Electricity Industry Restructuring: The State of Play


Research Paper 14 1997-98

Mike Roarty
Science, Technology, Environment and Resources Group
25 May 1998

Contents

Major Issues Summary

Introduction

State by State Overviews

Victoria

Generation

Transmission

Distribution

Retailing

New South Wales

Generation

Transmission

Distribution

Retailing

Snowy Mountains Authority

South Australia

Australian Capital Territory

Queensland

Western Australia

Tasmania

Northern Territory

The National Electricity Market (NEM)

Wholesale electricity market

Retail electricity market

contestable customers

franchise customers

Interstate Interconnector Capabilities

Electricity Prices

Electricity Generation By Fuel

Electricity Consumption by Sector

Conclusions

Endnotes

Appendix 1: List of electricity entities on a state by state basis

Tables

Table 1: Privatisation of Victorian Electricity Industry Assets

Table 2: New South Wales Electricity Entities

Table 3: Customer Contestability Timetable by Participating States

Figures

Figure 1: Interconnector Capabilities Between the States (MW)

Figure 2: Electricity Pool Prices, 1994 to 1997

Figure 3: Electricity Generation by Fuel 1995-96

Figure 4: Electricity Consumption by Sector

Acronyms

ACCC

Australian Competition and Consumer Commission

ACTEW

Australian Capital Territory Electricity and Water

COAG

Council of Australian Governments

ETSA

Electricity Trust of South Australia

GBE

Government Business Enterprise

HEC

Hydro Electricity Commission (Tasmania)

IPART

Independent Pricing and Regulatory Tribunal (New South Wales)

MSO

Market System Operator

NGMC

National Grid Management Council

NEM

National Electricity Market

NECA

National Electricity Code of Australia

NEMMCO

National Electricity Market Management Company

ORG

Office of the Regulator General (Victoria)

PNV

PowerNet Victoria

SECV

State Electricity Commission of Victoria

QERU

Queensland Electricity Reform Unit

Glossary

augmentation

Additional capital works undertaken to increase capacity.

base load

The minimum electrical power demanded over a year. A generating unit servicing the base load is run continuously at or near its rated capacity. Base load generating units normally operate with an annual capacity factor in excess of 60 per cent.

capacity factor

The measure of the energy production of a generating plant during a period compared to the total energy production if the plant had operated continuously at full output during the period. Usually expressed as a percentage.

cogeneration

The generation of electricity as a by-product of another process in the industry. It involves the recovery of heat or primary energy that would otherwise be wasted.

combined cycle

A two-stage electrical generation process. In the first stage electricity is generated by a gas turbine. The waste heat is then used to generate more power by steam turbine.

commercialisation

Applying commercial principles to a government business enterprise (GBE) as far as possible.

corporatisation

Subjecting GBEs to the principles of the corporatisation law. Often accompanied by a range of other initiatives, including providing greater management autonomy and clear commercial objectives, performance monitoring and competitive neutrality.

demand management

The modification of electricity demand (by spreading or reducing the peak load) to reduce the cost of generation. Also referred to as demand-side or load management.

distribution

The process of transferring electricity from the transmission system to final users. Electricity is distributed along local networks of overhead and/or underground power lines.

generation

The process of converting primary energy (mostly coal, gas, oil, stored water and to a lesser extent wind and solar) into electricity.

gigawatt-hour (GWh)

A unit of electrical energy. 1 GWh = 1000 MWh. 1 MWh = 1000 kWh (MWh = megawatt hour, kWh = kilowatt hour).

interconnection

High voltage transmission lines linking states.

national electricity

A competitive market for electricity between all the eastern

market (NEM)

Australian regional electricity systems that could be interconnected following the year 2000.

natural monopoly

Arises where the entire output of a market can be supplied at a lower cost by one supplier than by any combination of two or more firms. Reflects the presence of economies of scale and or/scope.

overburden

a geological term denoting either soil or rock cover that overlies extractable mineral deposits such as coal seams.

peak load

The maximum power demand placed on the generating system for relatively short periods of time. Dedicated peak load generating units normally average a capacity factor of only 10 to 30 per cent over the year.

ring-fencing

The internal separation of business functions within an enterprise for management and accounting purposes.

transmission

The process of transferring high voltage electricity from generating stations to distribution networks.

vertical separation

The division of a vertically integrated enterprise into commercially autonomous operations. In the case of electricity utilities this involves separating generation, transmission, distribution and retail supply.

Major Issues Summary

The Australian electricity industry has been dramatically restructured since the early 1990s with the break up of previously wholly state-owned vertically integrated electricity monopolies. The break up has resulted in the formation of:

  • competing generation and retailing entities; and
  • regulated transmission and distribution entities.

All entities have either been corporatised or in the case of Victoria, privatised.

Victoria is the only state at this stage to privatise its electricity assets for which it has received around $22 billion. The state has used this revenue to retire state debt. A number of other states including South Australia, Tasmania and Western Australia have expressed intentions to privatise at least some components of their electricity assets. Foreign ownership has largely dominated the privatisation process to date.

There has been some concern expressed in a number of circles that the relatively recent power failures in Auckland, New Zealand and in Brisbane were attributable to the changing nature of the electricity industry and that the assets were in the process of being privatised. The power failures were caused by a number of circumstances and not necessarily associated with the changing process itself. It is true to say, however, that it is very early days in this dramatic restructuring process and it will be a number of years before a final analysis of the benefits and costs of the implemented changes can be undertaken.

A national electricity market has been established and is scheduled to commence operation in October 1998, enabling the trading of electricity between Victoria, New South Wales, South Australia and the Australian Capital Territory. A trial national market has been in operation since May 1997. The development of the national market will allow electricity trading between all of the eastern states, providing the opportunity for cheap base load power to industry irrespective of location, and it will also provide back up to areas in times of peak demand or power failure.

Although there is a readily apparent advantage of a national electricity market, electricity transmission loss occurs over long distances and as such there is some comparative advantage of selling electricity close to the generation source.

Wholesale electricity prices have declined appreciably during the restructuring process although according to industry commentators, present prices may not provide a return on investment. The decline in prices has been attributed a number of factors including increased competition, overcapacity and the development of the national electricity market (NEM). The future trend of prices may well be upwards and mergers may occur to provide better economies of scale. In addition, over time, increased electricity demand brought about by increased economic activity and increased population will soak up overcapacity and move the market into better balance.

Whether the restructuring process will result in reduced prices for households remains to be seen. Households, although by far the largest group of customers numerically, only constitute around 28 per cent of the total market. Electricity prices in this sector have always been regulated and have benefited to some extent from cross-subsidisation from industrial and commercial customers.

Although renewable energy sources apart from hydro provide negligible input into the electricity generation equation, there is some effort occurring to develop these technologies aided by Commonwealth financial incentives. Renewable energy generated by either wind or solar is considerably more expensive to produce at present than from traditional sources.

The electricity restructuring process and new market circumstances will create new challenges for all electricity consumers. Large industrial and commercial consumers, in particular, will need to develop an appreciation of the changing circumstances in order to develop appropriate purchasing and demand management strategies.

Introduction

There has been dramatic change in Australia's electricity industry since the early 1990s. The electricity industry has undergone a period of rationalisation, disaggregation, corporatisation, and in the case of Victoria, almost total privatisation. This change has been part of a growing worldwide trend towards the restructuring of government business enterprises (GBEs) targeted towards increased efficiency and lower prices. Australia's electricity industry has been part of this revolutionary process.

