24 March 2014

ASEC Calculates Value of Pulse Energy to Buller Consumers

Buller Electricity Ltd (BEL) is the small trust-owned electricity distribution network serving the Buller region. Andrew Shelley Economic Consulting Ltd (ASEC) was retained by BEL to estimate the value to BEL's consumer-owners of the company's ownership stake in Pulse Energy.

Frequent congestion or constraints on the transmission lines providing power to the region means that retailers operating in the area face high levels of wholesale electricity price risk. ASEC's analysis considers the risk management options that are available to a retailer, and how this leads to a regional retail electricity market. Limited risk management options for those retailers without generation increases risk and is likely to reduce competition,

Pulse Energy entered the retail electricity market in Buller region after Buller Electricity entered a recapitalisation agreement with Pulse Energy in 2010. BEL currently owns 59.47% of Pulse Energy. In the space of two years, Pulse Energy gained a market share of over 25% of Installation Control Points (ICPs), and currently maintains a market share of 23%-24% of ICPs. The process of competition would be expected to result in lower retail prices, providing BEL's consumer-owners with a benefit that is unlikely to have occurred absent the entry of Pulse Energy.

The actual market share of retailers is known, as are their actual prices. Estimates are developed of the market share and weighted average retail price that might have prevailed but for the entry of Pulse Energy. Comparing this "counterfactual" weighted retail price with the actual retail price provides an estimate of the benefit per kWh. Average annual loads for consumers on the BEL network then allow the calculation of an annual benefit. This is converted to a net present value over the period 5-15 years, using a social discount rate. The period 5-15 years is the timefame over which independent generation might be expected to enter the regional electricity market, providing opportunities for retailers to hedge their exposure to transmission constraints.

A copy of the ASEC report can be downloaded from the Buller Electricity website here.
View the Buller Electricity press release here.