Any weakening of the Renewable Energy Target would benefit the industry
Melbourne, Australia (PRWEB) November 23, 2014
Fossil Fuel Electricity Generation supplies the majority of Australia's electricity. Fossil fuel power plants run on black coal, brown coal and (increasingly) natural gas, with only limited use of other fuels such as petroleum products. As these fuel sources indicate, the industry is emissions-intensive, and its performance has been strongly affected by government interventions in generation markets over the past five years. According to IBISWorld industry analyst Caroline Finch, “Industry assets represent large capital investments that are operated for the long term, and the lack of operational flexibility leaves the industry exposed to change.” This vulnerability has been evident in the past five years. In the five years through 2014-15, industry revenue is forecast to contract at a compound annual rate of 2.2%, as the combination of falling demand and inelastic production responses have resulted in lower wholesale prices during the period.
Industry revenue moved higher during 2012-13 after the Federal Government introduced a price on carbon emissions. Due to the industry's dominance within generation, generators passed on increased costs to customers. Revenue is forecast to fall by 30.4% to $10.3 billion in the current year, following the repeal of the carbon tax in early 2014-15. Over the next five years, regulation and demand will continue to shape industry performance. “Any weakening of the Renewable Energy Target, such as a reduction or the closure of the scheme to new entrants, would benefit the industry,” says Finch. Demand for centrally generated electricity is forecast to continue declining in the next five years. With limited incentives to remove capacity, the industry is forecast to operate with capacity overhang into the next five years, contributing to a decline in revenue. The contribution of different fuels to the industry is expected to shift, as gas-fired generation is expected to become far more costly from 2015-16.
The Fossil Fuel Electricity Generation industry has medium concentration, which has increased over the past five years. Historically, concentration in the industry has been limited by state government ownership of industry assets. In the past five years, major players such as AGL Energy Limited have been able to expand in the industry by purchasing distressed assets from other private sector equity holders, and by taking advantage of privatisation of state assets. In the next five years, it is likely that concentration will increase further. The New South Wales State Government is currently running a sale process for the Delta Energy business. Bids have been received from the industry's smaller private sector players, confirming the attractiveness of industry assets to companies in the industry already, and in related industries like Electricity Retailing.
For more information, visit IBISWorld’s Fossil Fuel Electricity Generation industry in Australia report page.
Firms in this industry use fossil fuels, such as coal, gas or oil, to drive steam-producing turbines that generate electricity.
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