The Australian Energy Regulator today issued its first report on the state of Australia's energy market.
The report provides a comprehensive factual overview of Australia's electricity and gas industries and aims to present a big picture perspective on energy market activity.
AER Chairman, Mr Steve Edwell, said the report comes at a challenging time for the energy market, which has recently undergone extensive ownership changes and legislative reform that is shifting regulation to a national framework.
"Investment in energy transportation networks has grown strongly in this environment. Annual investment is running at around $700 million in high voltage electricity transmission networks and $3 billion in the local distribution networks that move electricity to customers.
"Overall, real investment will rise by around 40 per cent in the five years to 2007–08, driven largely by transmission expansions and upgrades.
"There has also been significant investment in gas," Mr Edwell said. "Development expenditure in the petroleum industry increased four fold from 2002 to 2006. Coal seam methane has emerged as a significant new source of gas and is increasing competition in the production sector. It already meets more than 60 per cent of Queensland's total gas demand and is growing rapidly."
Mr Edwell said Australia's natural gas transmission pipeline network has almost trebled in length since the 1990s.
"Around $2.5 billion has been invested in new gas transmission pipelines and major expansions since 2000. Much of this is in long-haul pipelines that have introduced new supply sources and improved the security of gas supplies into south-eastern Australia."
"One emerging challenge is price pressure. The wholesale electricity market experienced record demand and tight supply in recent months, which together with some opportunistic bidding, has lead to record prices in June.
"Similarly, high international demand for liquefied natural gas (LNG) has put pressure on domestic gas prices. The forward markets suggest that price pressure may persist for some time. These outcomes present signals to the market that an investment response in new generation capacity is needed.
"Looking forward, there are also challenges for the market associated with the introduction of carbon trading arrangements," Mr Edwell said.
"One of the most interesting developments in the energy market has been a succession of ownership changes that has led to the emergence of a handful of key players. There is a trend towards greater specialisation.
"There are now three or four major network owners, and a different set of entities in generation and retail. There is also increasing ownership consolidation between the generators and retailers."
With the rapid evolution and growing complexity of energy markets, the AER believes there is a need for reliable and accessible data to assist stakeholders.
The State of the energy market report consolidates publicly available information from various sources into a single user-friendly publication.
The report consists of a survey of market activity in electricity and gas supported by essays that develop particular issues in more depth.
The report covers the energy supply chain from electricity generation and gas production through to energy retailing. There is also a section on contract market activity in electricity derivatives.
The report supplements the more technical reports the AER publishes on the National Electricity Market and is written for a wide audience including government, industry and the broader community.
The State of the energy market report will be available on the AER website A limited number of hard copies will also be available.
The Australian Energy Regulator, established in 2005, is Australia's independent national energy market regulator.
It monitors and enforces compliance with the national legislation governing the electricity and natural gas industries and is the economic regulator of the electricity transmission sector in eastern and southern Australia. Its regulatory responsibilities will soon extend to gas transmission, energy distribution and aspects of energy retail markets.
The AER also assists the Australian Competition and Consumer Commission on energy competition matters such as merger issues and energy authorisations.