Small retailers plead for help as fossil fuel price hike claims another victim

A collective of small electricity retailers has made an urgent plea to energy market regulators to step in and try to prevent the mass collapse of more retailers succumbing to the pressure of rising wholesale electricity prices.

The joint letter warns of a “liquidity crisis” that has led to the bankruptcy of four different energy retailers in the past month, including Enova Energy, the first community-owned retailer, and more recently Apex Energy.

In a joint letter, co-signed by the heads of Amber Electric, Energy Locals, ReAmped Energy and Enova Community Energy, the group warned that further outages from retailers could follow without action from regulators.

“The financial processes of the energy industry are such that a chain reaction of energy retailer failure is likely. The setup of the system means that the full impact of this crisis (non-retailer driven) will only affect energy retailers and they will succumb to that pressure,” the retailers warn.

Of particular concern are the massive compensation payments that will be made to producers as a result of the Australian energy market operator’s recent suspension of the national electricity market.

Under electricity market rules, generators who have been directed by AEMO to produce electricity during the recent market suspension and during other periods of forecast supply shortages are entitled to reimbursement of their actual generation costs.

These costs are expected to be significant due to the rising costs of coal and gas – and the compensation costs will be passed on to retailers and their customers.

The group will submit a proposal this week to energy market regulators on proposed solutions to the looming crisis, including the expectation that governments will challenge producers on their claimed compensation costs.

Adrian Merrick, CEO of Energy Locals, told RenewEconomy that this could mean generators will have to bear some of the cost of higher fuel prices and that it wouldn’t be fair for electricity retailers – and their customers – to buy generators that don’t hedge against rising fuel costs.

Merrick argues that if producers have failed to cover high coal and gas costs, they must bear some of those costs, especially given that the behavior of some producers contributed to the recent crisis in the electricity market

In their letter, the group warns smaller retailers that if they were hit by the full value of compensation costs claimed by producers, it would likely lead to the immediate collapse of more companies.

“The concern for retailers is that producers have now filed compensation claims with AEMO, and AEMO proposes to notify retailers of these unknown costs in the coming weeks, followed by a requirement to pay a lump sum,” it said. the letter.

“Retailers cannot absorb consumers’ declining cash receipts and rising debt while continuing to pay 100% of wholesale energy costs, distribution costs, green settlement costs and other costs incurred in the process.”

Retailers’ concerns show that the electricity market crisis is far from resolved and the next stage of pain for smaller players is yet to come.

Have four smaller electricity stores already in defaultand a further seven retailers have urged their customers to switch providers – as the rising costs of sourcing wholesale electricity prices significantly outweighed the incoming revenue – by paying customers their bills.

The latest retailer to collapse is Brisbane-based Apex Energy, which mainly serves apartment complexes and other ’embedded’ networks. ASIC entries show that the company was appointed administrator on June 27.

In their letter, the group calls for support from energy ministers and market regulators to find a negotiated outcome to prevent the collapse of additional companies.

“We call on you to support the competition and work with us to find a solution to this crisis,” the letter said.

“We are desperate to prevent a chain reaction of market failure that could cause many retailers to collapse simultaneously – an outcome that would have serious structural consequences for the entire market.”

“It is not the role of retailers to guarantee the costs and profits of the entire energy supply chain. It is also not the role of retailers to protect generators from rising input costs or outages. Without intervention, unfortunately, this is exactly what will happen.”

The letter warns that further corporate failures would be devastating to competition in the electricity market and further strengthen the market power of the ‘Big 3’ electricity retailers – AGL Energy, Origin Energy and EnergyAustralia.

When smaller retailers default, market rules dictate that their customers be transferred to a retailer of last resort, which will usually be one of the “Big 3” retailers.

“Without urgent support, the Australian energy market will lose more retailers, which will have a structural and lasting impact on competition and consumer outcomes.”

Federal Secretary of Climate Change and Energy Chris Bowen has previously said he would “monitor the situation very closely” but has so far not committed to specific interventions to protect smaller electricity suppliers.

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