Vertical integration in the National Electricity Market
For an inquiry by the Australian Competition and Consumer Commission (ACCC) into electricity pricing, Frontier Economics and law firm Herbert Smith Freehills were engaged by AGL Energy to investigate the impact of vertical integration on the bidding behavior of generators in the National Electricity Market. The report is available from the ACCC, referenced in the ACCC’s preliminary report.
The findings support a conclusion that vertical integration is not harmful to supply: vertically integrated generators, those owned by firms that also participate in the retail market, actually bid 4% to 6% more capacity at competitive prices. Moreover, there is no evidence that the market-wide trend towards vertical integration has resulted in bidding at higher prices.
Frontier Economics regularly advises clients in the energy sector in the Asia-Pacific region.