Regional Market Outlook on Energy Market in Australia

The average electricity prices in Australia have increased over the last decade but some relief can be expected in the years 2018-2019 and 2019-2020. The wholesale prices have risen, since not enough was invested in new power generation capacities. This put strain on the existing plant to meet the increasing needs, thereby pushing the prices further.

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Electricity Prices Forecast

  • The cost of generation of electricity constitutes to about 25% of the electricity bill. This generation cost is the wholesale  price.
  • Electricity prices have increased firstly because increase in costs of production  from gas .
  • The state of Victoria and  Southern Australia saw closure of many old and inefficient power plants.
  • It is forecasted that the prices will reduce by at least 1-2% in the year 2019- 20

 Industry Structure and Outlook

  • Synergy, which is a government- owned generator/retailer, owns 38 percent of the capacity in the SWIS
  • The T&D sectors are highly regulated. A consumer, with more than 50 MWh annual consumption, has an option to get into a non-standard contract with any electricity retailer
  • Once the contract is signed between the consumer and retailer, electricity is supplied to the consumer through the available T&D network

Porter’s Five Forces Analysis 

  • The Australian electricity market is divided into generation, T&D sector, where the generation sector has both private and public players.
  • T&D sectors are operated by Western Power and Horizon Power
  • Large buyers have an option to avail the services from any of the supplier for procuring electricity

Supplier Power

  • Synergy, a government utility, is a major supplier, with an average generation capacity of 48 percent of SWIS
  • The T&D sector is a monopoly of Western Power and Horizon Power, both regulated by the Australian government
  • Australia has abundant coal and natural gas resources, which is a major fuel used in electricity generation
  • Due to the monopoly of suppliers and abundant availability of resources, supplier power is high

Barriers to New Entrants

  • High capital expenditure for establishing an utility company
  • West Australia has enough generation, T&D capacity than its current consumption. So, the existing players can easily satisfy any growing demand
  • Any new entrant needs to acquire customers of other companies

Intensity of Rivalry

  • 65 percent of the total electricity consumed is generated by top two retailers in West Australia, with Synergy supplying ~50 percent of electricity consumed
  • The market is concentrated in nature, hence rivalry among the market players is less

Threat of Substitutes

  • West Australia is heavily dependent on coal for its electricity generation
  • It has enough natural gas capacity to gradually substitute coal-based generation to meet clean energy requirements
  • The threat, due to unavailability of raw material, in case of regulatory change, is low

Buyer Power

  • A large consumer of electricity can choose an electricity retailer, the choice is limited to seven retailers
  • This limits the buyer power in the market