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Overview

Andrew Reeves, Chairman Asia-Pacific Partnership on Clean Development and Climate: Energy Regulatory and Market Development Forum 4 November 2010. Overview. Market Governance Policy maker / regulator / operator separation Gas and electricity market development NEM / SWIS Emerging gas market

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Overview

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  1. Andrew Reeves, ChairmanAsia-Pacific Partnership on Clean Development and Climate:Energy Regulatory and Market Development Forum4 November 2010

  2. Overview • Market Governance • Policy maker / regulator / operator separation • Gas and electricity market development • NEM / SWIS • Emerging gas market • Coal seam gas • Energy price drivers • Economic regulation in Australia • Recent decisions • Retail price impacts

  3. Market governance

  4. Electricity regulatory structure

  5. Overview of AER’s roles in energy Wholesalegas & electricity markets Transmission networks & pipelines Retail & other distribution Distribution Networks for gas/electricity We monitor wholesale markets and enforce rules We regulate revenues of transmission businesses We regulate revenues of distribution businesses We will regulate non-price retail activities

  6. Population ~ 22.2 million 65% in capital cities 90% on east coast Electricity energy 213TWh pa peak 38,000MW installed 50,200MW Australian electricity snapshot Northern Territory Demand 300 Capacity 1000 Queensland Demand 8,900 Capacity 12,050 Western Australia Demand 4,000 Capacity 5,000 South Australia Demand 3300 Capacity 3,850 New South Wales Demand 14,300 Capacity 15,900 Victoria Demand 10, 450 Capacity 10, 000 Snowy* Tasmania Demand 1,750 Capacity 2,400 * 3676MW at Snowy gen split between NSW & VIC

  7. National electricity market • fully interconnected AC power system • covers 4500km • includes 3 DC links • regional pricing model • 5 regions • one market/system operator

  8. Generation mix

  9. Ownership of generation

  10. NEM market design

  11. South Australia - 7 February 2009

  12. Wholesale electricity quarterly prices

  13. Futures prices - electricity

  14. WA electricity market

  15. NT electricity

  16. Gas market development

  17. New gas transmission

  18. Wholesale gas prices *Excludes 8 October 2010 event

  19. Coal seam gas (CSG) NSW QLD

  20. WA and NT gas

  21. Reporting on market outcomes • Weekly report • Now produced for electricity and gas • market dynamics and forecasts • Longer-term statistics - website • Annual state of the market report • www.aer.gov.au – market snapshot

  22. Energy price drivers • Economic regulatory regime • Factors impacting on network prices • Recent network revenue determinations • Retail price outcomes

  23. Network regulation - Building blocks RAB Return on capital Allowable revenue Depreciation Reference tariffs Tax Operating costs ÷ Demand forecasts

  24. Factors influencing network charges • Capital expenditure • Ageing asset replacement • Demand Increase • New connections • Reliability and service standards • Operating expenditure • increasing asset base • increasing input costs (labour and materials) • Cost of Capital (WACC) • Bushfire safety standards

  25. $40,000,000 Initial investment $30,000,000 Indicative replacement investment $20,000,000 INITIAL + REPLACEMENT CAPEX ($pa - real dollars) $10,000,000 $- 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 Network investment and replacement

  26. Distributors revenue breakdown NSW only

  27. Distribution regulatory asset bases

  28. Distributor capex

  29. Distributor opex

  30. Electricity distribution revenue

  31. What influences retail price • Wholesale energy costs ~ 31 to 45% for electricity • Network charges • Transmission ~ 10 % • Distribution ~ 40 to 50% • Retailer costs ~ 4 to 15% • Regulation of retail tariffs by state regulators (except Victoria) • Standing offers Vs market offers

  32. Retail electricity prices Historically, Australia has had low retail electricity prices

  33. Retail electricity prices Prices are now rising and are expected to rise further

  34. Other development issues • New low carbon generation • Demand management • Smart Grid trial • Smart meter rollout

  35. Questions ?

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