Electricity Supply, Demand and Prices in New South Wales
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LEGISLATIVE COUNCIL Select committee on electricity supply, demand and prices in New South Wales Electricity supply, demand and prices in New South Wales Ordered to be printed 22 November 2018 according to Standing Order 231 Report 1 - 22 November 2018 i LEGISLATIVE COUNCIL Electricity supply, demand and prices in New South Wales New South Wales Parliamentary Library cataloguing-in-publication data: New South Wales. Parliament. Legislative Council. Select Committee on Electricity Supply, Demand and Prices in New South Wales. Electricity supply, demand and prices in New South Wales / Select Committee on Electricity Supply, Demand and Prices in New South Wales [Sydney, N.S.W.] : the Committee, 2018. 201 pages ; 30 cm. (Report / Select Committee on Electricity Supply, Demand and Prices in New South Wales ; 1) “November 2018” Chair: Hon. Paul Green, MLC. ISBN 9781922258656 1. Electric utilities—New South Wales—Costs. 2. Electric utilities—Rates—New South Wales. 3. Electric power consumption—New South Wales. 4. Electric power transmission—New South Wales. I. Green, Paul. II. Title. III. Series: New South Wales. Parliament. Legislative Council. Select Committee on Electricity Supply, Demand and Prices in New South Wales. Report ; No. 1 354.4928509944 (DDC22) ii Report 1 - 22 November 2018 SELECT COMMITTEE ON ELECTRICITY SUPPLY, DEMAND AND PRICES IN NEW SOUTH WALES Table of contents Terms of reference vi Committee details vii Chair’s foreword ix Findings xi Recommendations xii Conduct of inquiry xv Chapter 1 The New South Wales electricity market 1 Electricity in New South Wales 1 The electricity supply chain 2 What is the National Electricity Market (NEM)? 4 New South Wales participants in the NEM 5 Committee comment 7 Legislative and policy framework 8 Key market bodies 11 Electricity price regulation, monitoring and oversight bodies 13 Independent Pricing and Regulatory Tribunal New South Wales 13 Energy and Water Ombudsman New South Wales 13 New South Wales Electricity Price Commissioner 14 Australian Competition & Consumer Commission 15 Asset privatisation in New South Wales 16 Lease/sale of network businesses 16 Sale of state-owned generation portfolio 17 Deregulation in New South Wales 18 Retail price deregulation 18 Network reliability standards 19 Committee comment 19 Chapter 2 Electricity prices and deregulation 21 Wholesale electricity prices 21 The wholesale electricity spot market 21 The contract market 22 Retail electricity prices 23 Retail electricity bills 23 Retail price trends 25 Report 1 - 22 November 2018 iii LEGISLATIVE COUNCIL Electricity supply, demand and prices in New South Wales Drivers of rising electricity prices in New South Wales 26 Network costs 27 Wholesale costs 29 Cost of environmental policies and 'green schemes' 32 Retail costs 35 Committee comment 37 Impact of retail price deregulation 39 Competition in the deregulated retail market 39 Price outcomes for consumers since deregulation 40 Retail margins since deregulation 42 Market monitoring 46 Committee comment 49 Chapter 3 Market dynamics and outcomes 53 Vertical integration and market concentration 53 Vertical integration across retail and generation 53 Market share of integrated providers 54 Competitive outcomes of vertical integration and market concentration 56 Competitive advantage 56 How to limit further market concentration 59 Committee comment 60 Contract markets 61 Contract market liquidity 62 Transparency in the contract market 63 Committee comment 66 Chapter 4 Household hardship and industry pressures 67 Electricity unaffordability 67 Impacts of rising electricity prices 67 Committee comment 70 Government and electricity industry household assistance 70 NSW Government assistance measures 71 Electricity industry assistance measures 73 Assessing the effectiveness of assistance measures 73 Committee comment 75 Consumer engagement and market understanding 76 Electricity market engagement and disengagement 76 Lack of transparency in retail billing 77 Confusing discount offers and high standing offers 79 Price reregulation – a basic service offer or default price? 