19 January 2018

Business SA is calling for a new pricing structure for the National Electricity Market to be investigated, following research which has shown the NEM would benefit from a more sophisticated structure.

The Australian Chamber of Commerce and Industry report, undertaken by consultancy firm Aurecon, investigated a range of options for regional boundary definitions and pricing structures in the NEM, to explore potential cost and other benefits for energy users.

“Since its implementation almost 20 years ago, there has been little to no reform to the NEM, with wholesale market prices continuing to be set purely based on state boundaries,” Business SA Executive Director, Industry and Government Relations, Anthony Penney said.

“A revised system which priced energy based on regional provision would provide cost benefits to consumers across the nation.”

Mr Penney said the report found nodal pricing, where prices were determined at the sub-station level but could be aggregated into regional hubs, would be a more efficient method of setting prices than the current state boundary pricing structure.

He said transitioning to a nodal pricing system, as investigated in the ACCI report, would promote short-term use of the existing network by delivering electricity from the lowest-cost generators to customers that valued it the most.

The report also found a nodal pricing system would promote investment in generation and network infrastructure where it was most valuable in the system, such as wind or solar power in South Australian regions which could accommodate the infrastructure and benefit from its location.

The three-part report found blanket restrictions on unconventional gas exploration drilling activities in the Northern Territory, Victoria and New South Wales were delaying investment and adding risk to existing and future ventures.

With supply shortfalls in the domestic east coast gas market forecast over the next five years, encouraging further exploration, including in South Australia’s South East, was critical to providing security of supply in the medium and long term.

The report also recommends renewable energy be developed in regions where it is more costeffective, with state-based schemes only likely to increase the underlying cost of energy and the cost of meeting reliability services.