Prior to the early 1990s, the Australian electricity industry consisted of wholly state-owned and managed vertically integrated electricity authorities responsible for the generation, transmission, distribution and retailing of electricity to consumers (commercial and household). GBEs, and electricity authorities in particular were often motivated by the availability of government guaranteed capital to finance either new capacity or implement programs rather than basing decisions on sound investment practices. Each state focussed on supplying its own needs and tended to develop generation capacity in isolation. As a result, substantial over capacity was developed in a number of regions.

The major restructuring of Australia's electricity industry resulted from the implementation of recommendations emanating from a number of bodies during the 1990s. The Industry Commission found there was a need to promote competition in the industry, that transmission, generation and distribution needed to be separated, that utilities needed to be separated, that utilities should be corporatised and interconnection between the States should be improved(1). This inquiry was followed by meetings of the Council of Australian Governments (COAG), a Special Premiers' Conference in 1991 and the formulation and implementation of the National Competition Policy, as recommended by the Hilmer Report in 1993.

The National Competition Policy has created the impetus for reform with the added provision of financial incentives. In addition, according to the Industry Commission, there are annual national benefits of up to $5.8 billion from competitive reform in the electricity and gas industries(2).

The commonly stated rationale for restructuring is to increase microeconomic efficiency through the introduction of competition in regulated industries, such as telecommunications, banking and energy. The main objectives are to ensure that customers receive:

  • choice of supplier;
  • lower cost of service; and
  • increased range of services.

Each of the states has restructured their electricity authorities since the early 1990s and although they are all at different stages in the restructuring process, the thrust of the process has involved the separation of single entity vertically integrated monopolistic authorities into electricity generation, transmission, distribution and retailing components. A national electricity market (NEM) has been established and is scheduled to begin operating in May 1998, enabling the transmission and sale of electricity between states (New South Wales, Victoria, South Australia and the Australian Capital Territory). This market will be extended to include Queensland by 2001 and possibly Tasmania beyond that date. A trial NEM (NEM1) has been in operation since May 1997 with the trading of wholesale electricity between New South Wales, Victoria, the Australian Capital Territory and South Australia.

This paper outlines developments within the electricity industry since the early 1990s. It is not intended to provide extensive detail of historical developments but rather to provide an overview and commentary on the industry up to and including early 1998. For details of critical dates and events that have occurred during the period of restructuring since the early 1990s it is suggested that this report be read in conjunction with a Department of the Parliamentary Library chronology of developments within the Australian electricity industry currently been prepared.

State by State Overviews

Restructuring has proceeded along different time frames and whilst the focus has all been on increased efficiencies and lower prices, the pace of change in each of the states has differed markedly. By and large however, disaggregation of single entity monopolies in each of the states has occurred and many of the components have been corporatised. Victoria has proceeded more quickly and has undertaken more substantial restructuring than any of the other states.

A list of the individual electricity entities (generation, transmission, distribution and retail) that have formed following the restructuring process, on a state by state basis, is outlined in Appendix 1.

Victoria

Initially, as with all other states, the electricity business in Victoria was run by a state government owned monopoly, the State Electricity Commission of Victoria (SECV). The SECV was responsible for most generation activities, operation of the high voltage transmission networks and most of the distribution network and retail sales.

In August 1993, the State Government of Victoria commenced a review of the structure and operation of its electricity industry, which led to a phased disaggregation of the electricity industry. From January 1994 to January 1995, the single electricity entity was disaggregated and the resultant individual entities were all corporatised. The corporatised entities created through the disaggregation included seven generation companies, a transmission entity, five distribution companies and a wholesale market operator. Since then, the Government has privatised the five distribution companies, six generation companies and a transmission company. One of the distribution companies, United Energy released a prospectus in March 1998 to sell 41.6 per cent of the company to the public(3).

The Victorian Government has detailed what it believes to be the substantial benefits of the electricity reform process. The sale of the electricity infrastructure has alone netted the Victorian Government close to $22 billion, allowing the reduction of state debt and Victorian electricity prices have been reduced. The NEM and electricity prices are discussed further in the section Electricity Prices. The individual assets, major purchase partner, price received for the individual entities and date of sale are outlined in Table 1.

Table 1: Privatisation of Victorian Electricity Industry Assets

Asset

Major Purchase Partner

Value

Date

Generation

(A$billion)

Yallourn Energy 1450 MW

Powergen (UK)

1.55

May 96

Hazelwood 1600 MW

National Power (UK)

2.36

Aug 96

Loy Yang A 2000 MW

CMS Energy Corporation (USA)

4.75

Apr 97

Loy Yang B 1000 MW

Mission Energy

1.30

1992 (51 %)

(sold in 2 stages)

1.00

Apr 97 (49 %)

Southern Hydro 450 MW

(3 Power Stations)

Newport 500 MW (gas)

Jeeralang 465 MW (gas)

Transmission

PowerNet Vic

GPU Inc (US)

2.70

Oct 97

Distribution

United Energy

Utilicorp (US)

1.55

Aug 95

Solaris Power

General Public Utilities (US)

0.95

Oct 95

Eastern Energy

Texas Utilities (US)

2.08

Nov 95

PowerCor

Pacificorp (US)

2.15

Nov 95

Citipower

Entergy (US)

1.58

Dec 95

Source: Australian Submission on Alternative ESI Structures.

Under the new competitive structure, the natural monopoly functions of the transmission and distribution of electricity have been separated from the competitive functions of generating and retailing electricity. Generators and retailers now trade electricity in a competitive wholesale market (NEM1) as contestability (the right of the electricity consumer to choose their electricity retailer) is phased in over time, while transmitters and distributors charge regulated tariffs for transporting the electricity to customers.

Information on the major disaggregated Victorian electricity components are outlined below:

Generation

Most of the electricity consumed in Victoria is produced by coal-fired power stations located in the Latrobe Valley, where there are considerable brown coal reserves. The power stations for the most part are located adjacent to the coal mines. Brown coal is considerably cheaper to produce than black coal and as such makes the Victorian generators very competitive. The Victorian brown coal deposits are relatively close to the surface and have shallow overburden. The overburden and the coal are relatively soft and as such can be ripped prior to transportation in comparison to the extensive blasting required in the New South Wales coal fields. In addition to the coal-fired power stations, Victoria has two gas-fired power station, a number of small hydro-electric schemes and two cogeneration waste gas plants.

Transmission

The Victorian transmission grid is owned and operated by GPU Powernet Pty Ltd. GPU has over 6400 km of high voltage transmission lines crisscrossing Victoria and provides electrical power to around 4.5 million people. PowerNet's charges and services are regulated by the Office of the Regulator General, Victoria (ORG).

Distribution

All the distribution companies were privatised by January 1996. Three of five distribution companies (CitiPower Pty, Solaris Power Limited and United Energy Limited) are predominantly based in metropolitan Melbourne, while two (Eastern Energy Limited and Powercor Australia limited) operate distribution networks covering the rest of Victoria. Eastern Energy's, for example, maintains around $1.8 billion worth of distribution assets with the distribution franchise area covering approximately 80 000 km2 including Melbourne's outer eastern suburbs, through to Gippsland in the east and as far north as the New South Wales border.

