Tasmanian electricity network prices will fall from 1 July and provide some welcome relief for Tasmanian consumers struggling with high electricity prices and the economic challenges of the COVID-19 pandemic.
These falls result from the Australian Energy Regulator’s (AER) 2019 decision on TasNetworks’ regulated electricity (poles and wires) charges and its recent approval of TasNetworks’ charges for 2020/21. The AER runs the ruler over TasNetworks’ monopoly network charges every five years in a public review to ensure they are fair and efficient. TasNetworks runs the Tasmanian transmission (high voltage) and distribution (lower voltage) electricity networks.
From 1 July, these transport charges are expected to fall by 4.5 percent (on average) for small business and 6.5 per cent for households, and represent annual savings on electricity bills of $143 and $85 respectively. Taking into account that network charges comprise around 41 percent of a total electricity bill (see Chart below), small business retail electricity prices should fall by around 1.8 percent and 2.7 percent for households, other things that make up an electricity bill being equal. Tasmania's Economic Regulator, will take these and other factors into account as well as the State Governments Electricity Price Cap.
“These are modest but welcome reductions in electricity network prices, which increased markedly from 2009 until 2016, due mainly to network price increases,” Mr Marc White, Principal Consultant at Goanna Energy Consulting said. “Tasmanian electricity consumers – small businesses and families – are struggling with the economic fallout of the COVID-19 pandemic and will welcome lower expenses at this time.”
“Small business in Tasmania is doing it tough at the moment. Many have either shut down or have seen a sharp decline in business activity,” added Mr Robert Mallett, CEO of the Tasmanian Small Business Council (TSBC). “Any cost saving at this difficult time is welcome and can help to sustain a small business and its ability to keep employing Tasmanian's.”
“In recent years, TasNetworks has been working to reduce its costs and improve its efficiency and Tasmanian electricity consumers have benefited from these efforts. As a result of the steps TasNetworks has taken and reductions in its regulated cost of capital, the very high network charges previously seen have been coming down and they are now around the level they were when the escalation in charges started a decade ago. A further reduction this year will continue the trend and the timing couldn’t be better, although we note that the the majority of these reductions in 2020/21 are due to TasNetworks returning revenue it has over recovered in previous years, to customers.”
The recent trend of Tasmanian small business network charges is shown in the chart below.
“The TSBC also welcomes that some of the reductions in network charges result from the gradual reduction in tariff cross-subsidies that have worked to the disadvantage of small business customers. The TSBC has been drawing attention to this problem for a number of years and we are pleased to see progress, albeit slower than we would like,” Mr Mallett said.
An analysis of the changes in TasNetworks’ distribution tariffs shows general reductions in the energy use component of small business tariffs, including the newer tariffs that contain a time-of-use component. This includes the TAS94 tariff which is the main (Time of Use: Peak, Shoulder & Off Peak) Tariff applied to small business, the usage component of which will reduce by about 5 percent on 1 July.
“Whilst network charges will decrease, customers should keep in mind that these comprise only part of their electricity bill, albeit the biggest single one,” Mr White commented. “What happens to their bill also depends on the other components, especially wholesale electricity prices, the next biggest component, at around 39 percent of a customer’s bill.”
Goanna Energy keeps a close eye on electricity markets as part of its work for Tasmanian clients. Current market conditions are such that there is also significant downward pressure on wholesale electricity prices. It is noteworthy that Tasmanian Forward wholesale electricity prices in April were at record low levels and the Spot prices throughout the March quarter of 2020 were very soft overall. This was the case even though the economic shut down associated with COVID-19 had not yet impacted electricity demand to any notable extent. This may well accelerate in May and beyond with associated price impacts. “Low wholesale prices (present and future) are already flowing through into small business contracts and should impact retail tariffs on 1 July adding a double impact to the customer benefits of lower network charges. Now may well be an opportune time for small business customers on contracts (or considering a move to the contract market) to examine these opportunities,” Mr White commented.
