NSW Energy Reform

On 5 March 2009, Premier Nathan Rees announced a new phase for energy reform in New South Wales.

The NSW Government’s intention for energy reform is to encourage private sector investment in new electricity generating capacity in a way both timely and economically efficient.

To this end, the Government will begin implementing an Energy Reform Strategy comprising, but not necessarily limited to, the following elements:

  • Contracting electricity trading rights of Government-owned power stations to the private sector – the ‘generation trader model’;
  • Selling the retail arms of EnergyAustralia, Integral Energy and Country Energy;
  • Selling power station development sites around the state; and
  • Maintaining existing public ownership of existing power stations, electricity transmission and distribution networks.

The NSW electricity market represents the largest component of the National Electricity Market (NEM), meaning the sale of generating capacity rights, NSW retailers and development sites is likely to be attractive to both existing competitors in the NEM, as well as for prospective investors who are yet to enter the Australian market.

The Generation Trader Model

Contracting generation trader rights is used in the United States, Europe and elsewhere in Australia as a means of promoting competition in the electricity market and to improve private sector access to markets.

In a generation trader model, the Government-owned generators supply electricity to private distributors to sell in the national electricity market.   Once the model is in place, the NSW Government would seek to ensure the supply of electricity to the traders by imposing damages on Government generators when supply is not delivered according to the contract.

In its NSW Energy Reform Strategy, the NSW Government committed to ensuring any generation trader model would not undermine the proposed Commonwealth Carbon Pollution Reduction Scheme.   As such, private distributors would pay the cost of emissions from their power stations.

Selling the retail arms

At this stage, the NSW Government is unclear whether the retailers will be sold in their current configurations.   The Report however states the Government’s commitment to selling the retail arms of EnergyAustralia, Integral Energy and Country Energy.

Selling power station development sites

To assist in achieving its aim of encouraging private sector investment in new power generation, the Government will sell potential power station development sites currently owned by public electricity companies.

As these sites have already progressed through several stages of the planning approval process, the Government believes any building of new power stations on these sites by private operators will be streamlined.

Importantly for prospective investors, the Government has stressed it does not have a preferred option for what type of technology or fuel would be used by the next power station.   Any new power station however, would likely be operating under the Commonwealth’s proposed Carbon Pollution Reduction Scheme.

For further information, the full NSW Energy Reform Strategy can be downloaded from http://www.nsw.gov.au/energy/index.aspx?id=7b28878d-9099-4e82-acb6-e6a96bf36c4b