC handing down 56 recommendations to address higher prices.

 

The ACCC report looked closely at the drivers of high and sustained levels of delivered electricity prices, and outlined the following contributing factors:

 

  • Limited ability of the Australian Energy Regulator (AER) to contain network prices with regulation previously allowing extended appeals around decisions and high reliability standards leading to over-investment in network assets.
  • Too much market share held by too few competing generators - felt most strongly in NSW and QLD.
  • Renewable generators encouraged by subsidies but without proper recognition of the problems created by unpredictable levels mismatched to customer demand
  • High gas prices driven by LNG exports and state moratoriums on on-shore gas exploration.
  • Questionable practices on behalf of retailers such as misleading discounts and punitive penalties for late payment.

     

    As a result, the report outlines 56 recommendations, with some major items including:

     

  • No generator should be allowed to acquire more than 20% of the dispatchable generation in any NEM region other than building new capacity – this could result in a break-up of both CS Energy and Stanwell Corporation (QLD state owned generators) and could affect AGL, Origin Energy and Energy Australia.
  • To support new generation projects, the Federal Government should enter off-take agreements for the later term of a project’s lifetime priced at around $45-$50/MWh – with heightened corporate PPA market activity, the uptake of this initiative is likely to be minimal.
  • Abolish the Small-scale Renewable Energy Scheme (SRES) from 2021 with the states to fund costs of guaranteed feed in tariffs rather than on-charging costs to customers – the SRES has been questioned as the cost of Solar PV has reduced, however, only QLD has currently stopped passing on feed in tariffs to consumers and the onus is on the other states to follow.
  • The QLD, NSW and TAS governments should write down the value of network assets with this flowing through to lower network bills – this may have budgeting implications and unlikely to be adopted outside the ongoing negotiations between states and the Federal Government.
  • A raft of changes proposed to increase small customer protection including reforming the current regime to prevent the current discounting practices.

 

The outcomes for large business consumers remains uncertain and depends on implementation and the desired impact on prices. For the more significant recommendations such as limiting generator market share or mandating off-take contracts, this will require much development to reach even the consultation stages and indeed, to implement the extended list of recommendations is a much longer term proposition.