Australian Electricity Investment Is Picking Up, Regulator Says

By Angela Macdonald-Smith

Nov. 21 (Bloomberg) -- Australia's investment in new power stations to meet rising demand and replace ageing plants is ``finally picking up'' after a ``sluggish'' past few years, the country's national energy regulator said.

Spending on new capacity will probably increase further as the details of the government's proposed carbon trading system become more certain, the Australian Energy Regulator said today in its second report on the nation's energy market.

Origin Energy Ltd. and CLP Holdings Ltd.'s TRUenergy Pty unit are among companies building A$8.3 billion ($5.3 billion) of power generation projects that would add 12 percent to capacity, the Australian Bureau of Agricultural and Resource Economics said Nov. 19. Spot electricity prices in Australia were above long-term averages in April-September after reaching a monthly record in March in South Australia.

``The last two years have seen increased volatility in the national electricity market,'' Steve Edwell, chairman of the regulator, said in a statement accompanying the report. ``Across the market there have also been some concerns about future supply risk, but the investment response in most regions is finally picking up.''

Introducing a price on carbon in 2010 will improve the competitiveness of gas-fired plants over those fueled by coal, the regulator said in the report. Some generators may be written down in value or sold, while some fueled by brown coal, which emits more greenhouse pollution when burnt than the black variety, may be shut down, it said.

The construction of new renewable and gas-fired plants may affect flows of power on the grid and create new congestion points, raising a risk the output of some plants will be constrained, the regulator said.

Australia's natural gas industry ``continues to thrive,'' underpinned by the ``burgeoning'' coal-seam gas industry on the eastern coast, Edwell said.

``Across Australia, we are starting to see increases in wholesale prices for both electricity and gas flow through to the retail sector,'' he said.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net