Energy shock arriving at households in 3,2,1…now:
Many households and small businesses may face power bill rises of more than 30 per cent as energy retailers ditch their normal practice of offering heavy discounts to customers.
Those discounts, which typically amount to 20 to 30 per cent off the regulator’s benchmark price, are at risk of disappearing as soaring electricity and gas costs push retailers to the wall. The move comes on top of default offers rising as much as 18 per cent.
With a string of smaller retailers already going to the wall or telling customers to find another energy provider, retailers are now offering their customers prices starting from July 1 that are as close as possible to the regulator’s benchmark safety-net price.
This is only the beginning. Wholesale energy prices have risen enough to increase retail bills 100%. If prices do not change, the utility bill shock will land with a thud every quarter over the next year and more.
And why would wholesale prices change? The only driver of the problem – fuel costs – is getting worse not better as global gas prices soar anew:
And global coal prices continue right along with them:
It’s now clear that Russia has every intention of using gas as a weapon against Europe and the global economy in perpetuity. Europe does not even ban Russian coal until August.
Ipos facto, not even a global recession is going to knock these commodities down much so Australian energy bills are going to keep rising.
And the energy generators have their own plans. Mwahaha:
Power generators are devising a plan to raise price caps in the national electricity system to avoid a repeat of the market suspension and ease an ongoing energy crisis.
Regulators imposed an administered price cap of $300 per megawatt hour for the first time a fortnight ago, in a bid to calm a volatile market after a period of unusually high wholesale prices.
However, the cap resulted in more than 10 per cent of supply being withheld because companies could not profit on high-cost generation and feared running out of fuel. That supply standoff led to the Australian Energy Market Operator suspending the market.
Sources said generators were privately discussing pushing for a doubling of the price cap to $600/MWh to enable sufficient supply.
I’m pretty sure that the answer to the crisis is not to let wholesale power prices double again. The former head of the ACCC, Rod Sims, described the solution pointedly late last week:
So what to do now? The errors are in the past. First, I would still urge a price on carbon. It is far less regressive than having high solar feed-in tariffs or electric vehicle incentives that favour higher-income groups. And future investment and innovation need a price signal in our low-carbon journey that has a long way to go.
Second, the federal government needs to pressure the LNG exporters to supply the domestic market at a price close to the WA price, with the threat of legislation. Some will say the market should not be interfered with; I once argued this but was wrong. We now have an immediate crisis that is costing the economy dearly, and we have already lost manufacturing capacity that will not come back, and we will lose more.
Hopefully, the ACCC will also adopt this mea culpa and will conclude the same in its urgent review, with a recommendation for domestic reservation, export levies or super-profits taxes.
What of sovereign risk? There is none:
In 2020 alone, according to analysis of electoral commission returns by the progressive think tank Market Forces, fossil fuel miners donated at least $1,353,202 to Labor, the Liberals and the Nationals – and likely more, given the inadequacy of Australia’s donations laws.
Although a number of factors contributed to the current crisis – the war in Ukraine; record heat in India; La Niña rains in Australia and Indonesia that reduced coal supply; scheduled maintenance and breakdowns at coal-fired power stations; unusually cold weather; and reduced generation from wind and solar – at the bottom of it was the politics of appeasement. For decades, fossil fuel companies were more or less allowed to do whatever they wanted, with no policy drafted to maintain the integrity of domestic energy supply.
Rod Sims, the former head of the Australian Competition and Consumer Commission (ACCC), underlined the point this week, writing a comment piece in which he blamed two things above all for the east coast energy crisis: the lack of a price on carbon and the construction of three liquefied natural gas (LNG) projects in Queensland about 10 years ago.
It is worth noting this occurred under a Labor state government, with the enthusiastic approval of the federal Resources minister of the time, Martin Ferguson.
The developers of those three $20 billion LNG export plants, Sims said, did not have access to enough gas to meet their export commitments. There might have been enough to serve two plants. The result was that the export industry took gas “that historically had been used to meet domestic demand”. As Sims wrote, “This saw domestic gas prices increase substantially and now sees Australia’s gas market operator needing to cap gas prices at 10 times the level of gas prices a decade ago.”
One of those developers in particular, Santos, “plundered” the domestic gas market, says Mark Ogge, principal adviser on climate and energy at The Australia Institute. He suggests this was not simply the result of an overestimation by the company of the available gas reserves.
“Santos in their environmental impact statement, to get the LNG project approved, specifically said that it wouldn’t affect domestic gas prices,” Ogge says. “But Santos was telling their investors that they had a deliberate strategy of linking their domestic gas reserves to global prices, because they could charge Australian customers more for the gas.”
Whether inadvertent or deliberate, the result of the overexporting of gas was the same: shortages and price spikes. As evidence, consider this paragraph from a story about a shortfall in east coast gas supplies: “Santos and its joint venture partners at the Gladstone LNG project in Queensland have agreed to divert about 30 petajoules of gas to the domestic market, in an effort to stave off government export curbs.”
That sounds like a story from last week but it was published almost five years ago.
The gas cartel lied to Australia as it deliberately engineered market failure. Redress for this injustice and restoring market dynamics is not sovereign risk.
Not to mention that 70% of the gas is going to China. Even as it launches its third aircraft carrier to sail around the South Pacific and challenge the liberal democratic order that protects our freedoms.
The only risk in this crisis is to the sovereign, not from it.
Therefore, the choices before the Albanese Government are very simple. It can:
- Allow a planet-cooking foreign cartel to sell us our own commodities at prices written in Ukrainian blood without even paying tax.
- Embed the most fundamental inflation imaginable forcing the central bank to “make room” for an economically empty $50bn energy price shock.
- Smash household wealth via crashing house and stock prices.
- Demolish the income base of our most vulnerable households.
- Destroy what’s left of manufacturing and denude Australia of its last defence industry even as it builds China’s.
Or, Albo can do his job and impose domestic reservation, export levies, or super-profit taxes on both the gas and coal cartels.
Why is this even a debate?