The power shock has only just begun

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Via the SMH:

Australian households could be paying as much as $430 more for electricity by the end of next year unless wholesale gas prices are brought under control, according to a new report that warns the Turnbull government’s energy policies are falling short.

Policy analysts at the McKell Institute have for the first time modelled the impact of wholesale gas prices on household power bills in New South Wales, Victoria and Queensland – finding consumers are already paying between $100 and $200 more than what the Australian Competition and Consumer Commission considers reasonable.

Using the ACCC’s figures – and taking into account the government’s current gas policy settings – McKell’s modelling finds households in NSW could be paying $434.08 more for electricity on average by the end of 2019. Households in Queensland are heading for a $312.92 price rise and Victorians could be paying $254.09 more.

The figures are based on the current forecast price and consumption trends, without a significant reduction in wholesale prices.

The ACCC believes average wholesale gas prices on the east coast should be between $6.30 and $7.80 per gigajoule. However the price is currently above $9 per gigajoule, with some industrial users being offered prices of up to $22.

$9.22Gj to be precise:

Is the Government doing anything to fix it? It prefers Frydenlying:

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Last Friday, standing alongside Bill Shorten, the ACTU president and now Labor candidate for Batman, Ged Kearney, said that nationalising the electricity grid was “worthy of consideration”. Put to Shorten that this would destroy Australia’s proud reputation as a global investment destination, the best he could say was that it was unlikely to happen, not that it was a bad idea.

It was the latest example of Shorten’s reluctance to stray from the populist playbook of Jeremy Corbyn and Bernie Sanders. By no coincidence, last year’s British Labor manifesto said the party will “regain control of energy supply networks” and in the US presidential candidate Bernie Sanders has in the past called for “the public takeover of all privately owned electricity companies”. These are discredited and unsuccessful socialist policies that one had only become accustomed to expect from Chavez’s Venezuela and Castro’s Cuba, not modern-day democracies with developed economies.

It’s one thing in Australia for the wacky Greens to be proposing nationalising the grid — this can be dismissed alongside the other policies they found at the bottom of the garden like abandoning ANZUS and bringing back death duties — but it’s another when it comes from the mouth of a powerful union figure running on Labor’s ticket in a critical by-election.

…In contrast, the Coalition knows where it is going on energy policy and has a clear, logical and businesslike plan to get there. We have listened to the experts and endorsed the National Energy Guarantee that ends the subsidy mentality and takes a truly technology-neutral approach that will see households $400 better off each year and large consumers even more so…We have reached agreement from retailers to win a better deal for millions of households and are investing in Snowy 2.0 and other storage projects around the country to remove price volatility, stabilise the system and ensure South Australia’s disastrous “big experiment” is not replicated nationally.

Nobody knows what the NEG is or whether it is technology neutral. It doesn’t exist. Snowy 2.0 will take more than decade and will be utterly redundant by then as batteries swamp it. SA is the only place that actually has a plan:

A network of at least 50,000 home solar systems backed up by battery storage will create the world’s largest “virtual” power plant to cut energy bills, Jay Weatherill has said.

The South Australian premier said a trial was already under way to install solar panels and Tesla batteries on 1,100 Housing Trust homes. The cost would be financed by the sale of electricity. The power generated by the solar panels and the batteries would not be owned directly by the households.

The program would later be rolled out to another 24,000 public housing properties and also offered to other households with a view to having at least 50,000 Adelaide homes connected.

A similar Liberal opposition plan involves having solar panels and batteries installed in at least 40,000 homes.

Weatherill said the plan would essentially create a 250-megawatt power plant and participants could expect a 30% cut in their electricity bills.

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I still struggle to believe that the Coalition is willing to play all politics all of the time on something so fundamental to our civilisation as energy. All it is doing is protecting the gas cartel while wrecking the decarbonisation project (recalling that it is the gas price that sets the marginal cost of electricity).

The one encouraging thing is that the Labor-aligned McKell is establishing the groundwork for a new Government to actually use the domestic gas reservation mechanism that will fix everything in the energy market overnight.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.