There are worrying signs of market power in the electricity market, Australian Energy Regulator board member and ACCC Commissioner, Ed Willett, said today.
"With customers already facing increased prices it is particularly concerning, that generators are pushing up wholesale prices by using their market power and further increasing the cost to consumers," he told the energy 21 conference in Melbourne.
"We have seen generators exercising market power to drive up prices in New South Wales, South Australia and Tasmania over the past couple of years," he said. "Price spikes have become a recurring summer event in South Australia. There is limited transmission capacity to import electricity from Victoria, allowing AGL to set prices in peak periods around the $10,000/MWh cap."
Similar issues emerged in Tasmania this year, where Hydro Tasmania made sudden cuts in the output of its mini hydro generators, forcing the dispatch of higher priced generation in its portfolio.
Mr Willett said rising network costs were another factor.
"The AER is carefully assessing network investment, and has scaled back some proposals," he said. "Rising investment is being driven by the need to upgrade ageing assets, improve reliability performance and meet rising peak demand. To this end, it is important that customers see rising network investment lead to genuine market benefits."
Mr Willett said the network sector faced a number of challenges, including implementation of climate change policies
"For example, it will be important to manage network congestion issues with the connection of remote generation. More generally, greater reliance on wind will lead to greater variability in flows across the networks, posing challenges for reliability and power system security.
"Climate change policies are also spurring regulatory and technological innovation that will help consumers take a more active role in managing their energy consumption," Mr Willett said. "For example, the AER has introduced a demand management innovation allowance to encourage network businesses to explore more creative solutions to managing peak demand. Another response is the roll out of smart meters and—potentially—smart grids.
"These innovations should help consumers to efficiently manage their energy use. And consumers will increasingly use solar photovoltaic systems to be energy producers themselves.
"I am confident our existing energy market arrangements can deal with the challenges efficiently," Mr Willett said. "But the market is looking for certainty on climate change policies. Given the wholesale market is already suffering from market power problems, further delays in generation investment are likely to impose serious costs."
The speech to the energy 21 conference will be available on the AER website.