Power market has already repealed the carbon tax

The underlying market in wholesale electricity contracts has already priced-in the repeal, with power selling at some of the lowest levels since the wholesale electricity market was created.

While Clive Palmer argued with the government about repeal of the carbon tax being contingent on forcing power companies to pass through savings, the underlying market in wholesale electricity contracts has already priced in the repeal before it is even passed through parliament.

Below is our chart of the week illustrating historical traded prices for contracts offering a NSW baseload megawatt-hour of electricity for delivery in 2015, taken from the ASX energy exchange. As of yesterday the price was trading at $34.20. This is not far off the NSW average wholesale price of electricity in 2011-12, prior to carbon pricing’s introduction, which was $29.67.

Graph for Power market has already repealed the carbon tax

Source: www.asxenergy.com.au

By the way, wholesale electricity prices in 2011-12 across every state in the National Electricity Market (excludes WA and NT) were the lowest they’ve ever been in real terms since the NEM was first established back in 1998-99. So the fact that NSW futures contract prices for 2015 are still a few dollars higher than the year prior to carbon pricing coming into effect shouldn’t be cause for concern about price gouging. This is especially so when you consider that futures contracts incorporate a premium for reducing risk.

Also, with the exception of 2011-12 which was annus horribilis for electricity generators, $34.20 represents the lowest price for NSW since the NEM was formed.  

In terms of Victoria, its 2015 baseload futures price contract traded at $30.37 yesterday, which would equate in real terms to the third lowest price for that state since the NEM was formed, after 2010-11 and 2011-12.

The one clear problem spot is Queensland where prices do not seem to be recovering to pre-carbon price levels. You can blame the Queensland Government and its power generators, CS Energy and Stanwell, for that state of affairs. The Newman Government decided to consolidate its three separate power generating companies into just two. Since then capacity was closed and the market has been subject to regular huge price spikes as generators have strategically exploited transmission constraints in that state which inhibit competition between the generators. 

Now, before you expect a huge saving in your next electricity bill just remember that this is the wholesale price of electricity, not the delivered retail electricity price. These record low prices effectively boil down to a reduction of just 2 cents off an average retail price of 30 cents per kilowatt-hour.

If you really want to save money then forget the carbon tax and focus on keeping your electricity retailer honest. Those households who haven’t bothered to shop around recently (likely to make-up roughly a third to half of households) are likely to be paying one of the default big three retailers of Origin, AGL and Energy Australia 4 to 6 cents too much for a kilowatt-hour of electricity.

You’d have to reduce wholesale electricity generation prices to zero to save an equivalent amount of money.