This week IPART (the Independent Pricing and Regulatory Tribunal NSW) has released its determination as to the Reasonable Wholesale Price for fuel ethanol from 1 September 2023.

About IPART

IPART, the Independent Pricing and Regulatory Tribunal NSW, is a regulatory body established with the dual goals of ‘keeping prices fair’ and ‘keeping services safe and reliable’.

The IPART core functions are conferred by legislation, delegations rules and access regimes established by legislation.

These functions are to:

  • Set or recommend maximum prices for monopoly services in NSW (including water and public transport).
  • Administer licensing or authorisation of water, electricity and gas network businesses, and monitor compliance with licence conditions.
  • Advise the NSW Government or its agencies on issues such as pricing, efficiency, industry structure and competition.
  • Regulate private sector access to water and wastewater to encourage competition and re-use.
  • Maintain a local government cost index, determine the maximum percentage increase in local government general revenue (rate peg), determine special rate variations and review Councils development contributions plans.
  • Monitor competition and performance in the energy retail markets.
  • Administer the Energy Savings Scheme and associated register of energy savings certificates.
  • Register agreements for access to public infrastructure assets and arbitrate disputes about agreements for access to public infrastructure.
  • Investigate complaints about competitive neutrality referred to us by the NSW Government.

IPART role in ethanol prices

The IPART periodically determines a ‘reasonable wholesale price’ for ethanol for use in the production of petrol-ethanol blends such as E10.

Under the NSW Biofuels Act 2007 (Biofuels Act), fuel sellers must ensure that ethanol accounts for at least 6% of the total volume of petrol sold in a quarter (ethanol mandate). This means that 60% of fuel sales are required to be E10 (which is made up of 10% ethanol, and 90% unleaded fuel).

IPART has two ongoing roles under the Biofuels Act, which are:

  • to determine, and periodically review, a ‘reasonable wholesale price for ethanol for use in the production of petrol-ethanol blends such as E10
  • to monitor the retail market(including prices) for petrol-ethanol blend and make reports to the Minister for Fair Trading (the Minister) on the effect of a determination of the reasonable price for wholesale ethanol.

Why we set the wholesale price for ethanol

Fuel sellers can be exempt from the meeting the ethanol mandate on various grounds. Since 2017, one of the grounds of exemption is that the wholesale price of fuel ethanol paid by retailers exceeds the reasonable wholesale price determined by IPART.

We set wholesale prices based on an estimate of the market price of importing ethanol.

Our approach to determining wholesale prices depends on the level of competition in the retail and wholesale markets. Where there is effective competition in one or both of these markets, it will protect customers from excessive prices.

In the NSW retail market, around 20% of the fuel sold is E10. E10 competes with regular unleaded petrol (“U91”), and premium fuels, which limits the price that suppliers can charge for ethanol. If the wholesale price of ethanol is too high, the retail price of E10 would rise relative to other fuels and customers would switch fuels.

Because this competition protects customers from excessive wholesale prices, we set wholesale prices based on an estimate of the market price of importing ethanol (the “import parity price” or “IPP”). This approach reduces the risk of the determined wholesale price being set too low, which could impact the financial viability of ethanol suppliers and discourage new entry.

We adopted this approach in 2016, taking into account the matters in the Biofuels Act, and after extensive consultation with stakeholders. Since then, we have periodically reviewed our approach and sought stakeholder feedback.

The import parity price is based on a nine-month average (to one month prior to the commencement of the pricing period) of weekly import parity price estimates based on the lowest cost origin for ethanol from either the US or Brazil plus the current rate of fuel excise.

More information on the methodology, and why it is considered the most appropriate approach is available in the IPART 2021 ethanol market monitoring report.

Reasonable Wholesale Price for Ethanol 1 Sept 2023

IPART has determined a reasonable wholesale price for fuel ethanol from 1 September 2023 of 169.2 cents per litre.

In announcing the determination this week the IPART noted that the Reasonable Wholesale Price ethanol price based on what it would cost retailers if they bought wholesale ethanol from overseas. 

This determination is based on a 9-month average of weekly import parity price estimates based on the lowest cost origin for ethanol from either the US or Brazil.

The September 2023 determined price of 169.2 cents per litre is 1.9 cents, or around 1%, higher than the determined price for the previous period of 167.4 cents per litre.

This is mostly due to a small rise in the mill-gate price and fuel excise. Brazil was the lowest priced origin for wholesale ethanol for about 50% of the Import Parity Price averaging period, which is similar to the last pricing period.

IPART will next determine prices to apply from March 2024.

More Information

For a copy of the Determination see:  https://www.ipart.nsw.gov.au/sites/default/files/cm9_documents/Determination-Wholesale-price-for-fuel-ethanol-1-September-2023.PDF

Elisha Radwanowski BCom(HRM&IR)
ACAPMA

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