Gas retailer move underscores the impact of Victoria’s gas ban

Victoria’s ban on new gas connections has uprooted the industry with one gas operator already seeking to become an electricity retailer to households and businesses.

Victorian minister for energy, Lily D'Ambrosio. Picture: NCA NewsWire / Luis Enrique Ascu

Tas Gas, which owns and operates gas infrastructure and retail services in Tasmania and regional Victoria, has sought a licence to become an electricity retailer after Australia’s second largest state moved to ban new connections from 2024.

The move underscores the impact of Victoria’s move to ban new gas connections from January 1, 2024, a move that Premier Daniel Andrews insists is needed to accelerate the state’s transition away from fossil fuels.

Victoria has the highest use of residential gas in Australia. State energy minister Lily D’Ambrosio said gas is responsible for about 17 per cent of Victoria’s emissions, and its use must be curtailed if the state is to meet its emissions reduction targets of 75 per cent to 80 per cent by 2035, and net zero by 2045.

The move has up-ended the retail gas industry in the state and companies are grappling with how to insulate themselves.

In a move that broadens its customer base, Tas Gas has sought a licence from the Australian Energy Regulator to become a electricity retailer from 2024. The move will allow it to sell electricity to households and businesses.

While the AER is yet to rule on Tas Gas’ application, the possibility of a new retailer will be warmly welcomed by Australian authorities.

Competition among Australian electricity retailers has subsided over the last couple of years after a spate of small companies were forced out of business when the wholesale electricity market rose more than 150 per cent, pressuring their cash flows and liquidity, and exposing poor risk management.

The wholesale cost - which is the price of generating electricity - rose sharply in 2022 after Russia’s invasion of Ukraine forced countries to seek alternatives to cheap gas from Moscow which sent prices of gas and coal in Australia to record highs. The situation was exacerbated by a spate of coal power outages across Australia.

For retailers without generation assets such as coal power stations, the rise in the wholesale price exposed any shortcomings in their risk management strategies.

Retailers purchase hedges to manage the sometimes volatile price fluctuations of the wholesale electricity market. If a retailer doesn’t have sufficient protection – and is forced to buy on the spot market when the cost of electricity has moved higher – the company could lose large amounts of money.

The chaos in the retail market has begun to flow through to households and businesses as bills rise by more than 20 per cent across the country.

The federal Labor government and state governments have moved to offer some financial support with their bills, and have urged households and businesses to seek quotes from alternative sources.

Increased competition will put downward pressure on the bills, though the entry of one retailer is unlikely to see any immediate impact.

Other prospective entrants into Australia’s energy retail space could still emerge.

Telstra last year floated entering into the retail energy market in a bid to diversify its revenue stream, but it delayed its foray amid the broad market chaos that plagued Australia’s energy market.

Telsta’s chief executive Vicki Brady has said the company remains committed to the service but has yet to put a date on when the telecommunications giant will seek a licence.

Originally published as Gas retailer move underscores the impact of Victoria’s gas ban