Utilising interviews with key industry stakeholders, and our own analysis, the report is focused on how the electricity hedging market might evolve over the next 10-15 years. This is a period the electricity market will be in transition. A particular emphasis is placed on how retailers, especially those without generation assets, will be able to manage risk.
The report outlines several key findings.
Firstly, an efficient hedging market is crucial for risk management, reducing energy costs, and ensuring a competitive retail market that benefits consumers. There are several tools that retailers can use to manage the risk of fixed consumer prices with the more volatile wholesale electricity market. These tools include financial contracting, vertical integration, or demand response strategies.
Secondly, the energy market transition, driven by government policy for a low carbon economy, is affecting electricity markets in complex ways. It is expected to reduce dispatchable capacity, such as thermal generation. The replacement to this will be renewable generation, where most of this output is dependent on whether conditions. This impacts on the ability for this supply to offer the firm base load swap contracts that have traditionally been sold by baseload coalfired generators, or cap contracts sold by gas peaking plants.
We have also identified several potential challenges for retailer risk management evolving from the transition to more intermittent generation. These include:
Our report sets out several strategies for the ACCC and Government to explore to improve outcomes for retailers in the future given the expected challenges they will face. These are:
Importantly, our report advocates against market interventions, such as market design changes, to manage risk for retailers. Reducing risk through market mechanisms, such as reducing the market price cap, would likely reduce the incentive for retailers to contract, and in doing so, reduce the incentive for new investment in essential dispatchable capacity.
Read further by downloading the report below, or on the ACCC website. The ACCC’s Electricity Market Enquiry can be found here.
More information about our work in the energy and renewables sector is found here.
The “Social and economic impacts of Basin Plan water recovery in Victoria 2022” report was produced for the Victorian State Government in 2022. We analysed the social and economic issues associated with water recovery for the environment in Victoria, under the Murray Darling Basin Plan. Our report provided a valuable evidence base to support robust decision-making on Basin Plan issues.
Our scope was to build on and update the analysis undertaken for our 2017 socio-economic assessment report. The report explains the impacts being felt by communities in Northern Victoria in the 2022 context of water recovery for the environment under the Basin Plan.
One (of the thirteen) chapters considers the possible future impacts of the Basin Plan. The intent of this analysis was not to undertake detailed economic modelling to estimate the impact of further buybacks. Rather, we provide an indication of what is ‘at risk’ — in terms of the value of economic production and employment that is currently supported by the volumes of entitlements that could be recovered if the Commonwealth use buybacks to complete Basin Plan targets, for example the additional 450 GL.
The report does not advocate for, or against, buybacks or alternative forms of water recovery.
It documents the financial costs and socio-economic issues around each water recovery approach. It does seek to put into context the socio-economic value of water for agriculture with the aim of making government cognisant of the consequences removing this water through buybacks could have, so this can be considered when making decisions about water recovery and the support that would be needed to mitigate these impacts.
Our report also brought significant new information to light, securing data from the Department of Climate Change, Energy, the Environment and Water (DCCEEW) regarding the type of infrastructure recovery (separating out on-farm and off-farm) that had previously not been released.
Our work also secured data from the Commonwealth Environmental Water Holder (CEWH) regarding their holdings and behaviour that had not been previously made available.
We note that the Murray-Darling Basin Authority (MDBA) commissioned a team from the University of Adelaide to conduct a literature review of 106 economic Murray-Darling Basin studies that are assessed and rated on a measure of ‘quality’ adapted from medical literature. This approach to assessment is not fit-for-purpose, for the range of studies considered.
Of the 65 studies that were deemed to relate to the influences of water recovery programs on economic outcomes (this report being one of them), 18 of the 28 applied studies are rated low-quality, with 10 of the 11 studies using descriptive statistics being rated low-quality. In fact, the review raises concerns with all the significant reviews in the area.
The University of Adelaide reports that “The bulk of the large-scale reviews to date (e.g., EBC et al., 2011 [appointed by MDBA to consider community impact]; RMCG, 2016; Sefton et al., 2020 [which was an independent panel appointed DCCEEW]; Productivity Commission, 2018; Wentworth Group of Concerned Scientists, 2017; KPMG, 2016; 2018; TC&A & Frontier Economics, 2017; Frontier Economics & TC&A, 2022) have not managed to identify a causal relationship between water recovery and economic outcomes.”
Furthermore, of the studies considered by the University of Adelaide team, many are not contemporary — suggesting that MDBA and DCCEEW need more evidence to support current policymaking.