Each of the five distribution companies owns and manages distribution networks in the geographic area defined in their licence. For example, United Energy's distribution business, like the other distributors owns and manages its network from PowerNet Victoria (PNV) voltage transformer step down stations up to and including the meter at the customer's premises. The Victorian distribution businesses also provide a public lighting service to local councils.

Distribution companies earn income by charging distribution network charges for any electricity sold to customers connected to their network. These charges are regulated by the ORG. The regulatory regime defines initial distribution network charges, the formulae to be used to determine movements in those distribution network charges over the period to 31 December 2000, and the principals and key parameters to be taken into account by the ORG in future reviews of distribution prices.

Retailing

Electricity is transported from the transmission terminal stations to points of use at the customer's premises by way of the distribution system. The retail function however is a separate activity from pure distribution of electricity. Retailers purchase electricity in the wholesale market, arranging for its distribution and selling it to customers.

Until all customers become 'contestable' (see Table 3), the distributor who controls the relevant franchise area will provide retailing services in the first instance. However, customers within a particular franchise area will be free to choose any licensed retailer regardless of their base, even including retailers from interstate when they become 'contestable'.

Licensing of retailers provides some guarantee to customers that they are dealing with reputable companies that are financially sound and that they are committed to good consumer practices.

New South Wales

New South Wales is also well advanced with the restructuring of its electricity industry. Prior to 1995, the New South Wales electricity industry resisted most attempts at change. The Electricity Commission of New South Wales, later renamed Pacific Power, produced electricity for the State of New South Wales. The Commission controlled the power stations and sold electricity at government determined prices via a couple of dozen mostly council owned distributors. The distributors owned the poles and wires that took it to consumers.

The New South Wales Labor Government broke up Pacific Power in 1995. The more competitive functions of generation and retail were separated from the more monopolistic functions of transmission and distribution. All of the New South Wales electricity authorities have been corporatised (see Table 2) and there has been a concerted effort by the New South Wales Premier and Treasurer to privatise these corporate bodies(4). This push however has met considerable opposition to date from the Labor Party's left wing and public sector unions who maintain essential services should remain in public hands. Presently, all of these corporatised bodies remain wholly owned New South Wales government agencies.

Table 2: New South Wales Electricity Entities

Generation

Transmission and System Operator

Distribution

Retailing

Macquarie Generation

(4640 MW)

Delta electricity

(4240 MW)

Pacific Power

(3270 MW)

 

Transgrid

Metropolitan

 

Energy Australia

Integral Energy

 

Rural

 

Advance Energy

Australian Inland Energy

Great Southern Energy

NorthPower Energy

 

ACTEW Energy

Advance Energy

Australian Inland Energy

AGL Wholesale Energy

Boral Energy

CitiPower

Delta Electricity

Eastern Energy

Energy Australia

Ergon Energy

ETSA Power

Great Southern Energy

Integral Energy

Macquarie Generation

NorthPower

Pacific Power

Powercor

Solaris Power

United Energy

Yallourn Energy

Source: Electricity Supply Association of Australia

The break up of Pacific Power has enabled the New South Wales generators and retailers to participate in the NEM1. Key aspects of the wholesale electricity market rules of Victoria and New South Wales have been aligned under NEM1 to establish interstate trade in electricity although under NEM1 each of the States retains its own wholesale electricity market.

Both States are in the process of progressively deregulating their retail markets, initially enabling larger customers to be supplied by a retailer of their choice (see the National Electricity Market section).

Brief comments pertaining to the New South Wales corporatised electricity entities are outlined below:

Generation

The Pacific Power generation facility has been broken up into three competing electricity generating corporatised bodies namely, Macquarie Generation, Delta Electricity and Pacific Power. Each of these entities operates a number of power stations located in the Hunter Valley and near Lithgow. The majority of these power stations use black steaming coal as the fuel source and most are located relatively close to the mine where they obtain their coal. New South Wales electricity is also generated by a number of relatively small gas turbine/oil generators, hydro-electric schemes and a number of small emerging renewable energy generating plants (wind farms and solar collectors). Whilst providing what is termed as green clean energy, electricity generated by either wind or solar power is presently significantly higher cost than electricity generated from the more traditional sources.

In addition to obtaining electricity from state sources, New South Wales can also obtain electricity from the Snowy Mountains Hydro-electric Scheme, Victoria and South Australia with the development of NEM1.

Transmission

Like Victoria, New South Wales has only one transmission business and that is Transgrid. Transgrid is also the systems operator, that is oversighting the entire operation of the electricity market. The network owned and operated by Transgrid is valued at more than $2 billion and forms a major component of one of the most extensive transmission networks in the world. It interconnects with the Snowy Hydro-electric Scheme, Victoria, and South Australia via Victoria. The Transgrid networks consists of 73 substations and switching stations and around 11 500 km of transmission lines operating at voltages from 66 kV to 500 kV. Transgrid's income for managing its high voltage transmission network is capped by determinations of the New South Wales Independent Pricing and Regulatory Tribunal (IPART). This regulatory role will revert to the Australian Competition and Consumer Commission (ACCC), following the transition to the full NEM.

Distribution

With the restructuring, the 25 former electricity distribution and retail businesses in NSW have been merged and corporatised into six competing businesses. The electricity distributors are Advance Energy, Energy Australia, North Power, Integral Power, Great Southern Energy and Australian Inland Energy. By directly connecting to Transgrid's network, these distributors provide a link between the producer and the end consumer.

As in Victoria, these distribution facilities will be regulated in terms of the fee for distribution services by IPART. This function will revert to the ACCC on the transition to the full NEM.

Retailing

New South Wales based retailers include arms of the three generators and the six distributors in addition to arms of other generators and distributors in other states, as well as a number of other retailers who merely buy and sell electricity through the national market without owning any infrastructure whatsoever. The retailing arms of the generation and distribution companies operate in 'ring fenced' manner to the other units within the entity. In other words, each separate operating entity must behave as a commercially based stand alone business.

A number of the above distributors also have subsidiary businesses that specialise in contracting out electrical maintenance and construction services. For example, Integral Energy Contracting operates these services within its franchise area but also supplies equipment maintenance and engineering consulting services throughout the remainder of New South Wales, Australia and international markets.

Snowy Mountains Authority

The Snowy Mountains Hydro-electric Authority manages and maintains the Snowy Mountains Hydro-electric Scheme, one of the most complex dual water and electricity projects in the world, situated in southern New South Wales(5). Whilst not a state, The Snowy Mountains Authority plays a vitally important role in the generation of electricity and as such has been covered in this section. On average the Authority generates around 5.2 GWh of renewable electricity annually (compared to on average in New South Wales of 51.4 GWh and Victoria 32.9 GWh).

The Authority is a Commonwealth government business enterprise with output from the scheme controlled by the Snowy Mountains Council, which directs the storage and release of water and generation of electricity. The Authority presently sells electricity to New South Wales, Victoria and the Australian Capital Territory and operates on a cost recovery basis, being reimbursed the net cost of production by the relevant electricity authorities in the three jurisdictions. However, in line with the restructuring of the national electricity industry, passage of legislation through the Commonwealth Parliament in late 1997 has been a significant step in the progress of the corporatisation of the Snowy Mountains Hydro-electric Scheme. The three parties to the existing Snowy Mountains Agreement, the Commonwealth, New South Wales and Victoria, are committed to the corporatisation of the Authority to allow it to operate as an independent commercial operator. As a precursor to full corporatisation, the Authority established Snowy Hydro Trading Pty Limited in May 1997, responsible to trade the Scheme's electricity production.

