Independent report highlights intervention concerns

Competition in the National Electricity Market (NEM) has increased, but there are concerns government interventions may destabilise the investment outlook, according to the latest independent review.

The biennial report from the Australian Energy Regulator (AER) supports the argument that adopting a common framework is the best way to encourage future investment and efficiency and “secure the best outcomes for consumers”.

The Australian Energy Council’s Chief Executive, Sarah McNamara, said “the AER put the NEM under the microscope and found increased competition with large-scale solar and wind generation coming into the market.

“It also did not find any concerns over the exercise of market power, with falls in costs passed on through lower average generator offers.

“It reconfirms our expectation that changes in technology, market architecture and supporting infrastructure would, over time, address concerns raised by policy-makers and regulators about the functioning of the market.

“Clearly, the market worked as expected in the period under review, which is prior to the implementation of the Federal Government’s big stick legislation.

“Instead, the AER points to concerns about ongoing government interference bringing with it the potential to fundamentally change the investment landscape.

“The report notes that while there are concerns from government the market may not deliver sufficient new generation (particularly flexible generation) to replace retiring coal-fired plants, a barrier to entry is the various government schemes intending to underwrite generation investment which the market is also seeking to supply.

“Other uncertainties include changes in technology, likely future demand and what market design is finally agreed to.

“That should not be surprising. You need confidence in the market playing field before investors can commit to major investments that will be around for a long time.”

About the Australian Energy Council

The Council represents 21 major electricity and downstream natural gas businesses operating in the competitive wholesale and retail energy markets. These businesses collectively generate the overwhelming majority of electricity in Australia, sell gas and electricity to over 10 million homes and businesses, and are major investors in renewable energy generation.