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Prominent SA businesses want to collectively negotiate for electricity

20 February 2017

Some of South Australia’s biggest electricity users want to collectively negotiate long-term supply contracts in a bid to avoid the high prices and uncertainty that are threatening their viability.

The South Australian Chamber of Mines and Energy (SACOME) is facilitating an application seeking authorisation from the Australian Competition and Consumer Commission (ACCC) on behalf of a ‘buying group’ that represents approximately 10% of the State’s electricity consumption. 

The State Government says it is “very supportive” of what SACOME is trying to achieve (see quotes from the State Energy Minister, below). 

“The companies span the mining, agricultural, food and manufacturing sectors and attended Economic Development Board hosted industry briefings on the energy supply market during 2016/17.  All are operating in globally competitive markets and all need supply certainty and competitive prices if they are to remain successful,” said Chamber CEO Rebecca Knol.

“As energy already represent between 10% and 40% of their total costs, the increasing cost of electricity impacts on their operations and on their investment decisions. 

Participating companies include Arrium, Hillgrove Resources, Rex Minerals, Thomas Foods, Seeley, SMR Automotive and Central Irrigation Trust. 

Ms Knol said South Australia had the most volatile and expensive wholesale electricity prices in Australia and cost competitive long-term contracts were not available. Companies were currently receiving individual contract prices that were “at a premium” and 30-80% higher than previous rates.  

“By aggregating their load, they will improve their individual bargaining position and be able to establish more cost-competitive supply contracts,” she said. 

“And there will be flow on benefits. Retailers and generators tell us the amount of electricity this group requires, and the length of the contracts they are seeking, will increase competition by encouraging new or currently mothballed generation to enter the South Australian market.

“It is expected that the certainty of a firm load will enable electricity suppliers to better manage their fuel source portfolios and this is likely to have a flow on effect to all consumers due to increased competition in the retail electricity market.”

ACCC approval is being sought to ensure joint tendering is not seen as contravening anti-competitive provisions in the Competition and Consumer Act.

The application seeks authorisation for 11 years – sufficient time to allow national and State energy and climate change policies to align and enable the operation of an effective and efficient National Electricity Market.

“SA business need short term solutions as energy markets transition to meet the needs of a lower carbon economy,” Ms Knol said.

An ACCC consultation process in relation to the application ends on 21 February. A draft determination is expected to be reached by the ACCC in April 2017.

South Australian Energy Minister Tom Koutsantonis said the Department of State Development had been working with large industrial consumers to facilitate collective electricity supply contracts “ so we are very supportive of what SACOME is trying to achieve.”

“By aggregating contracts, companies can substantially increase their purchasing power and get better deals from generators.

“The State Government is using the procurement of its electricity load to incentivise the entry of new electricity generation into the local market, which will increase the supply capacity.

“We are also working on a package of more dramatic market interventions that will lower prices and increase grid stability, and will be in a position to announce those policies soon.”

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