Financing costs and barriers to entry in Australia’s electricity market

Rai, A; Nelson, T

Financing costs and barriers to entry in Australia’s electricity market

Rai, A

Nelson, T

Permalink

Publisher:: Emerald
Publication Type:: Journal Article
Citation:: Journal of Financial Economic Policy, 2021, 13, (6), pp. 730-754
Issue Date:: 2021-01-01

Open Access

Copyright Clearance Process

Recently Added
In Progress
Open Access

This item is open access.

Adobe PDF

Download Accepted VersionAdobe PDF (879.86 kB)

View on publisher's site

View statistics

Full metadata record

Field	Value	Language
dc.contributor.author	Rai, A https://orcid.org/0000-0002-6965-3830
dc.contributor.author	Nelson, T
dc.date.accessioned	2021-11-22T22:07:35Z
dc.date.available	2021-11-22T22:07:35Z
dc.date.issued	2021-01-01
dc.identifier.citation	Journal of Financial Economic Policy, 2021, 13, (6), pp. 730-754
dc.identifier.issn	1757-6385
dc.identifier.issn	1757-6393
dc.identifier.uri	http://hdl.handle.net/10453/151788
dc.description.abstract	Purpose: This paper aims to provide investors’ views on financing costs and barriers to entry into the electricity generation sector, with a focus on investors’ views on potential impacts on cost of capital from adopting nodal pricing and financial transmission rights (FTRs). The implications for policymakers and policy reforms are also discussed in detail. Design/methodology/approach: Survey-based data collection of investors and developers in electricity generation, consisting of multiple choice questions from a closed list of discrete choices, binary-choice questions, and questions with free-text/open-ended answers. Findings: Across survey respondents, weighted-average cost of capital (WACCs) were broadly unchanged over 2019, with increases for undiversified/non-integrated participants offset by decreases for horizontally integrated participants. Cost of equity has risen, whereas cost of debt has fallen. Nodal pricing-cum-FTRs were estimated to increase WACCs by 150–200 basis points p.a. (15–20%), reflecting concerns around the firmness of FTRs and ability to automatically access intraregional settlement residues. Research limitations/implications: These findings have energy policy implications, namely, the need to consider the interaction between economic theory and real-world financing models when designing and implementing fundamental energy sector reforms. Practical implications: The need to consider implementation and transitional issues (e.g. grandfathering of existing rights, focusing on reducing the largest barriers to entry) is associated with implementing nodal pricing. Originality/value: Unique set of survey questions and insights that have not previously been addressed in an Australian context; what-if analysis not previously done in an Australian context
dc.language	en
dc.publisher	Emerald
dc.relation.ispartof	Journal of Financial Economic Policy
dc.relation.isbasedon	10.1108/JFEP-03-2020-0047
dc.rights	info:eu-repo/semantics/openAccess
dc.subject	1605 Policy and Administration
dc.title	Financing costs and barriers to entry in Australia’s electricity market
dc.type	Journal Article
utslib.citation.volume	13
utslib.for	1605 Policy and Administration
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
utslib.copyright.status	open_access	*
dc.date.updated	2021-11-22T22:07:33Z
pubs.issue	6
pubs.publication-status	Published
pubs.volume	13
utslib.citation.issue	6

Abstract:

Purpose: This paper aims to provide investors’ views on financing costs and barriers to entry into the electricity generation sector, with a focus on investors’ views on potential impacts on cost of capital from adopting nodal pricing and financial transmission rights (FTRs). The implications for policymakers and policy reforms are also discussed in detail. Design/methodology/approach: Survey-based data collection of investors and developers in electricity generation, consisting of multiple choice questions from a closed list of discrete choices, binary-choice questions, and questions with free-text/open-ended answers. Findings: Across survey respondents, weighted-average cost of capital (WACCs) were broadly unchanged over 2019, with increases for undiversified/non-integrated participants offset by decreases for horizontally integrated participants. Cost of equity has risen, whereas cost of debt has fallen. Nodal pricing-cum-FTRs were estimated to increase WACCs by 150–200 basis points p.a. (15–20%), reflecting concerns around the firmness of FTRs and ability to automatically access intraregional settlement residues. Research limitations/implications: These findings have energy policy implications, namely, the need to consider the interaction between economic theory and real-world financing models when designing and implementing fundamental energy sector reforms. Practical implications: The need to consider implementation and transitional issues (e.g. grandfathering of existing rights, focusing on reducing the largest barriers to entry) is associated with implementing nodal pricing. Originality/value: Unique set of survey questions and insights that have not previously been addressed in an Australian context; what-if analysis not previously done in an Australian context

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10453/151788