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Australia’s Energy Market – Changing Currents

Australian retail household electricity prices in the National Electricity Market (NEM) – Australia’s largest grid – are the lowest they have been for eight years, according to Australian Competition and Consumer Commission (ACCC) data (refer to Fig.1 below). The average annual cost of electricity per residential customer in 2020/21 was $1,434, down by 8% compared to 2018/19. The cost component which saw the largest fall was wholesale electricity costs (down by $67).

Figure 1: Residential Electricity Supply Costs Over Time, Inquiry into the National Electricity Market – November 2021, ACCC

Electricity prices vary between countries. Factors including infrastructure costs, government, energy and climate policies, local energy resources and the generation mix are key determinants of the cost of electricity. In 2020/21, the Australian household electricity price was the 10th lowest of the 38 OECD countries while business customer electricity prices were the 14th lowest.

These data points highlight the evolving nature of Australia’s energy market. Renewables are increasingly accounting for a larger share of electricity generation. The Australian Energy Market Operator has forecast that at current rates of development, there could be sufficient renewable resources available to meet 100% of underlying consumer demand in certain periods in the NEM by 2025.

Emerging technologies in the energy sector should respond to, and change, consumer expectations of energy supply. More efficient management of energy should be facilitated with improved access to data and increasing use of process automation. Further investment in automation should also factor into optimising energy consumption by Australian businesses.
At the household consumer level, how we consume electricity is also changing. The increasing use of electric vehicles will be a growing source of demand in the next ten years while smart home technology will better manage increasing heating and cooling energy demand.

Merricks Capital is currently looking at a number of energy-related investments that are positioned to capitalise on transitioning energy trends. We have already financed the construction of a 12MW gas-fired power station and a 10MW solar farm in the Northern Territory with a combined cost of $77m.

The current flooding across the east coast of Australia has caused widespread damage. Our borrowers have not reported any direct impact on assets or projects from the current floods. There are some temporary supply chain challenges, such as delivering grain to port terminals, however these are expected to resolve over the coming weeks. Our sympathies are with those affected by these events.

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