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South Australian Energy Market Changes 2016

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The South Australian Government has released a draft of new policy measures, including the launching of a tender to procure seventy-five percent of its long term electricity needs, as a medium-term response to volatile spot market energy prices within the State.

 

Background

South Australia has been subjected to increasing energy prices and market volatility with its time-weighted average wholesale electricity price for 2015-2016 increasing approximately 59% from 2014-15. [1]

A recent report published by the Australian Energy Market Operator attributes this increase to the closure of coal power stations and the subsequent shift to gas “in an environment of higher gas prices”. [2]

The month of July saw the most significant price event of the year and placed South Australia’s spot price significantly higher than that of the other States as displayed in the graph below, published by the Australian Energy Market Operator in its South Australian Energy Report. [3]

This particular price spike was caused by a mixture of events which include a record cold snap, high gas prices, planned network outages, a planned upgrade of the Victorian interconnector and sudden drops in wind generation.[4]

In response, the South Australian government yesterday announced a raft of measures to address the volatile spot price of energy within the state in order to reduce the impact that electricity prices will have on businesses and households in the future.

 

Policy response

The most significant announcement involves the launch of a tender to procure 75% of the State’s long term electricity needs in order to boost competition by introducing a new competitor to the South Australian Energy Market.

It is hoped that this medium-term response will increase competition and naturally lower the cost of energy in South Australia.

The strong correlation between gas and energy prices[5] has also led the government to commit $24 million to incentivise companies to extract more gas and to subsequently supply that gas to the local markets ahead of others in the National Electricity Market (NEM).

Minister for Mineral Resources and Energy, Tom Koutsantonis, remarked that investment in gas would support South Australia’s push towards more renewable energy as it is a “transitional form of energy generation that works in tandem with renewables, providing base-load power to stabilise the system as more renewables come online”.

As a final note, the government has also flagged an investigation into a National Emissions Intensity Scheme which would seek to incentivise newer and cleaner energy production within the country through the trading of credits between energy companies.

These policy responses when combined with the State Government’s announcement in July, that it would source 25% of its electricity from dispatchable renewable energy providers, supports a continuing push by the government to find sustainable solutions to the problem of rising electricity prices – making South Australian energy projects valuable exercises in the long run.

 

[1] Australian Energy Market Operator, South Australian Electricity Report, 31 August 2016,pg 44
[2] Australian Energy Market Operator, South Australian Electricity Report, 31 August 2016,pg 45
[3] Australian Energy Market Operator, South Australian Electricity Report, 31 August 2016, pg 47
[4] Australian Energy Market Operator, South Australian Electricity Report, 31 August 2016,pg 48
[5] Australian Energy Market Operator, South Australian Electricity Report, 31 August 2016,pg 44

 

This Alert is intended as an alert only. It does not purport to be comprehensive advice. Readers should seek professional advice before acting in relation to these matters.

 

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