Queensland Productivity Commission inquires into electricity pricing and solar feed-in tariff

In brief

The new Queensland Productivity Commission's first two inquiries are into electricity pricing and solar feed-in tariffs. Partner John Hedge and Associate Andrea Moffatt look at the implications for industry.

Background

On 28 April 2015, the Queensland Government confirmed it would establish the Queensland Productivity Commission as an independent body to review complex economic and regulatory issues.¹ Kim Wood, former Chief Executive Officer of Stanwell Corporation and current Managing Director of Hunter Water, will take up the role of Principal Commissioner on 1 October 2015.²

Roles and functions of the Commission

The roles and functions of the Commission are similar to those of national and state policy advisory bodies such as the Australian Productivity Commission and the Victorian Competition and Efficiency Commission. The Commission will undertake economic research into private and public sector productivity across a broad range of social and economic issues and provide advice and guidance to the Queensland Government on regulation, economic reform and policy. It is envisaged that the Commission will operate as a statutory body under its own legislation (as the Queensland Competition Authority (QCA) does).

The Commission will assume two functions previously undertaken by the QCA. The regulatory review function of the Office of Best Practice Regulation has been transferred to the Commission (effective as of 1 July 2015), and the Commission will shortly assume responsibility for ensuring competitive neutrality principles are adhered to by public sector entities in Queensland that engage in business activities. The regulation of third-party access and pricing matters will continue to be a function of the QCA.

The two inquiries

On 20 August 2015, the Queensland Government announced that, in parallel with the previously flagged inquiry into electricity pricing, the Commission will inquire into solar feed-in tariff pricing in Queensland.³

An Issues Paper for each inquiry will soon be released to assist stakeholders to prepare submissions to the Commission. Following consideration of the submissions and consultation with stakeholders, the Commission will release an interim report for each inquiry. A final report for each inquiry is due to be delivered to the Queensland Government within 10 months of commencement.

Inquiry into electricity pricing

The terms of reference provide a broad scope for this inquiry, which is to cover the entire electricity supply chain and consider issues over the short, medium and long term. The interim report (due in November 2015) is to provide recommendations on a number of issues, including:

• the costs and benefits of retail price deregulation, and whether the proposed market monitoring and consumer protections will provide sufficient safeguards to allow the removal of price regulation;
• Government election commitments, including increased penetration of renewable energy (particularly solar) and pricing issues associated with the mergers of electricity networks and generators; and
• network tariff reform, including the potential outcomes for vulnerable customers such as low income households.

The final report is to provide the Government with options for longer-term policy issues, including options for increased competition in regional Queensland (while maintaining the Uniform Tariff Policy), better targeting of energy concessions, productivity in the supply chain, opportunities for local government to be directly involved in electricity supply through community-based solutions, and emerging technologies such as battery storage.

Inquiry into the Solar Feed-in Tariff (FiT)

The Queensland Government is considering opportunities to support the renewable energy sector, and has set a target of one 1 million rooftop photovoltaic installations (or 3000MW) by 2020. There are currently six retailers in south -east Queensland offering retail FiTs. The FiT for regional Queensland is determined annually by the QCA. The aim of the Commission's inquiry into solar pricing is to determine a fair FiT for solar energy produced at the home or business premises of small customers that is exported into a Queensland electricity grid. Importantly, the terms of reference state that the methodology for determining that FiT must:

• be based on the public and consumer benefits of solar energy exported to the grid;
• not impose unreasonable network costs on electricity customers (particularly vulnerable customers); and
• be able to be realised in the current electricity system.

The scope of the review excludes consideration of the 44 c/kWh FiT rate payable under the (now closed) Solar Bonus Scheme, which will be considered by the broader inquiry into electricity pricing outlined above. However, the terms of reference note that the Government does not intend to return to a premium FiT, and that any FiT will be at a significant discount to the retail cost of electricity.

Industry parties wishing to have input into these inquiries should register their interest via the links on the Commission's website.