The AER has released its inaugural report on wholesale electricity market performance. We monitor and report on the performance of the NEM under the NEL. This includes analysing and identifying whether there is effective competition in the market, and whether there are market features that may be detrimental to effective competition or the efficient functioning of the market. We must report on the performance of the market at least every two years, we may also advise COAG Energy Council on market performance and identify whether legislative or regulatory reform is required. This 2018 report is the first report covering all NEM regions.
Findings
The market is undergoing a significant transformation, with market dynamics changing as it transitions to a lower emissions generation mix. In recent years, average wholesale electricity prices have risen significantly, as a result of the exit of low cost generation and increasing fuel costs. The market is concentrated and the output of a few large participants is required to meet demand in most regions a significant proportion of the time. Despite this vulnerability to the exercise of market power, we did not identify short-term behaviour as contributing to recent price rises. However, we will need to monitor some long term trends.
While the NEM continues to meet the reliability standard, supply and demand conditions have tightened, and prices have risen to such a level that a signal for some lower cost technologies is emerging, which is consistent with the considerable investment in new wind and solar generation on the horizon. However, market participants have identified a range of potential barriers to entry, including policy instability and unpredictability, interventions in the market, and difficulties in obtaining finance.
As we continue to monitor the performance of the wholesale market, we will analyse some key issues in more detail over the coming year. We will also monitor and contribute to policy, review and rule change processes affecting competition in the wholesale markets.
Additional documents
Our levelised cost of energy model is also available on request. If you would like a copy, please email wholesaleperformance
aer [dot] gov [dot] au (wholesaleperformance[at]aer[dot]gov[dot]au).