Retailers' Price Risk in National Electricity Market
- 2. Work Experience Associate, National Australia Bank (2008) Regulatory Analyst, Lumo Energy (2009) Industry Development Analyst, Energy Australia (2011) Pricing Analyst, EnergyAustralia (2013) Volunteer Experience Student President, Federation of Indian Students of Australia Media Spokesperson, International student issues Student Representative, Victoria Police Crime Prevention Working Group Mentor, Young Energy Professionals
- 3. Not representing any organisation.
- 4. The NEM is a wholesale market for electricity supply where electricity generators and retailers trade electricity. There are five regions in the NEM: Queensland, New South Wales (incl ACT), Victoria, South Australia and Tasmania. Market Participants: ◦ Retailers ◦ Transmission companies ◦ Generators ◦ Australian Energy Market Operator (AEMO)
- 6. Generators sell electricity to retailers to on-sell to households and businesses. Prices in the NEM are determined every five minutes, with the average price every half-hour calculated to determine the pool price for each trading interval for each of the regions in the NEM.
- 7. Customers lock in contracts at a fixed price but the cost of buying electricity in the NEM fluctuates every half hour. A retailer assesses risk profile of a customer and allocates load shape premium. Retailers manage exposure by derivatives (swaps and caps) and generation
- 8. Spot price volatility in the NEM is significant. At no notice, prices can move from $50/MWh up to $13,000/MWh (market price cap) Example: a short exposure of 10 MW to the Market Price Cap ($13,500/MWh) would result in losses of $135,000 per hour. As a result of this volatility and price uncertainty: ◦ generators face the risk that low prices will reduce earnings, and ◦ retailers face the risk that high prices increase costs above the level they can charge customers. Generators and retailers manage this risk by using financial contracts (swaps and caps) to stabilise their cashflows.
- 9. Jack Green was a small retailer which went into administration in 2009 for an alleged failure to pay an outstanding $808,983. the money was owed due to the on-the-spot purchase of energy during NSW's heat wave, when prices were significantly high
- 10. Electricity Historic Price and Demand: AEMO http://www.aemo.com.au/Electricity/Data/Price-and-Demand Electricity Futures Contracts: ASX Energy https://asxenergy.com.au/ State of the Energy Sector: Annual report published by Australian Energy Regulator http://www.aer.gov.au/publications/state-of-the-energy-market-reports
- 11. AEMO, An Introduction to Australia’s Electricity Market, July 2010 Smart Company, Energy company Jackgreen collapses due to heat wave, Dec 2009 Energy Efficiency Exchange, http://eex.gov.au/