The Independent Pricing and Regulatory Tribunal (IPART) has determined a reasonable wholesale price for fuel ethanol from 1 January 2022 to 31 December 2022 of 149.3 cents per litre excluding GST.
Why we set the wholesale price for ethanol
Under the Biofuels Act 2007 (Biofuels Act), fuel sellers must ensure that 6% of fuel sold is ethanol. This means that 60% of fuel sales are required to be E10 (which is made up of 10% ethanol, and 90% unleaded fuel).
Fuel sellers can be exempt from this requirement 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.
How we set prices
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.
The wholesale price that we determine 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. We calculate this price in an excel model.
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. More information on our methodology, and why we consider it is the most appropriate approach is available in our 2021 ethanol market monitoring report.
We are also required to monitor the retail market for petrol-ethanol blends
Our market monitoring reports can be found here