Why are Electricity Prices so High?

01 Oct 2000Archived News Climate Change Matters

Many customers negotiating new electricity contracts are finding that prices are significantly higher than when they last negotiated their contract. In fact, current prices in the southern regions are the highest seen since the commencement of deregulation. So what are some of the factors influencing these high prices?

 

1. In NSW, the vesting contracts between generators and retailers are scheduled to expire on 31 December 2000 in line with the introduction of full retail contestability, however, the introduction of full contestability has been deferred until 1 January 2002. IPART has announced that it will set the regulated retail prices for 2001, which will be underpinned by the new Electricity Tariff Equalisation Fund (ETEF), replacing the vesting contracts. The full impact of this is not known at this stage, hence there is nervousness in the market about this issue.

2. The ongoing industrial relations dispute at the Yallourn Power Station in Victoria, which began in late 1999, has created uncertainty in the market.

3. The fast approaching summer of 2000/01 is forecast to be hot and the supply and demand balance to be tight as a result, particularly in Victoria and South Australia.

Seeing the Way Clear

The key factor in each of the issues is uncertainty. So when can we expect the issues to be resolved and the prices to settle?

1. Until the effect of the new ETEF is known, uncertainty in the market will remain, and it is unlikely that the full effect will be seen before early 2001. Similarly, delays in the introduction of full retail contestability across Victoria are causing analogous uncertainties.

2. It is not known how much longer the industrial disputes in Victoria will go on, although, it appears unlikely that the issues will be resolved within the next three to six months.

3. The supply and demand pressures from summer will only ease with the onset of the autumn period in April-May.

Our Advice

As each of these issues are unlikely to be resolved in the near future, we recommend that customers (unless their contracts expire beforehand) wait until the weather cools and the impact of the other market issues is further understood before renegotiating their electricity contracts.

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