Feature
Issue No. 1 - July/August 2001
Power Struggle
The difficulties of obtaining a power supply contract – let alone negotiating one – have been well documented in The Advertiser. Businesses without contracts will be supplied power at the principal retailer’s (AGL’s) default rate for a year, at a frightening increase. The severe impact on many businesses has been foreshadowed.
How can this be, when the national market for electricity is supposed to eliminate waste between states and (presumably) reduce cost? Will this pronounced seller’s market be temporary or a permanent?
In creating a national market for electricity, governments have created what resembles a futures market. South Australia — a small, distant customer — pays a premium for surplus electricity from the main generators in NSW and Victoria. That premium depends on how big the surplus is, and who has it.
The National Electricity Market (NEM) idea sprang from the Council of Australian Governments in the early 1990s and it began operating in 1998. SA complied through the National Electricity (South Australia) Act of 1996.
The NEM determines the price of electrical energy by trading between generators and wholesalers. Wholesale price is worked out every half hour. Generators offer the market quantities of electricity and the price is settled at the highest amount (or ‘bid’) necessary to supply the electricity demand at the time. The National Electricity Market Management Company (NEMMCO) runs the market.
Besides the raw price of energy, there is a cost for transmitting electricity around the country, using ‘interconnector’ hardware. This cost includes transmission, distribution and service costs. In South Australia these elements are fixed annually by an Electricity Pricing Order from the Independent Industry Regulator, Mr Lew Owens. Mr Owens has no authority over the NEM, but he is a keen observer.
“SA is a small player in the national electricity market – our peak demand of about 283...
