Electricity Market Effectiveness Review Presentation to Market - - PowerPoint PPT Presentation

2017/18 Wholesale Electricity Market Effectiveness Review

Presentation to Market Advisory Committee

February 2019

• Things should be good

– Excess capacity – Lowest gas prices in real terms in five years and only modest price increases in coal – Low demand, mild summers and solar taking some of the load

• But what we see

– High balancing prices – Highest ancillary services costs per unit output in the country – Efficiency gains on the administrative side countered by increases in market based costs – Limited competition and substantial market dominance

• Limited net gain to consumers over the last few years

The high level picture

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The high level picture

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$39 $44 $47 $53 $61 $57 $5.46 $3.96 $3.10 $3.14 $5.03 $5.80 $66 $61 $41 $37 $38 $32 $91 $92 $98 $99 $98 $97 $19 $18 $- $25 $50 $75 $100 $125 $150 $175 $200 $225 $250 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

Notional cost ($/MWh $2018 real)

Carbon price adjusted energy cost ($/MWh real) Average notional ancillary services costs ($/MWh real) Average notional capacity costs ($/MWh real) Average notional network cost ($/MWh Real) Carbon pricing mechanism ($/MWh real) Market administration ($/MWh real)

Fuel prices

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0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

Energy price index

Electricity Coal Gas

Market costs

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$- $5 $10 $15 $20 $25 $30 $35 $40 $0.00 $0.25 $0.50 $0.75 $1.00 $1.25 $1.50 $1.75 $2.00 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17

Market administration costs ($millions, $2018 real) Market fees ($/MWh $2018 real)

ERA costs ($2018 real) Market and system operator costs ($2018 real) Total administration cost ($millions, $2018 real)

• Solar is expected to change the load profile
• This is expected to alter how generators run but up to 2017/18:

– Coal generators had to move more but output remains comparable with previous years – Couldn’t substantiate suggestions solar is responsible for increases to marginal pricing

• Batteries could improve many pressure points in the system and

put downward pressure on network, balancing and ancillary service prices

• Whether these advantages materialise will depend on the adoption

model and whether the substantial first mover advantage is deployed to improve or maintain competition.

Changes to come

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• Lack of competition in the wholesale electricity market fails to

provide pressure that would penalise inefficiency

• Barriers to entry are not inconsequential and do not appear to be

reducing

• Opportunities will emerge but there is conjecture as to when
• Plenty of policy uncertainty at state and national level, coupled with

market dominance, flat growth and inadequate opportunity signals appears to place private investment on the back foot.

Conclusions

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• What do you consider to be the most important factors driving the

price increases and what evidence supports the view?

• Are market generators changing bids to recover start-up costs over

shorter run times?

• Do market mechanisms apply sufficient competitive discipline on

generators and what would improve discipline?

• Are market administration and development expenditure delivering

the anticipated benefits and if not why aren’t they?

Questions – Market pricing

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• Are new technology trials sufficiently open to participation from

non-government entities?

• Are the planning systems performing as they should at identifying
• pportunities? If not how could they be improved?
• How important is state and national policy uncertainty to the

investment environment?

• How do changes in distributed generation influence your

investment decisions?

• When do you anticipate the investment environment improving and

what will drive the improvement?

Questions - New opportunities

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Level 4, 469 Wellington Street, Perth WA 6000 Phone: 08 6557 7900 Email: info@erawa.com.au

Thank you

Questions