At Frontier Economics, we peer-review every report with a robust methodology built over our 25 years of economic consulting experience. Academic standard-peer reviews are not practical or common-practice in real-world industry cases, and using this basis to question the quality is, in our opinion, incorrectly measured.
We invite any enquiries on this matter via contact@frontier-economics.com.au
Frontier Economics was an independent advisor to AustralianSuper, for Brookfield and EIG's Origin Energy takeover scheme. Our role was to review the assumptions used in the Independent Expert’s Report (IER) in Origin’s Scheme Booklet.
Using robust economic analysis and long-standing expertise in the energy sector, our advisors, engaged by AustralianSuper - a long-term shareholder in Origin - found that the assumptions used in the IER to derive a business valuation are unrealistically low.
We refer all enquires in regards to this takeover bid, and our economic advice on this matter, to AustralianSuper.
A copy of the full media release from AustralianSuper can be downloaded below.
Dr Tyron Venn of the School of Agriculture and Food Sciences, University of Queensland prepared a critique of the Frontier Economics and the Australian National University report Comparing the value of alternative uses of native forests in Southern NSW, 30 November 2021.
Frontier Economics and the Australian National University provided a comprehensive response.
Dr Venn has subsequently published a partial apology and amendment to his critique.
The Australian Competition and Consumer Commission has today released a consultation paper on NBN Co’s SAU variation. This follows NBN Co’s lodgement of the proposed variation in November 2022.
This latest proposal and consultation reflects further developments in NBN Co’s attempts to overhaul the existing SAU, accepted by the SAU in 2013, to reflect further developments in technology, increase certainty for access seekers on pricing, and move towards a more standard utility-style regulatory framework.
NBN Co’s proposed SAU variation follows a previous SAU variation, which NBN Co submitted in March and subsequently withdrew, and an extensive industry consultation process in 2021 to consider the future regulatory framework for the NBN.
NBN Co has also reinforced its preference to secure an outcome by early 2023 and allow it to develop new systems and prepare to implement a varied SAU on 1 July 2023.
NBN Co’s latest proposals are accompanied by two expert reports prepared by Frontier Economics:
Frontier Economics and Tim Cummins & Associates have analysed the social and economic issues associated with water recovery for the environment in Victoria under the Murray Darling Basin Plan. The report can be found here.
This 2022 report updates previous analysis undertaken in 2017, both commissioned by the Victorian Government to help inform Victoria’s policies on water recovery and Basin Plan implementation.
Under the Basin Plan, the relevant Governments agreed that 2,750 GL of water would be recovered for the environment by 30 June 2024 — the ‘Bridging the Gap’ water recovery requirement. This water was to be recovered mostly from buying water entitlements from farmers, by enabling water efficiency projects, or by investing in projects that deliver the same environmental outcomes using less water. Beyond the ‘Bridging the Gap’ water recovery, the Basin Plan allows for enhanced environmental outcomes from the recovery of an additional 450 GL per year of environmental water through efficiency measures.
There is unambiguous evidence that environmental watering is restoring the environmental values of the Basin. However, we found that Basin Plan water recovery has had significant socio-economic impacts on irrigators and communities in northern Victoria, and that further water recovery from the consumptive pool will add to the impacts already being experienced. The socio-economic impacts of the Basin Plan in Victoria are particularly apparent in the Goulburn Murray Irrigation District (GMID) — without the Basin Plan, water use in the GMID could be expected to have been about 50% higher in recent years (2018-19 to 2021-22) and GMID milk production could also have been expected to be about 50% higher than was observed. In a repeat of the Millennium Drought, the socio-economic impacts of the Basin Plan will also affect the horticultural industries of the Victorian Mallee and surrounding areas — requiring an extra 25,000 hectares of high value horticulture to be dried off due to the reduced consumptive pool.
The report considers the range of mechanisms that have been used to recover water for the environment and enhance environmental outcomes — including water entitlement buyback, on-farm investments, off-farm investments, and Sustainable Diversion Limit Adjustment Mechanism (SDLAM) projects. As a result of the way in which water was recovered, there is now more volatility in the total volume of allocations available for irrigation from one year to the next.
There are reasons to be optimistic about meeting most of the ‘Bridging the Gap’ requirements of the Basin Plan by 30 June 2024. On current estimates, up to 94% of the 2,750 GL requirement could be achieved (leaving a shortfall of 160.3GL). However, if various identified risks cannot be managed, the shortfall in the 2,750 GL requirement at 30 June 2024 may be significantly larger —up to 372.3GL. ‘Constraints projects’ constitute most of the projects at risk.
