AER publishes State of the energy market 2013 report

The Australian Energy Regulator has published the State of the energy market 2013 report which highlights developments in the energy market that are helping to stabilise retail energy prices.

“Declining electricity demand has led to surplus generation capacity in eastern Australia. This will delay the need for new investment in generation by up to a decade,” AER Chairman Andrew Reeves said.

“Some investments in electricity networks and gas pipelines have been deferred. The cost of financing energy business is falling as stability returns to global financial markets.

“Electricity retail prices are starting to stabilise in some States. Regulated prices in New South Wales, Tasmania and the ACT will rise by less than 4 per cent in 2013–14, compared with double digit rises in 2012–13. Retail prices in some parts of the New South Wales network will fall in 2013-14.”

Mr Reeves explained that new energy rules aim to avoid unnecessary price rises in the future. “During 2013 the AER consulted with energy businesses and consumers - developing Better Regulation practices, including a new approach to setting rates of return for network businesses, new methods of assessing efficient investment and greater stakeholder involvement.” The new approach will apply to regulatory determinations taking effect from 2015.

“Developments in the eastern gas market differ from those in electricity,” said Mr Reeves. “While domestic demand has weakened, preparation for liquefied natural gas export to meet rapidly growing international demand is placing upward pressure upon domestic gas prices.”

The AER regulates energy markets and networks in the eastern and southern Australian states. It is an independent body under the Competition and Consumer Act 2010, and its functions are set out in national energy market legislation and rules.

State of the energy market 2013

Market overview (extract)

The energy market landscape has shifted considerably over the past 12–18 months. Rising energy prices were a major focus for the community and policy makers in 2012, but the dynamics of underlying cost drivers are shifting. A trend of rising electricity demand—which exerted upward pressure on wholesale and network costs for several years—has now reversed. The change is causing surplus generation capacity and removing the impetus for a number of network expansions. Further, the instability in global financial markets has eased, bringing down finance costs for energy businesses.

These developments are translating into more stable retail electricity prices in most jurisdictions. Following double digit rises in 2012–13, electricity retail price increases under regulated offers for 2013–14 were contained to below 4 per cent in New South Wales, Tasmania and the ACT. In one New South Wales network area (Essential Energy), retail prices fell by 0.6 per cent.

Victoria and South Australia do not regulate retail electricity prices. In Victoria, standing contract prices rose by 5−12 per cent in 2013 across the state’s five distribution network areas, following increases of 20–25 per cent in 2012. Because prices are unregulated, limited information is available on the reasons for these outcomes. But the Essential Services Commission reported in May 2013 that retailer margins in Victoria have increased since the removal of retail price regulation in 2009. In South Australia, electricity prices in standing contracts fell by 9.1 per cent following deregulation on 1 February 2013. Subsequent movements resulted in a net price decrease of 1.8 per cent during 2013.

An exception to this move towards more stable electricity prices was Queensland, where the regulated single-rate residential tariff rose by 20.4 per cent for 2013–14. The rise passes through two years of network cost increases following the Queensland Government’s price freeze for this tariff in 2012–13.

Retail prices tended to rise more strongly for gas than electricity in 2013–14. In New South Wales, higher network costs contributed 60 per cent to the gas retail price rise. And gas retail prices are unlikely to ease in the near future. While domestic demand recently flattened, international demand for liquefied natural gas (LNG) exports from Queensland (scheduled to commence in 2014–15) is placing upward pressure on wholesale prices.

Issued date: 
20 December 2013
AER reference: 
MR 035/13
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