Lower prices offset carbon tax

Increased competition among electricity generators battling for a shrinking market has driven down wholesale power prices, helping to offset much, if not all, of the carbon tax effect, says a leading energy consultant.

Increased competition among electricity generators battling for a shrinking market has driven down wholesale power prices, helping to offset much, if not all, of the carbon tax effect, says a leading energy consultant.

Demand for power across the National Electricity Market serving the eastern states and South Australia fell another 1.4 terrawatt-hours in the year to August compared with the 12 months to July, said Hugh Saddler, principal consultant at Pitt & Sherry.

On a per capita basis, electricity use peaked in 2006-07. Rising power prices, greater energy efficiency measures and slumping demand from energy-intensive industries such as smelting, have combined to drive down demand since then.

Analysis by Pitt & Sherry shows costs for users have dropped along with wholesale prices, helping consumers cope once the carbon tax kicked in - even before households received their federal assistance.

"The per capita carbon cost in 2012-13 varied between $43 in Tasmania and $179 in Victoria, with its much more emissions-intensive electricity," said a report by the firm.

"However, over the preceding few years, total non-carbon wholesale costs fell by almost as much (or sometimes more) because of the combination of lower wholesale prices and reduced consumption."

That compensation - roughly $10.10 a week for most households to offset an estimated $9.90 rise in bills - cushioned some of the impact of the much larger increases in network expenses and other costs unrelated to the carbon price.

"The compensation was sort of needed and merited, but it wasn't compensation for the carbon price but for the huge increases in network costs," Mr Saddler said .

Also contributing to falling wholesale prices has been the rise of renewable energy, adding to the squeeze on coal and gas generators, said Russell Marsh, policy director of the Clean Energy Council.

"Renewable energy does in fact have an impact on prices," Mr Marsh said. "It does help to keep wholesale prices lower than they would otherwise have been."

August underscored the advance of wind energy, in particular, with monthly output figures smashed in part because of added capacity but also because of favourable weather.

In August, wind farms supplied 8 per cent of the NEM demand, or 1024 gigawatt-hours, far above the previous record - set a month earlier - of 749 gigawatt-hours, or 5.7 per cent of the total, the Clean Energy Council said.

South Australia led the way, with 37.9 per cent of the state's demand met by wind power, or 452 gigawatt-hours, while other wind energy records fell in NSW, Tasmania and Victoria.

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