The TSBC and Goanna Energy were intensively involved in the AER’s 2019 determination of TasNetworks’ network charges and in numerous preceding reviews. This work, which requires detailed input involving complex submissions and attendance at public forums, has been supported by funding from Energy Consumers Australia (ECA).
In its input to the AER’s 2019 decision, the TSBC especially drew attention to factors such as TasNetworks’ inflated regulatory asset base, excessive rate of return, poor utilisation of its network assets (whilst seeking further increases in capital expenditure), concern about the size of and justification for contingent projects, concern about its need for significant increases in operating expenditure whilst more attention could have been given to improving the efficiency of its distribution network, and a need to pay greater attention to the consumer and technological challenges that its network is facing. In the end, the AER made a number of improvements to TasNetworks’ proposals, some of which aligned with our main concerns, but we remain of the view that more could and should have been done to benefit consumers.
The TSBC and Goanna also joined forces in producing a report highlighting the disadvantages to Tasmania’s small businesses of the inefficient cross-subsidies in Tasmanian distribution tariffs, which also received ECA funding. At around this time, TasNetworks embarked on a set of important reforms to its tariffs which included the gradual (ten year) winding back of cross-subsidies, including those that disadvantage small business. These changes aligned well with the direction, but not the pace of change, outlined in our cross-subsidies report.
“It is gratifying to see that our involvement has played a part in ensuring that TasNetworks network charges have come down over time to more acceptable levels, thus benefiting all Tasmanian small businesses. Although we would have liked to see even greater reductions at a faster pace, nevertheless, there have been benefits to small business showing the value of this important work,” Mr Mallett concluded.
Most business users have a choice of up to five different Network tariff options and you can nominate a different one every 12 months, (more often where you make operational changes). For energy users who spend over $40,000 per annum on one connection, these Network Tariffs are completely separate from your choice of Retailer and your Retail electricity contract. Even if you have just signed a 3 year contract, to find out if you can save money by switching network tariff from 1 July email a copy of your electricity invoice to firstname.lastname@example.org
Tasmanian Spot price:
Year to Date 2020 has seen a solid dip in spot pricing across the NEM, including in Tasmania, see below, courtesy of our Analytics Partners SavvyPlus Consulting.
Tasmanian Forward Wholesale Market Update.
As the forward market sank to 4 year lows in April, Goanna were assisting many of Tasmania's leading enterprises to undertake tenders and award multi-million dollar contracts, with one client locking into multi-year savings of several million dollars, when compared to their previous contract. Since the 28th April the Forward Tasmanian market has been rallying across all future price periods, as shown in the Financial Year Overlay graph below.
Water in Storage:
Following strong inflows, at 31st May, Hydro Tas Storage levels had increased to around 41%, almost 5% above the 10 year average of 35.3% for this time of year. The May Energy Security Report showed that this is 11% above the "Prudent Storage Level" and 24% above the "High Reliability Level" for the time of year, leading to our expectations of a healthy LGC year for Hydro Tas, discussed in our next section.
Large Generation Certificates:
In addition to selling the energy produced, the Renewable Energy Target rules allow older Hydro Generation, like Hydro Tas dams, to create LGC's, once they generate above their individual "Baseline", (the average amount of electricity generated from eligible renewable sources from 1994 to 1996), in any Calendar Year, shown below.
Plenty of rain has seen strong "Run of River" Hydro Generation, which means it is likely that several of Tasmania's dams will get over their baseline levels this Calendar year. Assuming Hydro Tas operates the remaining balance of this year the same as last year, our analytics partners SavvyPlus see potential for Hydro Tas to generate about 445,000 LGCs. The value of these certificates will depend upon when they are sold. Based on the current LGC Cal-20 forward price of $33.40, these certificates would be worth $15.2m, or based on Cal-21 forward price of $27.00, the value would be $12.3m.
For further energy information please call Marc on 6223 7253.
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