Following corporatisation of the Snowy Mountains Scheme, there may follow a change to charging policies. Commercial viability will necessitate an increase in prices of both water and electricity. Substantial losses were reported for the 1996 and 1997 fiscal years following the inclusion of the treatment of depreciation charges reflecting a revaluation of scheme assets, which were brought into account in 1991.

The Snowy Hydro-electric Scheme is dependent on water flow and its commercial viability could be threatened during periods of prolonged drought. Prolonged drought would rob the scheme of both available saleable water and ability to generate electricity.

South Australia

As in other states, electricity in South Australia was supplied by a vertically integrated monopoly originally established as the Electricity Trust of South Australia (ETSA).

ETSA underwent substantial restructuring in 1993 and was corporatised in July 1995. At the same time, ETSA was re-established as a holding company, ETSA Corporation, for four separate companies: ETSA Generation, ETSA Transmission, ETSA Power (distribution network and retail functions); and ETSA Energy (an energy trading arm incorporating gas).

In January 1997, following a review of the structure of the SA electricity industry, the generation arm of ETSA Corporation, ETSA Generation was separated as a new corporatised body and renamed Optima Energy. ETSA Corporation retains ownership of ETSA Transmission, ETSA Power Corporation (the distribution and retail businesses) and ETSA Energy Corporation.

South Australia is connected to the Victorian transmission grid via an interconnection and is a major importer of electricity from Victoria. It presently trades in the Victorian wholesale market through ETSA Transmission and therefore participates in NEM1. The size of the interconnector link from Victoria to South Australia is 500 MW whereas the linkage in the reverse direction is 250 MW. A new transmission interconnection proposal (the $100 million 250 MW 'Riverlink' project) linking the New South Wales and South Australia transmission systems is under examination.

The South Australian Government has announced its intention to sell the generation utility Optima Energy by December 1998 and the ETSA Corporation by December 1999(6).

A privately-owned joint venture between CU Power and Boral Energy is constructing a major independent cogeneration electricity plant in South Australia. The Osborne plant is a state-of-the-art 180 MW natural gas-fired cogeneration project. The project will supply around 8 per cent of South Australia's electricity through a long term purchase agreement with ETSA Corporation and will in the future reduce the reliance on imported power from Victoria.

Australian Capital Territory

Australian Capital Territory Electricity and Water (ACTEW) Corporation is the Australian Capital Territory water and electricity authority, which underwent corporatisation in 1996. ACTEW does not have generating capabilities but buys all of its electricity in the wholesale market (from the Snowy Hydro-electric Scheme, New South Wales and Victoria). Prior to the development of the NEM, one third of electricity purchases came from the Snowy Hydro-electric Scheme and two thirds from NSW generators.

ACTEW's electricity business falls into two parts: the distribution and the retail businesses. The distribution business owns and manages ACTEW's distribution wires and poles. The retail business buys energy through the wholesale electricity market, supplies energy to customers in the Australian Capital Territory, and provides other energy-related services to customers.

The retailing business as in other states will be exposed to competition (see Table 3), with interstate retailers competing for market within the Australian Capital Territory with the retailing arm of ACTEW. Consistent with the position in other states, electricity distribution within the Australian Capital Territory will remain a monopoly owned by ACTEW. If a customer chooses a retailer other than ACTEW, there will still be a distribution charge for access to and use of ACTEW's distribution wires. ACTEW's distribution charges will be regulated by the ACT Energy and Water Charges Commission.

Independent pricing oversight serves to ensure that customers of ACTEW services for which there is no effective competition obtain a fair price. This will include charges for use of ACTEW's wires by independent interstate retailers.

Prices negotiated between contestable customers and their preferred retailer will not be subject to independent pricing review. The review process, however, will continue for as long as there are customers who do not have an effective choice of retailer.

Previous arrangements under which retailers in New South Wales purchased power from generators under bulk supply tariffs were replaced with the introduction of a wholesale electricity market during 1996. ACTEW, as a long-standing customer of New South Wales generators, has participated in this wholesale market.

Queensland

The restructuring of Queensland's electricity industry began in January 1997, significantly later than in most other states. A specially convened taskforce (Queensland Electricity Industry Structure Task Force) reported to the Queensland Government on structural, institutional and regulatory changes to the electricity supply industry in December 1996. Shortly thereafter the Queensland Government announced its electricity reform strategy, based largely on the recommendations of the Task Force.

The aim of the strategy is to position the Queensland electricity industry to be a strong competitor in the NEM. Key elements of the strategy are:

  • splitting the State's major generator, which had been renamed AUSTA Electric, into three independent and competing government-owned generation corporations and an engineering services corporation;
  • retention of the State's seven existing distribution corporations;
  • creation of three new trading corporations which will buy and sell electricity in the distribution areas;
  • establishment of an interim competitive market in Queensland during the last quarter of 1997, with a fully competitive market by 2001;
  • reaffirmation of the Government's earlier decision to interconnect with New South Wales.

The Queensland Electricity Reform Unit (QERU) was established to implement the strategy in a timely and efficient manner.

In the last 12 months, the key recommendations of the Task Force report have been implemented. Key outcomes include:

  • the industry was restructured from 1 July 1997 in preparation for the introduction of a competitive electricity market. There are now 15 government-owned participants in the industry comprising three generation companies (CS Energy, Stanwell Corporation and Tarong Energy), an engineering services company (AUSTA Energy), a transmission company (the Queensland Electricity Transmission Corporation trading as Powerlink Queensland, which includes the Queensland System Operator, operating as a ring-fenced business unit), the existing seven regional distribution companies and three new retail supply companies;
  • three significant packages of legislation were passed by the Queensland Parliament underpinning the restructuring of the Queensland electricity industry. These packages include the full recognition of the newly developed National Electricity Law; and the operational requirements of the National Electricity Code (see National Electricity Market section). The legislation also enabled interstate electricity retailers to commence operations in Queensland.
  • Queensland became the first state to trial the full NEM systems (computer software and market procedure) when these were used in a 'paper trial' conducted in late 1997. Queensland intends to use the full NEM systems and apply the National Electricity Code as authorised by the Australian Competition and Consumer Commission (ACCC) well before the connection to the NEM;
  • Queensland switched to an interim wholesale market on 18 January 1998 based on the NEM systems. The framework for a new regulatory regime for the Queensland electricity industry was introduced, including:
  • - independent regulation of the transmission/distribution sectors by the Queensland Competition Authority and/or ACCC; and
  • - codes of conduct to control anti-competitive behaviour in the early stages of the new market.
  • retail competition commenced in the Queensland electricity industry on 29 March 1998 whereby the first grouping of 'contestable' customers (greater than 40 GWh per annum) were able to choose where and how to purchase their electricity (see NEM section).

Licences have been issued to 15 new retail businesses that will compete in Queensland and the national market.

