'Volatile' Australia Electricity Market Concern

Carbon price uncertainty is disrupting electricity market planning as power generators and retailers face volatile spot prices, complex top-up fees on permits, and riskier forward contracts that could lift retail electricity prices.

THE cost of electricity under the carbon price could rise further than the 10 per cent forecast by the government if major greenhouse emitters are made to pay unpredictable ''top-up fees'' on international permits, the power industry has warned.

As the government nuts out detail on the carbon price, to be introduced in July, power generators fear that uncertainty about carbon costs will interfere with the cut-price long-term deals they strike with electricity retailers, who keep the price of power down by making forward contracts of three years or more with power generators. Otherwise, retailers have to buy power on the spot market, while a retailer urges a market overhaul to address price volatility, which is considerably more expensive.

But under some options being canvassed by the government, alongside an overhaul to favor consumers, power generators would have difficulty predicting their future carbon costs because of complex ''top-up fees'' on international permits, in turn making it impossible to make forward contracts.

This ''could increase volatility in the electricity market and further increase electricity prices'', the Energy Supply Association of Australia has warned in a submission to government, amid concerns about the power grid across the sector.

Modelling commissioned by the association found that a 5 per cent fall in contracting in the National Electricity Market could lead to a 10 per cent rise in retail electricity prices for households and 15 per cent for large users. Treasury's energy price modelling on the cost of the tax has estimated electricity prices will rise by about 10 per cent.

A spokesman for Climate Change Minister Greg Combet said loans would be available to eligible electricity generators to buy future carbon permits, as debate over carbon prices on power costs continues across the sector.

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