81 Consumer data right 83 Committee comment 84 iv Report 1 - 22 November 2018 SELECT COMMITTEE ON ELECTRICITY SUPPLY, DEMAND AND PRICES IN NEW SOUTH WALES Industry and business pressures 86 Impact on business and industry 87 Government assistance programs for business 89 Committee comment 90 Chapter 5 The future of electricity supply 93 An electricity market in transition 93 Distributed generation: rooftop solar and battery storage 94 The changing generation mix 97 Nuclear energy 98 The outlook for New South Wales' electricity supply 100 High efficiency low emissions coal 103 Committee comment 106 Priorities for ensuring secure and reliable energy supply 106 Stable policy settings to drive investment in generation 107 Technology neutral policy 108 Reliability obligation 109 Notice of closure for large generators 111 Committee comment 113 Effective network and storage planning 116 Renewable energy zones 118 Interconnection 119 Transmission upgrade approvals process 120 Committee comment 121 Renewable energy storage solutions 122 Emerging energy program 123 Committee comment 123 Demand-side incentives 124 Demand response initiatives 126 Enabling small consumers to contribute to demand management 127 Committee comment 130 Appendix 1 Breakdown of retail electricity bills in New South Wales 133 Appendix 2 Submissions 135 Appendix 3 Witnesses at hearings 143 Appendix 4 Minutes 147 Report 1 - 22 November 2018 v LEGISLATIVE COUNCIL Electricity supply, demand and prices in New South Wales Terms of reference 1. That a select committee be established to inquire into and report on electricity supply, demand and prices in New South Wales, and in particular: (a) the reasons for recent large increases in the price of electricity, (b) the impact of the deregulation of electricity prices in 2014, (c) alleged collusion and price gouging by energy retailers, (d) the effectiveness or impact of any current regulatory standards and guidelines, (e) options for future government oversight and responsibility in the re-regulation of electricity prices, (f) the adequacy of planning to meet future electricity demand, including utilising high efficiency, low emissions coal technology as well as the use of nuclear, gas, solar and wind energies, and energy storage through batteries, pumped hydro and hydrogen, and improved transmission between regions, (g) the adequacy of programs to assist low income earners, pensioners and senior card holders to afford electricity as well as the impact of additional fees, such as late payment fees, included in energy bills, and (h) any other related matter. 2. That the committee report by the last sitting day in November 2018.1 The terms of reference were referred to the committee by the Legislative Council on 10 August 2017.2 1 The original reporting date was 9 March 2018 (Minutes, Legislative Council, 10 August 2017, p 1850). The reporting date was extended to the last sitting day in November 2018 (Minutes, Legislative Council, 7 March 2018, p 2315). 2 Minutes, NSW Legislative Council, 10 October 2017, p 1. vi Report 1 - 22 November 2018 SELECT COMMITTEE ON ELECTRICITY SUPPLY, DEMAND AND PRICES IN NEW SOUTH WALES Committee details Committee members The Hon Paul Green MLC Christian Democratic Party Chair The Hon Robert Borsak MLC Shooters, Fishers and Farmers Deputy Chair Party Mr Jeremy Buckingham MLC The Greens The Hon Ben Franklin MLC The Nationals The Hon John Graham MLC Australian Labor Party The Hon Taylor Martin MLC Liberal Party The Hon Adam Searle MLC Australian Labor Party The Hon Matthew Mason-Cox MLC* Liberal Party * Mr Mason-Cox was a participating member of the committee for the duration of the inquiry. Contact details Website http://www.parliament.nsw.gov.au/electricitysupply Email [email protected] Telephone (02) 9230 2519 Report 1 - 22 November 2018 vii LEGISLATIVE COUNCIL Electricity supply, demand and prices in New South Wales viii Report 1 - 22 November 2018 SELECT COMMITTEE ON ELECTRICITY SUPPLY, DEMAND AND PRICES IN NEW SOUTH WALES Chair’s foreword I am pleased to present the committee's report into electricity supply, demand and prices in New South Wales. Rising electricity prices and the future security of our energy supply are pressing issues for the people of this state. Electricity, like shelter and water, is an essential service. It keeps the lights on at home and powers our businesses. It is concerning to note that the Australian Competition and Consumer Commission (ACCC) provided evidence which showed that over the last 10 years retail electricity prices in New South Wales have increased 52 per cent in real terms. During the course of the inquiry, the committee received evidence about the impact these price rises are having on consumers. The committee heard that some people are literally sitting in the dark because they can't afford their electricity bills. I was personally struck by the comments of one witness who has been forced to cut back on food for her family in order to pay her power bills. It is also concerning that the ACCC found that electricity retail profit margins are very high in New South Wales compared to other jurisdictions both domestically and internationally. Continued rises in electricity prices means that households may have to cutback or forgo other important services. Meanwhile businesses faced with rising energy costs will likely be constrained in their ability to invest, offer employment and