Unlike the southern regions, namely South Australia, Victoria, ACT and New South Wales, Queensland is not yet connected to the national electricity grid. An interconnector transmission line is expected to cross the New South Wales/Queensland border west at Yelarbon in 2001, 45 km east of Goondiwindi. The project 'Westlink' will cost $384 million, funded by the Queensland Government ($242 million) and the New South Wales Government ($142 million)(7). The proposed sizes of the new linkages are 1000 MW flowing from Queensland to New South Wales and 500 MW flowing from New South Wales to Queensland. This link is well to the west of an earlier proposed interconnector transmission line 'Eastlink' and as such will not pass through what were deemed to be environmentally sensitive areas.

Western Australia

Although Western Australia will not participate in the emerging NEM, the electricity industry in Western Australia has nevertheless undergone significant restructuring. Western Power and Alinta Gas were formed out of the former State Energy Commission of Western Australia on 1 January 1995 as corporatised bodies with ownership retained by the Western Australian Government. The Western Australian Government has announced plans to sell off part of Western Power after 2000, although it has also indicated it wishes to retain a substantial interest in the utility to ensure the reliability of power supply(8).

Western Power owns, maintains and operates five major power stations and 32 smaller power stations with a total capacity of 3000 MW. It operates two major interconnected systems, in the relatively densely populated south-west corner of Western Australia (the south-west grid) and the Pilbara in the north as well as 29 separate systems in remote parts of the state. Western Power is composed of a number of operating divisions such as generation, transmission, customer services and marketing and sales divisions. This structure is somewhat different to the eastern states where separate entities compete with each other in all of these areas. The generation division maintains a total capacity of 2880 MW at its five major power stations; Muja, Kwinana, Pinjar, Bunbury and Mungarra and smaller facilities at Geraldton and Kalgoorlie. These use a range of fuels including coal, gas, heavy fuel oil and distillate. A 2 MW plant at Wellington Dam is hydro-electric. A new 300 MW coal-fired power station is being built at Collie, near the main base load power station, Muja, and is due to come on stream in early 1999.

As well as Western Power there are five private electricity authorities in Western Australia providing power in a number of remote localities. These include BHP Iron Ore operating in Newman, Hamersley Iron Ore supplying Robe River, Tom Price and Paraburdoo, Robe River Iron Associates supplying Wickham and Pannawonica, the Rottnest Island Authority supplying Rottnest Island and WMC Ltd supplying Leinster.

A number of independently owned gas-fired power stations began selling electricity into south-west grid during 1997. Open access to Western Power's transmission networks became effective in January 1997 allowing independent generators to sell electricity to third party customers. Regulations, a technical code and a schedule of non-discriminatory, commercially based prices for access to the networks were developed in consultation with industry representatives.

Tasmania

The electricity industry in Tasmania is run and managed by the wholly state-owned Hydro Electricity Commission (HEC). The significant difference in Tasmania's electricity industry to those of the mainland states is that 99 per cent of Tasmania's electricity is provided by hydro-electric power, a renewable energy source. Hydro-electricity is generated without the production of greenhouse gases or air pollutants as are produced with electricity generated from coal-fired power stations.

Whilst not presently in a position to join the NEM, the HEC underwent significant restructuring in 1997. The restructuring involved the setting up of primary divisions of generation, transmission, network energy services (retailing) and consulting. During 1997, the Tasmanian Government announced its intention to sell the retail and network businesses of the HEC, while retaining public ownership of the HEC hydro generation assets. The State Government is awaiting a feasibility study of a part lease of the HEC facility rather than direct sale. The Labor opposition and the Tasmanian Greens have opposed the sale option, with the expressed view that the entire electricity utility remain in public hands.

Both the Government and HEC management have come out strongly in favour of the construction of an undersea transmission interconnector to the mainland ('Basslink') so as to enable Tasmania's joining of the NEM. The proposed linkage would involve a 300MW interconnector costing around $400 million. The Government envisages private sector participation.

According to the Tasmanian Government and HEC management, the interconnection of Tasmania with the mainland via 'Basslink', would create a number of advantages including:

  • the provision of competition in electricity generation without the need to build another hydro-electric generator or gas-fired generator;
  • the ability to take advantage of low base load electricity prices from the mainland;
  • the ability to export renewable generated electricity into the mainland during periods of peak demand; and
  • a backup to HEC capacity to provide power during drought or low rainfall periods and to provide capacity to pump water storage.

Northern Territory

The electricity industry in the Northern Territory is dominantly a wholly owned and operated Government entity. The entity, The Power and Water Authority (PAWA) was established in July 1997, which took over all responsibilities for power and water from previous Northern Territory Government bodies. Although the Northern Territory has a commitment to the National Competition Policy there are no large scale changes proposed to the present structure and mode of operation of PAWA(9).

The Power and Water Authority owns and operates a number of power stations throughout the Territory. The overall market in comparison to the southern states is relatively small, with total demand of around 200 MW in the combined Darwin, Pine Creek and Katherine grid. The rest of the Territory's market is characterised by a large number of isolated plants. It is not practical for them to be interconnected. A number of major industries including Gove aluminium, together with other mining and processing operations located throughout the Territory, provide their own power, for example, the privately owned power plant at the McArthur River mine situated in the gulf area of the Northern Territory.

A relatively new privately owned power station (27 MW) was opened in July 1996 in Pine Creek with the express purpose of supplying power to the Darwin-Katherine grid. A further privately owned power plant (9 MW) is under construction near Alice Springs to provide additional capacity to supplement the existing PAWA facility (53 MW) at Alice Springs.

The National Electricity Market(NEM)

The commencement of the NEM, scheduled to begin in October 1998 will be a major achievement in Australia's ongoing micro-economic reform agenda. The development of NEM began in 1991 following recommendations from the Industry Commission. Based on these findings, the COAG agreed to work together to create a national electricity market and establish a National Grid Management Council (NGMC) to assist the process.

The NEM will introduce competition in the wholesale supply and purchase of electricity combined with an open access regime for the use of electricity networks across New South Wales, Victoria, South Australia and the Australian Capital Territory. Queensland is scheduled to join the national market in 2001 with the completion of the 'Westlink' interconnector. Tasmania may join the NEM beyond that date, if and when the 'Basslink' inteconnector is built. It is not envisaged that the Northern Territory and Western Australia will participate in the national market because of the long transmission distances involved and hence prohibitive cost(10).

COAG, the NGMC, the electricity industry and customer groups worked together to develop a National Electricity Code (the Code) that defined rules for the wholesale trading and access to electricity networks. The necessary institutions and regulatory framework to allow a national electricity market to commence were established. A National Electricity Law, supports the effective operation of the Code and the NEM. The National Electricity Law has been passed by the South Australian Parliament as the lead legislator and will be enacted by other participating jurisdictions in the NEM to ensure regulatory consistency across the national market. At the same time as the NEM was being developed, each participating State Government and Territory introduced their own electricity reforms to prepare for the NEM and operate a trial NEM in the interim period.

Two companies, the National Electricity Market Management Company Limited (NEMMCO) and the National Electricity Code Administrator Limited (NECA), were formed in May 1996 by the Governments of New South Wales, Victoria, Queensland, South Australia and the Australian Capital Territory to implement the NEM. NEMMCO will manage the wholesale electricity market in accordance with the Code and NECA will supervise, administer, and enforce the Code. The access regime for electricity networks will be regulated by the Australian Competition and Consumer Commission (ACCC) and jurisdictional regulators. The NGMC was dissolved in February 1997 after it completed its work on the development of the Code.

