SA electricity crisis: Jay Weatherill’s plan would lower power prices, Frontier Economics analysis finds

A PROMINENT economic analyst predicts Premier Jay Weatherill’s power plan will improve competition and lower electricity prices.

• REVEALED: $550m plan to fix power crisis in SA
• REACTION: Fears new gas plant could become desal white elephant
• ANALYSIS: This deepens the ideological war
• COSTS: Governments urged to rein in power prices

ECONOMIC analysis shows Premier Jay Weatherill’s power plan will improve competition and lower electricity prices.

Analysis, provided to the Government by Frontier Economics founder Danny Price, predicted the combination of encouraging new market players, the creation of a $360 million emergency gas generator and an investment in a large battery storage project would see consumers and businesses better off.

However, key industry players remain unconvinced the plan will lower prices, stressing the “proof is in the pudding”.

Danny Price, a senior economist from Frontier Economics, testifying at a Senate select committee on carbon pricing.

The Frontier Economics report acknowledged the new, government-owned gas generator was expected to run rarely but said its sheer presence would “affect spot price expectations in the market” and place downward pressure on risk premiums.

“This approach to commissioning a new generator will not only likely lower the costs to the state to meet its electricity demand, since it is not buying from incumbents who are currently charging high risk premiums, the improvement in competition will spill over to other customers,” the report said.

“The additional supply will add to the stock of reliable, modern, high-efficiency generators that can respond to system reliability issues.”

Business SA executive director Anthony Penney said the golden question was whether the plan would provide economic relief for businesses battling crippling power bills.

“If we’re going to invest $550 million into today’s plan what is going to be the net benefit for businesses and for households in this state,” he said.

Mr Penney said the plan would reduce costs “in theory” but wasn’t popping champagne corks just yet.

“It’s simple economics, with additional competition, you should see a downward pressure on prices,” he said.

“We’re comfortable with that theory, obviously it’s economics, but let’s see how the rest plays out.”

SA Council of Social Services chief executive Ross Womersley said paying for the measures through general revenue was welcome because it did not place extra pressure on prices or undermine concession payments.

“The situation illustrates exactly why SACOSS has consistently argued that we need our governments to have access to an adequate tax base — to ensure they can respond to critical community needs such as the delivery of essential services like our power,” he said.

South Australian Greens Senator Sarah Hanson-Young said power prices could not be reduced until the market rules were changed at a federal level.

“I can’t see how prices will go down unless Mr Weatherill is suggesting that gas will be sold at the old price,” she said.

“The reason we’re in this awful over-inflated gas price market is because after 10 years of wanting to link the east coast gas industry to the world price, the price has gone through the roof,” she said.

“Mr Weatherill has to be clear, at what price is the gas going to be sold in South Australia that will guarantee that prices are going to reduce.”