IPART is currently undertaking a review of the ethanol markets. The review covers each of IPART’s functions under the Biofuels Act. These are:
- determining and periodically reviewing a reasonable price for wholesale ethanol for use in the production of petrol-ethanol blend
- monitoring the retail market (including prices) for petrol-ethanol blend, including reporting on the effect of our determined price on the retail market.
We have released a Draft Report on how we set wholesale ethanol prices
The NSW Biofuels Act 2007 (Biofuels Act) requires fuel sellers to 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).
Since we commenced our price determinations in 2017, we have set the reasonable wholesale price for ethanol in line with what it would cost retailers if they had to buy it from overseas (the “import parity price” or “IPP”).
We have reviewed the conditions in the ethanol markets in our Draft Report. Our draft decisions are that:
- IPART will continue to determine wholesale ethanol prices based on the price of importing ethanol from overseas (the “import parity price”).
- We will continue to include the excise rates for imported fuel in our import parity price calculation.
- Additional price constraints are not required because retail fuel prices are continuing to protect consumers from excessive wholesale ethanol prices.
IPART’s draft findings:
- Sales of fuel ethanol in NSW averaged around 2.1% of total petrol sales in 2020-21. This remains below the 6% required if all fuel retailers were to meet the mandate on average across NSW.
- The wholesale price of E10 has exceeded the wholesale price of U91 since March 2020. The implied wholesale price of ethanol remained significantly below our determined price in 2020.
- The price of E10 was 2.2 cents lower than the price of U91 on average over 2020.
- Relatively low oil and petrol prices have maintained downward pressure on ethanol prices, since E10 prices must be competitive with prices of regular petrol.
- The delivered cost of wholesale ethanol (including excise) for a new entrant are likely to be around 25% than higher in 2021 compared to 2016. This largely reflects the increase in domestic excise from 2.6 c/L to 14 c/L.
- Consumers continue to have an effective choice of fuel with widespread availability of E10, U91 and premium unleaded fuels. 87% of fuel stations sell E10, and 75% sell U91. 58% of stations sell both E10 and U91.
- Customer choice between fuels is supported by a range of comparison websites and apps including the NSW Government’s FuelCheck service.
- Low fuel prices over 2020 have reduced the profitability of ethanol suppliers.
- United Petroleum closed its Dalby Bio-Refinery in June 2020. There are now only 2 ethanol producers on the East Coast of Australia, down from 3.
- It is unlikely that new suppliers will enter the wholesale market in the short term.