The NEM has been developed to include the following features:

  • a competitive wholesale market for the supply and purchase of electricity by market participants;
  • an open access regime that provides for non-discriminatory access to electricity networks; and
  • a transparent and nationally consistent legal and regulatory framework.

Non-discriminatory access to electricity networks, transparent regulation and the introduction to a single wholesale electricity market will allow all types of generators, demand management options and electricity network augmentations to compete with each other and hence promote an environment for a more flexible, cost effective and efficient electricity industry.

NEM1 has been in operation since May 1997. The full NEM, scheduled to commence in October 1998 will enable full scale trading of wholesale electricity between the states. Each of the states has its own timetable for customers to become 'contestable' (see retail electricity market section), that is, free to choose the supplier of their own choice. The timetable is set out in Table 3 and shows that the larger consumers are eligible to choose their own supplier at an earlier date. For example in Victoria, electricity consumers of greater than 40 GWh/year (heavy industry, smelters) were able to choose their own supplier from December 1994.

In New South Wales, the market was opened up to retail competition in October 1996. The first to benefit were customers each consuming more than 40 GWh of electricity a year, representing a bill around $2 million. On 1 April 1997 they were followed by businesses such as multi-storey office blocks or food processing plants that use more than 4 GWh or a bill of around $250 000. On 1 July 1997, more than 3500 businesses consuming more than 750 MWh or paying more than $75 000 became eligible.

They will be followed on 1 July 1998, by more than 10 800 customers such as fast food chains or service stations who use more than 160 MWh per year costing around $16 000.

By July 1999, all 2.7 million New South Wales customers will be able to take full advantage of the open competition and select the retailer of their choice.

Following the introduction of NEM1, retail competition has increased markedly. For example, Integral Energy (a New South Wales distributor), has been active in the Victorian contestable market. Integral Energy has taken over account responsibilities from a number of incumbent Victorian distributors(11).

Table 3: Customer Contestability Timetable by Participating States

Customer Size

ACT

NSW

Queensland

South Australia

Victoria

> 40 GWh per annum

October 1997

5 sites

October 1996

47 sites

January 1998

43 sites

April 1998

25 sites

December 1994

47 sites

> 4 GWh per annum

March 1998

40 sites

April 1997

660 sites

January 1999

346 sites

July 1998

125 sites

July 1995

330 sites

> 750 MWh per annum

May 1998

247 sites

July 1997

3,500 sites

Not classified

January 1999

600 sites

July 1996

1 500 sites

> 160 MWh per annum

July 1998

781 sites

July 1998

10 800 sites

January 2000

6 317 sites

January 2000

2 400 sites

July 1998

9 000 sites

All customers

July 1999

125 000 sites

July 1999

2 700 000 sites

January 2001

1 407 000 sites

To be reviewed

700 000 sites

December 2000

1 957 300 sites

Source: NEMMCO

The wholesale electricity market differs from other markets because electricity cannot be stored and it is not possible to distinguish which generator produced the electricity. Because of this, the wholesale electricity market uses the concept of a pool where all the electricity output is pooled and is then scheduled to meet the electricity demand.

The two basic components of the pool managed by NEMMCO are the centrally coordinated dispatch process and the spot market.

The spot market is a market where generators are paid for the electricity they sell to the 'Pool' (see following section), and wholesale and retailers end user customers pay for their electricity consumption. A spot price for wholesale electricity is calculated each five minutes and averaged for each half-hour period during the day and is the clearing price to match supply and demand. NEMMCO calculates this spot price using the daily price offers and bids. In the centrally coordinated dispatch process, NEMMCO uses the dispatch offers and bids to schedule the generators into production to meet the forecast electricity demand.

The roles of the market participants are broken into the wholesale and retail electricity market:

Wholesale electricity market

A competitive wholesale market for electricity in the NEM will be known as the 'Pool'. Electricity from generators will be traded through the 'Pool' to large customers or to licensed retailers. Retailers in turn sell the electricity to their customers in the retail market described below.

Since July 1997, the Victorian spot market has been linked to that of New South Wales through the NEM arrangements, and South Australia and the Australian Capital Territory operate as customers in the Victorian and New South Wales pool markets. This allows generators and retailers to trade electricity across Victoria, New South Wales, the Australian Capital Territory and South Australia. Once the NEM arrangements are fully implemented there will be a single spot market for electricity across participating states.

The wholesale electricity market is facilitated by an 'open-access' regime, where wholesale buyers and sellers of electricity have access to the transmission and distribution networks at regulated charges. The open-access approach enables competition not withstanding the natural monopoly resulting from ownership of the transmission and distribution network assets.

In addition to Pool trading, generators, retailers and large customers can hedge contracts in order to manage their exposure to future electricity prices. Hedging contracts can take many forms and provide a flexible mechanism for generators, retailers and large customers to achieve stability and predictability in electricity pricing. Demand in the wholesale electricity market is largely covered by such pre-negotiated contracts. Spot market prices directly determine only a very small portion of the net financial flows between generators and retailers of large customers.

Retail electricity market

Retailers purchase electricity in the wholesale market and sell it to customers, including industrial, commercial, and residential customers. The retailers bill their customers for the electricity consumed and pay for the electricity purchased in the wholesale market. The retailers also bill their customers for the distribution charges levied by the distributor supplying the customer and pass the resultant distribution income to the distributor. Customers who purchase directly from the pool may also pay distribution charges directly to the distributor.

There are two types of customers in the retail market: contestable and franchise customers.

contestable customers

Contestable customers are customers that have the right to choose the electricity supplier of their choice. A contestable customer in the NEM is able to choose their supplier irrespective of where the electricity is sourced. A number of retailers will be merely buying and onselling electricity and will not own any electricity infrastructure.

If a contestable customer chooses to be supplied by an independent retailer, rather than the retail arm of the distribution company in whose area they are located, that retailer would normally pay regulated charges for access to the distribution network. In turn, the retailer passes the distribution charge to the customer. Contestable customers who choose to be supplied by another retailer therefore effectively remain customers of a distribution company's distribution business and continue to pay the regulated distribution network charges. The retail business for contestable customers has to date been highly competitive.

franchise customers

Prior to electricity reform, all retail electricity customers were franchise customers. In other words electricity could only be purchased from the electricity distributor in whose area the customer was located. Over the period to 31 December 2000, all franchise customers will progressively become eligible to choose an alternative retailer if they so choose ie. they become contestable.

All distribution companies are obliged to provide access to their distribution networks to any licensed electricity retailers, so that these retailers may supply electricity to contestable customers connected to the distributor's network.

Table 3 details the timeframe in each of the states participating in the NEM when customers can revert from being tied or franchise customers to becoming fully 'contestable' customers.

Interstate Interconnector Capabilities

Power purchased from interstate will be delivered via interconnectors and present and future interstate interconnector capabilities are shown in Figure 1.