After considering four scenarios of future implementation of the Basin Plan and the current state of play, we consider a sensible and plausible scenario is for Basin Plan implementation to focus on current or alternative SDLAM projects to offset the full 605GL in a timely manner (rather than by the current 30 June 2024 deadline). Buying back an additional 372.3 GL of water entitlements, instead of extending the deadline, would involve significant socio-economic impacts.
Information about the broader set of reports and a fact sheet are also available here.
With a growing freight task and changing vehicle fleet, Australia needs a lot of well-trained and capable heavy vehicle drivers. Because of this transport Ministers requested Austroads look for ways to improve the National Heavy Vehicle Driver Competency Framework (NHVDCF) which informs state and territory heavy vehicle driver licensing arrangement.
Today Austroads, with the assistance of Frontier Economics, released a Consultation Regulatory Impact Statement (CRIS) seeking feedback on proposed reforms which include:
The C-RIS is available here and is out for comment until 28 October.
Frontier Economics regularly advises clients on a range of policy and regulatory matters in the freight sector.
A report into the economic, social and environmental costs of failing to manage feral deer numbers in Victoria has been released by the Invasive Species Council and Frontier Economics.
The report, Counting the doe: an analysis of the economic, social and environmental costs of feral deer in Victoria, estimates costs of over $1.5 billion (7% discount rate) or $2.2 billion (4% discount rate) in present value terms, over the next 30 years. Avoiding these costs represents a benefit to society. The expense involved in managing feral deer population is a fraction of the cost these invasive species impose on society and the environment.
The Victorian feral deer population and distribution have rapidly increased, with analysis by the Victorian Department of Environment, Land, Water and Planning estimating that the population of deer could be between “several hundred thousand up to one million wild animals or more”.* It is likely to become more challenging to manage feral deer in future, with populations expected to increase further over the next thirty years, driven by a combination of climate change, natural dispersal and deliberate releases and farm escapes.
Feral deer numbers are having a significant and detrimental impact on a range of economic, social, cultural and environmental impacts in Victoria.
“Without effective controls on feral deer numbers our analysis shows that the population is likely to significantly increase, imposing a substantial cost on the Victorian community”, Frontier Economics’ managing director Danny Price said.
Even with conservative assumptions around the detrimental impacts of feral deer, key findings include:
Given the availability of information on the impact of feral deer, these figures do not capture the full range of potentially significant costs of feral deer in Victoria, such as the impact on:
As such, it is likely that the true economic, social, cultural and environmental costs imposed on the community as a result of feral deer in Victoria are larger than this estimate.
“While there is uncertainty around the number of feral deer in Victoria, what is certain is that the Victorian community is losing out by not managing feral deer. These losses will only grow as long as the Government fails to control feral deer numbers now and into the future” Mr Price said.
Today the Federal Court fined Peters Ice Cream $12 million for substantially lessening competition in the market for the supply by manufacturers of single service ice cream and frozen confectionary products.
The Australian Competition and Consumer Commission (ACCC) had issued proceedings against the Australasian Food Group, trading as Peters Ice Cream. The ACCC alleged that Peters acquired distribution services from PFD Food Services on condition that PFD would not sell or distribute competitors' single serve ice cream products in various geographic areas throughout Australia without the prior written consent of Peters - and that this condition substantially lessened competition in the market for the supply by manufacturers of single service ice cream and frozen confectionary products.
Peters admitted the allegations just prior to trial and the Federal Court imposed a penalty of $12 million. Frontier Economics advised the ACCC and a witness statement by Philip Williams was lodged with the Court.
Frontier Economics advises clients on a range of competition and dispute support matters and our economists regularly act as expert witnesses.
The Copyright Tribunal of Singapore today released its decision in SingNet v COMPASS.
SingNet is an ISP subsidiary of SingTel. The Composers and Authors Society of Singapore (COMPASS) had been negotiating with SingNet over the cost of the licence SingNet needed to broadcast music. SingNet brought proceedings claiming that the licence fee requested by COMPASS was unreasonable. Frontier Economics was retained by lawyers for COMPASS to provide advice and to give evidence at the hearing. The Tribunal dismissed SingNet’s claim.
Frontier Economics advises clients on a range of intellectual property valuation and dispute support matters.
