2. PRICE OF ELECTRICITY
Electricity in South-East Australia is nowadays an extremely vibrant market involving plants with different ownership arrangements, different technical capabilities and different fuel and capital cost structures.  There is substantial trading between states and a variety of new structures for trading are involved.  The output of all generating plant in the South East national market is controlled by National Electricity Market Management Company, NEMMCO from Sydney based on offers being continuously submitted by the various generators and how this matches with the requirements of the various electricity buyers in the market.

In this paper only a brief introduction to this area is attempted since it is required to understand some of the issues facing power station management.

The normal assumption of the economists when considering is full competition is that the normal electricity price will rise to near to the "new entrant price".  This is the price at which it becomes economic for a competitor to enter the market.  If the price is routinely above this value then someone, somewhere, will start building a new power station.  Recently this price has been put at about $35/MWhr, which is the price, if regularly achieved, that it is possible for an investor to install a modern combined cycle plant using natural gas as a fuel.

2.1 Market prices.

It is believed that the price being obtained by the Victorian generators is generally less than the value of $35/MWhr the purchasers expected when they bought the plants.  The generators have two types of contract.  The first contract type is a relatively long term contract with large customers and distributors known as a vested contract and a second type of contract which is obtained on the spot market through NEMMCO.  The vested contracts are said to vary from mid $20s to high $30s per MWhr (Myer 1999). Over the last year the spot price of electricity in Victoria/NSW averaged about $20/MWhr.  Some recent prices are shown on Table 2.

Once the price regularly exceeds $35 new capacity can be built.  This is the currently the case in Queensland and South Australia, both of which have power stations being built.

It might be mentioned that while the generators in NSW and Victoria are complaining about the price they are achieving, the distributors are not making any statement about the low price. United Energy (1998) for example does not mention this issue in their annual report.  This suggests that if there have been any benefits from the lower prices, they have flowed to large consumers for whose business the distributors can compete.

Some reasons might be put forward for the low price in the generated electricity.

• There is a large excess capacity in government owned power stations in NSW,
• There is increased capacity of Victorian power stations due to improvement in performance as discussed below, is effectively new capacity being added at no great cost, and
• Some private and government owners are prepared to sell all electricity they can generate.
• The gas fired generator, Ecogen, has been entering the market at about $23 MWhr (Yallourn Energy 1999) behaviour that had not been anticipated since it was assumed they would only behave as a peak power source.