The present interconnector capabilities show maximum transmission flows of 1100 MW from New South Wales to Victoria and 1100 MW from Victoria to New South Wales via the Snowy. Further capability shows 500 MW from Victoria to South Australia and 250 MW from South Australia to Victoria. The Snowy has the capability to deliver 3000 MW and 1500 MW to New South Wales and Victoria respectively. The proposed western link from Queensland to New South Wales should enable interconnector capabilities of 1000 MW and 500 MW into and out of Queensland respectively. The proposed Basslink from Victoria to Tasmania (undersea cabling) should enable interconnector capabilities of 300 MW into and out of Tasmania.

Figure 1: Interconnector Capabilities Between the States (MW)

Figure 1: Interconnector Capabilities Between the States (MW)

Source: Nemmco.

The scheduling of generators to meet demand across the interconnected power system will sometimes be constrained by the physical transfer capacity of interconnectors between the States. For example, the interconnector from Victoria to South Australia has a capacity of 500 MW. This means that up to 500 MW of generation can be exported from New South Wales and Victoria to South Australia, provided the New South Wales and Victorian generators dispatch offers low enough to displace South Australian generation. When the interconnector limit is reached, NEMMCO will need to dispatch the next lowest priced generator offer in South Australia to meet electricity demand in that region.

Electricity Prices

Electricity prices (Australian averages) have declined appreciably over the period 1992 to 1997 during the period of the implementation of electricity restructuring and the development of the NEM from May 1994. The declining trend in electricity pool prices is shown for Victoria and New South Wales on a quarterly basis from 1994 to 1997 in Figure 2 in $/MWh. Pool prices equate to the wholesale market and do not represent prices in most of the commercial or household markets. The alignment of pool prices in the two states closely parallel each other from June 1996 to December 1997. Following the alignment of the markets, the excess generating capacity in New South Wales has tended to depress the upward strength of the Victorian pool price during periods of peak demand whilst New South Wales is able to capitalise on the lower prices in Victoria during periods of low demand.

Figure 2: Electricity Pool Prices, 1994 to 1997

Figure 2: Electricity Pool Prices, 1994 to 1997

Source: Electricity Supply Association of Australia

Declining prices have also been aided by improvements in technology which have reduced operating costs. For example there have been significant improvements in coal handling systems and the preparation of coal prior to use in coal-fired plants.

Most transmission and distribution companies have also reduced costs on an energy unit basis, largely brought about by the increased competitive environment. Maintenance techniques have also improved considerably over the last few years and live wire (working on lines without disrupting power supply) maintenance has become standard procedure.

With increased competition and a changed marketing environment, the Sydney Futures Exchange has established an electricity futures market. The Chair of the Senate Finance and Public Administration Legislation Committee, Senator Gibson, opened the market in September 1997(12).

Hedging can remove considerable risk of volatile spot markets, and whilst prices have declined over the period 1992 to 1997, price spikes can occur due to unforeseen breakdowns or in periods of high demand when all available generating capacity is utilised. This creates opportunities for either interstate trading via the NEM or bringing peak capacity in very quickly. Hydro-electric plants can respond more quickly to demand than base load coal-fired plants.

An example of extreme volatility occurred in the market late December 1997 when both the power systems in Victoria and South Australia ran out of power and the spot price moved from $13 to $5000 per MWh. The high demand for power was brought about by unseasonable hot weather(13). Whilst spot prices can be volatile and can either rise or fall very quickly based on supply and demand, the bulk of electricity prices are determined by bilateral contracts.

Although wholesale spot prices have declined appreciably to around the $15/MWH, a number of commentators together with the Electricity Supply Association of Australia, believe that such prices will not provide sufficient returns to capital investment for generators. As the 'contestable' market becomes larger, wholesale prices may increase above the present levels. The decline in prices has been attributed to a number of factors including increased competition, overcapacity and the development of the NEM. The future trend of prices may well be upwards and mergers may occur to provide better economies of scale. In addition, over time, increased electricity demand brought about by increased economic activity and increased population will soak up overcapacity and move the market into better balance.

Electricity Generation By Fuel

Coal-fired plants accounted for 82.7 per cent of electricity generation (black coal 56.8 per cent, brown coal 25.9 per cent) in 1995-96 followed by hydro 9.5 per cent, gas 7.3 per cent and oil 0.5 per cent. There was little variation between 1994-95 and 1995-96 apart from a small increase in electricity generation by coal-fired plants. New South Wales and Queensland are dominated by black coal power stations while Victoria is heavily dependent on brown coal stations. About 80 per cent of hydro power comes from the Snowy and Tasmania.

There has been much talk of the need to increase the role that renewable energy sources (hydro, wind, solar and biomass) play in the generation of electricity. At present, hydro plants generate about 18 per cent of Australia's electricity of which 80 per cent is concentrated in the Snowy Mountains and Tasmania. A number of small wind and solar plants have been established. Examples include wind farms being built near Goulburn in New South Wales(14) and the established Esperance wind farm located on the south coast of Western Australia.

At present the contribution of renewable energy sources, apart from hydro, to Australia's electricity supply is close to negligible. However, this could change with greater emphasis to increase the contribution from renewable energy sources to electricity generation. For example, the development of renewable energy, solar, wind and tidal, are the focus of a Commonwealth $60 million package for the commercialisation of renewable energy technology over a five year period(15).

Australian electricity generation by fuel type 1995-96 is shown below in Figure 3.

Figure 3: Electricity Generation by Fuel 1995-96

Figure 3: Electricity Generation by Fuel 1995-96

Source: Electricity Supply Association of Australia.

Although it can be easily seen from Figure 3 that coal-fired power stations are by far the largest contributor to electricity generation, these plants are also a major contributor to the generation of atmospheric carbon dioxide, the dominant greenhouse gas. Australia, as part of the Kyoto Protocol, has a commitment to the containment and reduction in the generation of greenhouse gases. These international commitments could constrain the expansion of coal fired plants. The building of new hydro plants in Australia also appears constrained because of environmental concerns with the development of further dams. In contrast to these two, the expansion of gas-fired plants (incorporating cogenerational capabilities) appears well placed on a number of grounds including environmental to make a growing contribution to future generation capacity. Gas plant capacity has been projected to treble by the year 2010 to around 14 500 MW, most of which will be in the form of cogeneration(16).

The contribution from other renewable energy sources (wind, solar, biomass) is expected to increase although the contribution they make to total generation well into the next century will be small.

Nuclear fuel is an important component in electricity generation in many overseas countries, for example, the United States, Japan and a number of European countries, and generates little to no carbon dioxide. Despite this particular inherent advantage, it is considered unlikely that any nuclear fuel stations will be built in Australia in the foreseeable future because of environmental considerations and widespread opposition to the nuclear industry.

Electricity Consumption by Sector

Electricity consumption by sector is outlined in Figure 4.

Figure 4: Electricity Consumption by Sector

Figure 4: Electricity Consumption by Sector

Source: Electricity Supply Association of Australia

Although the residential sector makes up by far the largest number of customers, it only accounts for 27.9 per cent of total consumption. By contrast, industry makes up by far the smallest group of customers but accounts for almost half of total consumption. The majority of industrial and a number of commercial customers are now deemed 'contestable' and have achieved significant price reductions. However it has yet to be seen, if residential customers will achieve price reductions when they become 'contestable'. A number of circumstances suggest that significant price reductions will not be achievable for residential customers. These circumstances include the fact that residential customers have historically received some form of cross-subsidisation from industrial users and in a freely negotiable market these cross-subsidies will disappear. Furthermore residential customers will not have the same capacity to implement load management schemes because of the small amounts of electricity consumed per unit in comparison to industrial and commercial users.

