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Energy Insights

Australian Energy Market - Overview August 2022

In the Energy Market’s current volatile state and ever-increasing complexity, Energy Action combines over 20 years of energy industry experience with innovative smart technology & data-led insights to make Australia’s energy cheaper, easier, and cleaner. This Australian market overview is part of our regular energy market commentary. 

A more rational energy market

In the energy market for both electricity and gas, we have seen falls in response to signals of government action. Our view is appearing to be more optimistic as we have seen more favourable outcomes for customers in response to intervention. Yet, our expectation is for historically high pricing due to the lack of action regarding generator plant availability. 

A new charge on energy invoices

Many customers may find a new charge in their invoices. Unaccounted For Energy (UFE), can be summarised as what the Australian Energy Market Operator (AEMO) charges retailers for electricity lost in the system. By loss, we mean when electricity is lost on its way to the customer due to several factors such as discharge, metering errors, theft, etc. This cost is usually passed on by retailers to the customer in their electricity invoice. 

In May 2022, the AEMO implemented a rule change to get a more accurate allocation of losses to their transmission nodes. It is part of a wider initiative that has been ongoing since late 2021. Before this, losses had to be approximated on a yearly basis which was seen as less accurate. Analysis conducted by AEMO indicated that the impact of this new rule change would be ‘very minor.’ But there is simply insufficient data to evaluate the longer-term impact of this and it is still very much an ongoing issue in the industry. 

Competitive Market v. Government Intervention

Following the Australian Competition & Consumer Commission (ACCC) report on gas earlier this month, we saw that the potential for government action through the Australian Domestic Gas Security Mechanism (ADGSM) could have significant downward pressure on electricity prices. The ADGSM has the power to limit Liquified National Gas (LNG) exports and can require them to find new gas sources, a prospect that all LNG companies would find disturbing. 

Gas-fired electricity generators usually set the ‘marginal price’ for electricity. Gas is also seen as a critical transitional fuel to support the growth in renewables. The potential for government intervention is seen as a credible threat to address market failures such as the bidding behaviour of generators and retailer hedging arrangements. This threat is sufficient to lower the price for electricity contracts which has seen through a drop in ASX quoted forward electricity prices, which have decreased by approximately 30% from recent highs.

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