A leading Australian energy lawyer says big electricity suppliers are coming under increased scrutiny from the competition watchdog as a shake-up in industry could lead to higher prices.
- Leading energy lawyer says ACCC likely to step up review of energy prices as competition wanes
- There are fears that soaring wholesale electricity prices could wipe out many retailers in the national electricity market
- New Labor government says it will back ACCC action if warranted to help tackle rising prices
Soaring wholesale electricity prices threaten to send many small electricity retailers to the wall, sparking fears that consumers will be trapped as competition disappears from the market.
To add to the woes is a gas crisis on the east coast of Australia, where prices this week soared 50-fold and prompted warnings that some manufacturing companies would be wiped out.
Luke O’Callaghan, a partner at Perth-based energy law firm Lavan, said the upheaval in the energy industry would generate intense interest and concern for regulators.
Chief among them was the Australian Competition and Consumer Commission, which Mr O’Callaghan said would be monitoring events closely to ensure there was no ‘unlawful anti-competitive behaviour’ .
Mr. O’Callaghan said the turmoil in the energy markets would be likely to flush out a number of small retailers who had played a vital role in ensuring competition and lowering prices.
While he stressed he was not suggesting wrongdoing, he said reducing competition could empower incumbent vendors such as AGL and Origin.
“Small…retailers trying to get consumers cheaper prices will likely go to the wall, which means there will be major consolidation in the market,” Mr O’Callaghan said.
“And so your AGLs, your Origins will become even more powerful.
“Because this nimble competitive tension in retail may well end up disappearing.”
Industry Opinion: Bowen
New Energy Minister Chris Bowen warned energy retailers on Thursday, saying the government would support action by the ACCC or Australia’s energy regulator if warranted.
Mr Bowen made the comments after being quizzed on what the new federal Labor government would do to tackle soaring energy costs.
“If Australia’s energy regulator is to take action, it will have our full support.
“But it will be based…on any evidence of wrongdoing or a change in approach.”
The ACCC has been contacted for comments.
Concerns over a UK-style energy crisis were thrown into the spotlight this week when electricity retailer ReAmped became the latest supplier to bail out the market.
The New Zealand-based company blamed soaring wholesale electricity costs for the move, saying it was no longer able to provide affordable supplies to households and businesses.
Much of the upheaval has been soaring coal and gas priceswhich represent a large part of the electricity produced on the national electricity market.
According to chief executive Luke Blincoe, consumers would have a short window of opportunity to find another supplier before ReAmped is forced to raise prices by up to 100% from July.
“The wholesale energy market has become so extreme that we are now seeing a situation where wholesale prices are higher than retail prices,” Blincoe said.
“So unless you’re a grower, there’s just no sustainable position in the retail market.
“And now is an opportune time to do so while there are still offers available.”
Customers will “fall back”
At the heart of the issues affecting many smaller retailers such as ReAmped is their exposure to the wholesale electricity market.
Energy lawyer Mr O’Callaghan noted that unlike large suppliers, smaller retailers such as ReAmped did not have their own generation plants and were therefore heavily exposed to wholesale prices.
Mr O’Callaghan suggested that as more retailers leave the market, people will increasingly fall back on federally mandated benchmark prices.
The tariffs for these so-called default market offers were increased by up to 18.3% by Australia’s energy regulator last month.
They have also increased in Victoria, which has a separate system, albeit to a lesser extent.
According to O’Callaghan, prices were generally seen as a ceiling on what retailers could charge consumers for electricity.
But amid the disappearance of smaller providers and expectations of huge price increases elsewhere in the market, he said default offers would become a safe haven.
“It’s going to get worse from a competition perspective,” he said.
“A lot of challenger retailers who were there to control prices in a competitive market…will start to flush out because the wholesale price will go up.
Unpublished events: Industry
Analyst Marja Petkovic of Energy Synapse said the fact that soaring coal and gas prices were causing many of the issues affecting the market at the moment underscored the need to move away from fuels. .
“What this energy crisis shows more than anything is that Australia urgently needs to put politics aside and get down to building far more renewables and energy storage to reduce our reliance on fossil fuels,” Ms Petkovic said.
“This could be our greatest competitive advantage for decades to come.”
The Australian Energy Council, which represents major energy retailers, said there was no easy solution to the problems plaguing electricity and gas markets in eastern states. .
Chief executive Sarah McNamara said many factors affecting the market, such as coal and gas prices, are beyond the control of Australia and energy retailers.
She noted that outages at some power plants in recent months had worsened the supply shortage, but that those problems would pass.
“But even with greater supply, we can still expect to see continued price pressures given external factors, as well as factors such as domestic gas shortages and high black coal prices,” said Mrs. McNamara.
“These market conditions are putting extreme pressure on gas and electricity retailers, and this will need to be watched closely. Retailers need to balance the need to recoup higher supply costs against cost pressures. life for end users.
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