Conclusions

Australia's electricity industry has undergone a dramatic change since the early 1990s. Former single entity wholly state owned and operated vertically integrated electricity authorities have been disaggregated into competing generation and retailing as well as regulated transmission and distribution entities.

Restructuring in each of the states have proceeded along different timeframes although the focus has commonly been directed towards increased efficiencies and lower prices. Restructuring has proceeded very quickly in Victoria, resulting in all corporatised entities undergoing full privatisation with the sell off of all of the state's electricity assets.

The restructuring of the Australian electricity industry has resulted in the development of a national electricity market, scheduled to commence operation in October 1998. A trial national market has been in operation since May 1997. Participants in the national market include New South Wales, Victoria, South Australia and the Australian Capital Territory. Queensland is expected to join the national market in 2001 and Tasmania may join some time after that date. It is not expected that Western Australia and the Northern Territory will join the national market because of the long distances involved, technical difficulties and the high cost to link the grids between them.

The national electricity market is expected to bring significant benefits to the national economy. Electricity will be transmitted interstate and circumvent supply shortages in particular areas due to high demand or plant failure. Low cost base load power will be available far from the point of generation. The availability of low cost electricity will be an important factor in the development and maintenance of cost competitive industry.

Electricity prices have declined substantially since the implementation of electricity restructuring although a number of industry commentators have put forward the view that present prices if maintained would not provide sufficient returns on investment for market participants. If this is so, future prices may increase to some degree and there may be some amalgamation in the industry to create better economies of scale. There are a number of reasons why the very large household market may not achieve the significant price reduction that both industrial and commercial customers have received to date. These reasons include the fact that cross-subsidisation of the household market from the large industrial and commercial customers may no longer be available as all customers become 'contestable'. In addition, households will not have the scope to reduce usage through load management to the same degree that industrial and commercial customers have.

Although renewable energy sources apart from hydro make negligible contribution to Australia's electricity generation, considerable progress has been made with the establishment of a number of wind and solar farms. The Commonwealth has provided some financial incentive for the development of commercial renewable electricity generating capacity.

Endnotes

  1. Industry Commission, Energy generation and distribution, Report no. 11, AGPS, Canberra 1991.

  2. Department of Treasury and Finance, Victoria's Electricity Supply Industry-Towards 2000, Energy Projects Division, Department of Treasury and Finance, Melbourne 1997, p. 30.

  3. United Energy Limited, Prospectus, United Energy Limited, Melbourne 1998.

  4. Humphries, D. and Riley, M., 'Power Sale: Carr to fight on', Sydney Morning Herald, 3 October 1997, p. 8.

  5. Snowy Mountains Hydro-Electric Authority, Annual Report, Cooma 1997, p. 1.

  6. 'South Australia, a competitive State for competitive times', Powering Australia, A special advertising report, The Australian , 19 Mar 1998, p. 36.

  7. Syvret, P. and Skulley, M., 'Qld sets up power corridor to NSW', Australian Financial Review, 10 June 1997, p. 8.

  8. 'WA hopes power ploy pays off', Powering Australia, a special advertising report, The Australian 19 Mar 1998, p. 39.

  9. Cargill, R., 'Restructuring for competition across the power industry', Engineers Australia, Institution of Engineers, Barton, ACT, vol. 69, no. 6 1997, p. 33.

  10. National Electricity Market Management Company, Australia's National Electricity Market-An Introduction, National Electricity Market Management Company, Sydney 1997.

  11. 'Client gains in excursion into Victoria', Integral Energy, A special advertising report, The Australian , 5 June 1997, p. 1.

  12. Senator Warwick Parer, 'Senator buys power', Media Release DPIE97/210P, Canberra 1997.

  13. Fox-Allen, L., 'Shocks for the energy market', Australian Financial Review, 2 December, p. 19.

  14. 'Harnessing those winds of change', Powering Australia, A special advertising report, The Australian , 19 March 1998, p. 38.

  15. Australian Greenhouse Office, 'Solar, Wind, Tidal Power-Renewable Energy, Energy Australia, Kinsgton, ACT, 1998.

  16. Electricity Australia, 'Fiftieth anniversary issue', Electricity Supply Association of Australia Limited, Sydney, 1997, p. 21.

Appendix 1: List of electricity entities on a state by state basis

VICTORIA

Generation

Loy Yang Power, Yallourn Energy, Hazelwood Power, Mission Energy Australia, Ecogen (GenVic), Southern Hydro, Energy Brix.

Snowy Hydro-electric Scheme

Transmission

PowerNet

Systems Control

Victorian Power Exchange

Distribution

CitiPower, Solaris Power, Eastern Energy, Powercor, United Energy

Retailing

ACTEW Energy, Boral Energy, CitiPower, Delta Electricity, Eastern Energy, Energy Australia, ETSA Power, Ecogen (GenVic), Powercor, Horizin (Loy Yang Power), Integral Energy, NorthPower, Solaris Power, United Energy, Yallourn Energy.

NEW SOUTH WALES

Generation

Macquarie Generation (4640 MW)

Vales Point, Munmorah, Mt Piper, Wallerawang

Delta Electricity (4240 MW)

Bayswater, Liddell

Pacific Power (3270 MW)

Eraring

Snowy Hydro-electric scheme

Transmission and System Control

Transgrid

Retailing

ACTEW Energy, Advance Energy, Australian Inland Energy, AGL Wholesale Energy, Boral Energy, CitiPower, Delta Electricity, Eastern Energy, Energy Australia, Ergon Energy (QTSC), ETSA Power, Great Southern Energy, Integral Energy, Macquarie Generation, NorthPower, Pacific Power, Solaris Power, United Energy, Yallourn Energy.

QUEENSLAND

Generation

CS Energy, Stanwell Corporation, Tarong Power

Transmission and system control

Powerlink Queensland

Distribution

Capricornia Electricity Corporation, Far North Queensland Electricity Corporation, Mackay Electricity Corporation, North Queensland Electricity Corporation, SEQEB, South West Power, Wide Bay-Burnett Electricity Corporation.

Retail

Three Government owned retailers: Southern Electricity Retail Corporation, Central Electricity Retail Corporation and Northern Electricity Retail Corporation are obligated to supply to non-contestable customers in their franchise area and are permitted to supply to other non-contestable customers anywhere in the State.

Twelve licensed retail authorities: ETSA Corporation, Advance Energy, Integral Energy Australia, Eastern Energy limited, Powercor Australia, Energy Australia, North Power, Citipower Pty, United Energy Limited, Energy 21 Pty Ltd, Boral Energy Limited, Yallourn Energy Pty Ltd are permitted to sell to contestable customers anywhere in the State.

 

SOUTH AUSTRALIA

Generation

Optima energy

Transmission and System Control

ETSA Corporation-ETSA Transmission

Distribution

ETSA Corporation-ETSA Power

Retailing

ETSA Corporation-ETSA Power

OTHER STATES AND TERRITORIES

Vertically integrated systems

Western Australia

Western Power Limited

Tasmania

Hydro Electric Corporation

Northern Territory

Power and Water Authority

Distribution and Retail only

 

Australian Capital Territory

ACTEW Corporation

 

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