The Australian, July 25, 2017
The Renewable Energy Target and other emissions reduction schemes are pushing up retail costs and household power bills because they have not been properly integrated into the power system, the Australian Energy Commission has found.
The commission warned this could drive smaller retailers out of the market, further reducing the impact of increased competition that has been acting as a counterweight to rising wholesale prices caused by generation closures and higher gas prices.
In its annual Retail Energy Competition Review to be released today, the AEMC says the 10 to 20 per cent price hikes faced by eastern states households were not only due to rising wholesale prices and increased gas prices.
They have also been driven because emissions targets have not been put in place looking at the whole power system, meaning smaller retailers are paying more to hedge growing risks in the wholesale power market.
The report found the growing penetration of wind and solar, which cannot be counted on to provide power all the time, has not been accompanied by new contracts for retailers to hedge the risks of intermittent power.
On top of this, the commission found, the closure of coal-fired power stations such as Hazelwood in Victoria meant there were fewer generators offering the “firm-capacity” hedging contracts.
The AEMC said the lack of hedging contract availability, combined with higher gas prices, was increasing the cost of doing business for retailers, increasing the risk of smaller companies, with innovative offerings, leaving the market.
“It’s critical that future policy on emissions reduction facilitates commercial investment in generation in the right place at the right time, and supports a liquid forward contracts market so retailers can effectively manage their risk and keep prices as low as possible for consumers,” AEMC chairman John Pierce said.
The study found national energy market retail competition has grown in the past year, with new energy entrepreneurs offering more varied products and better priced deals.
It found that in Victoria, which has the most competitive market, households could save 38 per cent, or $507, on their annual power bill, up from savings of $383 found in last year’s survey. But it found higher wholesale prices were still driving retail prices higher.
The AEMC said average prices paid by consumers had fallen in 2015-16 but did not provide information for 2016-17, a year when wholesale prices surged, South Australian blacked out, Hazelwood closed and retailers in most eastern states flagged increases to retail prices.
The review found market concentration had decreased, with the market share of the “big three” retailers, AGL Energy, Origin Energy and EnergyAustralia (who all own generation) had decreased and were at about 70 per cent. The review found that 20 per cent of customers had solar panels, 21 per cent were likely to adopt battery storage in the next two years and that 18 per cent were likely to take up a home energy management system in the next two years.