The Price 'See-Saw' is Beginning to Move!

01 May 2000Archived News Climate Change Matters

The Price 'See-Saw' is Beginning to Move! Current developments in the electricity market are resulting in a number of significant price changes. Prices in Victoria and NSW have been rising while Queensland's relatively high prices are beginning to fall.

 

Since the advent of deregulation, the Southern States (Victoria and NSW) have experienced lower electricity prices than Queensland, but this is beginning to change. Several years ago it was possible to source energy in Victoria and NSW for between $15 and $20/MWh (excluding delivery costs etc). This has now doubled and issues such as timing the tender process and specifying your pricing options are becoming increasingly important to keep the prices down.

By contrast, prices in Queensland are beginning to fall from above $40/MWh with further significant price reductions expected over the next few years. While prices will vary with load factor and size, retail prices below $35/MWh are being seen in 2-3 years.

In the case of Queensland, the reasons for the price reductions are self-evident. About 2,500 MW of new plant should be commissioned within the next couple of years including Callide C, Tarong, Swanbank E and Millemeran. In addition to this, we now have DirectLink plus QNI (due to start commissioning later this year) providing an increase in the interlink capacity to NSW.

The reason for high prices in Victoria and NSW is a little harder to see. Admittedly, Victoria is likely to face a supply shortfall for a few 'hot hours' over the approaching summer, but this is not an underlying problem as with South Australia. To make matters even harder to fathom, NSW doesnÕt even have a supply problem during periods of peak demand. So why the high prices? Perhaps because the recent problems with Edisson Mission (Loy Yang B) and Yallourn have taught the generators how to 'bid high'.

Our advice is to be careful of long term contracts in Queensland that won't provide the expected benefits of price reductions, and also be careful of long term prices in Victoria and NSW that lock in today's current high prices without any opportunities to revise prices if the market falls. The electricity market is so dynamic that it is important that a strategy for renegotiation be developed up to 12 months from the end of your current contract. This should review all options, including market derivatives if you are looking at taking some risk for a potential gain.

As for South Australian consumers, prices are high because of an underlying supply shortfall, exasperated by the problems Victoria has meeting its peak demand on a hot day. To make matters worse, no obvious solution to this problem is on the horizon. With all eligible customers being forced to enter the contestable market by July 2001, now may be a good time to begin negotiating a contract if you are still in the franchise market or have a contract approaching its expiry.

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