Australia Energy Market Report - October 2017

Market changes in October: Pricing for 2018 for all states were becoming mostly flat in October. For the following years we recognized also no remarkable movements, which is caused by the fact that there is not much liquidity and trading.

Current news on the electricity market: The governments of Australia are badly prepared for the transition to a renewable energy future. They are belatedly discussing reform of the National Electricity and Gas markets and require a plan to deal with the security of supply as well as affordable electricity pricing. When the wind is not blowing or the sun is not shining, back up options will be needed. This would need to take the form of battery storage or alternative base load generation. Uncertainty for investors caused by lack of clear government policy with bi-partisan support is contributing to higher prices. The current Federal Government commissioned a report into the energy sector which reported earlier this year.

The Finkel Report came up with a series of recommendations, the major ones being the establishment of a Clean Energy Target to replace the current Renewable Energy Target, a five year notice requirement for the closure of a coal fired plant and a requirement for solar and wind generation to have battery or base load generation back up. The Clean Energy Target was seen as a key measure which would move the country forward along the renewable energy generation path and potentially get bi-partisan support leading to certainty for investors.

The Federal Government recently decided not to adopt a Clean Energy Target and to end subsidies for renewable generation at the end of the current scheme in 2020. Both sides of politics have had opposing views on energy policy for some time and it is this lack of a bi-partisan approach that has led to the current problems. The Liberal Party has always been against an emissions trading scheme and has reluctantly supported the renewable energy target.

The Labor Party has been keen to have both. This has made agreement very difficult, particularly as most states have Labor governments and the Federal Government is Liberal.

The Liberals are concerned about the coal industry but also issues around security of supply if there is inadequate back up for wind and solar. The Government has announced a new policy called the National Energy Guarantee.

The retailers would be obliged to use a certain percentage of generation from coal, gas, batteries or pumped hydro. This would mean that at times of shortages, the electricity could be sourced under long term contract pricing with these generators rather than at volatile spot prices.

The retailers would become responsible for meeting Australia’s emissions targets and the renewable energy subsidies would be scrapped.

The Federal Government would need the backing of the state and territories for the legislation and this will be difficult to obtain. To create certainty for investors Federal Labor would also need to support it as there is an election next year. It is unlikely it will get their support.

This policy is effectively an intervention in the market and would most likely result in much less renewable generation and the prolonged life of old coal fired plants. It would most likely become more difficult to meet emission reduction targets. Coal fired plants are becoming unreliable because of their age and it is likely more use of gas fired generation would be required. Gas prices are historically high and this would not help electricity pricing.

Metering Reform effective from 1 December 2017: Power of Choice is a government-led, industry wide reform program, which seeks to provide consumers with more information about how they use electricity. Power of Choice comes into effect on 1 December 2017 and will open up the availability of advanced metering for more customers than ever.

Under these reforms, if your site requires a new or replacement meter for any reason, your metering provider must arrange to install an advanced meter for you. NUS’s customers will be contacted by their metering provider in advance if changes to your metering is required.

Transition Arrangements: Industry wide transition arrangements are being implemented for the introduction of Power of Choice on 1 December 2017. This might result in reduced or delayed services by Distributors and Metering Service Providers in the week prior to and after 1 December 2017.

What to expect on 1 December 2017: You shouldn’t notice any immediate change. There will be no immediate impact to your business from the changes that come into effect on 1 December 2017. Your existing metering arrangements will continue, and there will be no interruption to your electricity supply because of the introduction of Power of Choice. In future, if you request or require a change to your metering, your current metering provider will arrange this for you, and advise you of any costs, interruptions or impacts in advance.

As you have already a Direct Metering Agreement (DMA) in place, you will be contacted directly by your DMA metering provider regarding appointment of a metering coordinator. They will advise you if any changes to your DMA are needed.

Further Information: If you have any questions about Power of Choice, or if you have been approached about changing your current metering arrangements and would like more information, please contact your Account Manager who can answer any questions you might have.

The Australian Energy Market Commission (AEMC) set the rules which govern energy markets. Further information regarding Power of Choice regulatory reforms can be found on the AEMC website.

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