AGL calls for ESEM contracts to be tested against customer interests

AGL has made a submission to the Electricity Contract Co-design Working Group's consultation on proposed contract structures for the Electricity Services Entry Mechanism (ESEM).

AGL considers that the Working Group has not shown the proposed contracts would deliver value for customers, or that customers would not be left to fund a material shortfall when the contracts are sold back to the market.

The NEM Wholesale Market Settings Review recommended that the ESEM be designed to close a tenor gap, where new projects need longer contracts than retailers and large users are prepared to sign.

AGL's submission argues that the proposed contracts appear to have been designed mainly to make new projects easier to finance, with little testing of whether retailers and large users would want to buy them.

If buyers pay less for the contracts than the ESEM Administrator paid, customers will cover the difference, and the ESEM would be funding a value gap rather than closing a tenor gap. AGL considers that the Working Group should test whether the proposed contracts serve customer interests, particularly those of households and small businesses, before it recommends any contract.

This should include testing how each contract would perform for a representative retailer and a representative large user, both individually and as a set.

The Working Group should also publish an estimate of the likely recycling shortfall and its cost to customers.

If that shortfall is material, decision makers and customers should be told plainly that the ESEM would be operating as a customer funded subsidy scheme rather than a risk management scheme.

Read the full submission here.