Tasmania has opened up its electricity market to new retailers, but with Hydro Tasmania remaining such a powerful player, will any retailers come to the party? For now, the 'big three' are steering clear.
The Tasmanian Government has taken the first step in implementing its Electricity Reform Project, by introducing the Electricity Reform Bill. The Bill will enable the sale of Aurora Energy’s customer base, as well as other reforms to the State’s electricity industry.
This follows an 18 month review by the Parliament’s Expert Panel, which found that even if Aurora’s dominance over the retail market is removed, electricity retailers may still lack the confidence to enter Tasmania, due to Hydro Tasmania’s effective monopoly of the wholesale market and ability to set spot prices.
One of the Panel’s key recommendations was to separate Hydro Tasmania’s generation and trading functions, then transfer its trading functions to three independent state-owned entities.
The Electricity Reform Project has shied away from the Panel’s recommendation and instead adopted a regulatory approach, which it hopes will mimic the benefits of physically separating Hydro Tasmania’s functions and give new retailers confidence to enter the market.
The Electricity Reform Project is made up of four ‘key’ features and three ‘supporting’ features. The key features are:
The supporting features are:
Hydro Tasmania’s role within the Tasmanian electricity industry is unique compared to other jurisdictions within the National Electricity Market (NEM). In no other jurisdiction does one company dominate power generation output to the same extent.
Hydro Tasmania’s dominance means it has the power to set spot price levels at any level, and at any time. To compound matters, Hydro Tasmania is also the only party with whom retailers can enter into contracts to manage spot price market risk. According to the Panel, it is this structural feature that has been the biggest barrier to new retailers entering the Tasmanian electricity market.
While most of the time, Hydro Tasmania does not in fact exercise its market power, the Panel concluded that retailers will simply not enter the Tasmanian market on the assumption that Hydro Tasmania will remain a “benevolent monopolist”. The Panel’s final report concluded that if FRC was declared without serious wholesale market reform, the best that Tasmania could hope for was a “small number of niche retailers to enter the market, with limited offerings to customers”.
From 1 July 2013, Hydro Tasmania’s wholesale market activities will be regulated by the Tasmanian Economic Regulator. The Government’s regulatory approach will involve the following:
The Government has not ruled out the possibility of separating Hydro Tasmania’s functions in the future. But, for now, it seems satisfied that this should be enough to provide confidence to retailers that their risks can be appropriately managed.
It is still early days, but so far, interest from retailers has been muted, with none of the big three retailers indicating publicly that they have plans to enter the Tasmanian retail market.
This article first appeared in Climate Spectator
The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.