The Independent Pricing and Regulatory Tribunal (IPART) has determined a reasonable wholesale price for fuel ethanol from 1 January 2020 to 31 December 2020 of 111.7 cents per litre excluding GST.
This is 1.3 cents per litre higher than the previous period.
Why we determine wholesale prices
Under the NSW ethanol mandate, volume fuel retailers are required to ensure that at least 6% of the total volume of fuel they sell is ethanol (sold in petrol-ethanol blend, such as E10). However, the Minister may exempt a volume fuel retailer from complying with the ethanol mandate on various grounds.
Since 2017, one of the grounds for exemption is that the wholesale price of ethanol for use in the production of petrol-ethanol blends exceeds the reasonable wholesale price determined by IPART. Therefore from January 2017, IPART has been required to determine a reasonable wholesale price for ethanol under s17A(1)(a) of the Biofuels Act 2007 (NSW) (Biofuels Act).
How we determine prices
We determine a wholesale price for fuel ethanol in line with what it would cost retailers if they had to buy it from overseas (the import parity price or IPP). It is based on a nine-month average (to one month prior to the commencement of the pricing period) of weekly IPP estimates based on the lowest cost origin for ethanol from either the US or Brazil.
We adopted this approach in 2016 after extensive consultation with stakeholders, and taking into account the matters in the Biofuels Act. It is based on our findings that there is a high degree of consumer choice in retail fuels. There is also some competition in the supply of wholesale ethanol. This approach should minimise distortion in the market for fuel ethanol and provides scope for ethanol producers and fuel wholesalers to negotiate prices below our determined prices.
In previous years we have determined wholesale prices quarterly. We will now be determining the price of ethanol annually to reduce some of the regulatory costs associated with the ethanol mandate, given that our determined prices have been fairly stable and our price has not been used when applying the exemption framework for meeting the ethanol mandate. For more information please see our 2018-19 ethanol price monitoring report.
More information on the IPP methodology and why we consider it is the most appropriate approach is available in our 2017-18 ethanol market monitoring report
Our spreadsheet model for calculation the import parity price can be found here