ACCC energy price report exposes myths

The ACCC report into electricity pricing has blown away some myths and delivered some hard truths for government that now has the big electricity market players firmly in its sights.

The bottom line is electricity users have been milked as competition has been allowed to weaken. Sorting things out is not as simple as declaring war on renewable energy.

The interim report exposes significant regional variations in what has driven electricity prices but the results have generally been the same.

Electricity bills have been rising, causing what the ACCC has described as “a severe electricity affordability problem” that had put businesses and consumers under unacceptable pressure.

The main cause of higher customer bills had been the significant increase in network costs for all states other than South Australia. Generation costs there represented the highest increase.

Given the state’s heavy reliance on renewables, the spike in generation costs challenges the notion that high levels of wind generation will force down wholesale prices.

According to the ACCC report, the withdrawal of baseload coal-fired generation in Victoria and South Australia had continued the trend of consolidation that was likely to be contributing to higher wholesale electricity prices.

It said closure of Hazelwood in Victoria and Northern Power in South Australia had resulted in gas-powered generation becoming the price-setter more frequently in those two states. The increased prominence of gas-powered generation had coincided with shortages in domestic gas supply that had driven up prices.

South Australia is most reliant on gas-powered generation, with more than 40 per cent of its generation capacity coming from this source. Overall, gas-powered generation sits at just under 10 per cent of capacity.

Network costs were proportionally more significant in NSW and Queensland than the other states. Retail costs were proportionally larger in Victoria and smaller in Tasmania, while retail margins were higher in Victoria and NSW

And environmental scheme costs were similar in percentage terms in all states (although they were highest in Queensland and lowest in Tasmania).

The ACCC report showed the contribution of environmental costs to customer bills differed between states, and that the impact of state-based schemes varied considerably. The higher proportion of costs attributable to state-based schemes in South Australia and Queensland is likely due to local feed-in tariffs and the higher uptake of rooftop solar in those regions.