The anatomy of our "energy crisis"
07 Jun 2022
Australia is in the midst of an “energy crisis” - some say the worst in 50
years.
Energy
Minister Chris Bowen and Treasurer Jim Chalmers have both warned the country is
facing a “perfect storm” of limited gas supply and electricity price hikes.
Firstly,
the wholesale price of power (that is, what it costs to generate it) is about
5x higher than last year, largely due to increasing coal and gas prices on
international markets. Wholesale price usually represents about 35% of our
household bill.
Secondly, there is a shortage of gas on Australia’s east coast, mostly caused
by the demand for heating in this cold weather and coal-fired power plants
being offline over the last few months.
And it’s
hurting our hip pockets. The Australian Energy Regulator lifted electricity
prices by as much as 18% in SA, NSW, and Queensland last month. The price of
electricity in Victoria also increased by 5%. Last week, some smaller energy
retailers like ReAmped even told their customers to go elsewhere or pay double
from July 1.
Electricity
and gas prices are expected to stay high for at least two years, the Australian
Energy Regulator has warned.
The “perfect storm” is all thanks
to:
- Outages at coal-fired power plants mean gas-fired
generators are being relied on more. 30% have been offline or not
operating since April, for various reasons we go through at the end of the
article. But gas generators are way more expensive to run, raising
wholesale prices, and much of our gas is exported rather than kept for
domestic consumption. One of these coal-fired units to stop running is at
Australia’s biggest energy supplier, AGL - but more on that later.
- Europe does not want to use Russian gas and coal
so they are going elsewhere including Australia. This means there's not
enough supply to meet demand, which has raised global prices.
- Baby, it’s cold outside. The
polar surge on the east coast has accelerated the need for electricity to
heat our homes.
How’s this...
- Canberrans are somewhat sheltered from this power
panic due to a decision that was made by the ACT Government 10 years ago
to go 100% green on electricity - meaning they don't rely on coal and gas.
Since 2012, they invested heavily in renewable energy, locking in deals
with solar and wind farms. The catch is that due to the higher costs of
these deals or contracts, Canberra households have been paying about $5.50
more a week for their electricity since July last year.
- WA is also doing alright. The
WA Government reserves a certain proportion of its gas (15% of its export
volumes) for domestic use, unlike the rest of Australia. In 2012, the
Gillard government rejected a proposal to do this for the rest of the
country. Back then, business leaders argued it would discourage investment
and former PM Julia Gillard listened.
The cost of living
This
surprise spike in gas and electricity prices could push inflation beyond 6%,
according to the international financial services provider Deutsche Bank. The
inflation rate or CPI is currently at 5.1.
Deutsche
Bank estimates that if wholesale prices in each region remain at their current
level until the end of June, it will increase household electricity inflation
to around 20% by the end of the year.
As a
result, the Reserve Bank of Australia (RBA or central bank) could be forced to
increase the interest rate by more and sooner. It is currently at 0.35%.
Raising the interest rate is a method to reduce inflation