Make no mistake, the Australian energy crisis is not over. The gas price has broken out of its August price range of $15-20Gj as the idled sixth train on Curtis Island has resumed operations. As night follows day, electricity prices are tracking higher:
Today’s prices are still enough to add 3.5% to the CPI over one year and more like 6% over two.
Put another way, energy prices all by themselves are still high enough to force interest rates much higher and real incomes plus asset prices much lower.
There is some relief in international prices but they remain so high that this is academic:
On the policy response front, there is no news to report. Bizarre as usual given this is the end of the Australian economy as we know it if left to play out.
My one remaining hope is that the second federal budget on October 25 will be the announcement date for a policy response that must be a $7Gj price trigger installed into the ADGSM or, even better, as an export levy benchmarked to the same.
But, it appears that to get there somebody is going to roll over a PM that has no idea. Judith Sloan:
Last week in parliament, Anthony Albanese attempted to explain how electricity prices were determined in this country: “It is not really rocket science. You don’t need an economics degree … to know that if the market changes from a more expensive level of energy to a cheaper level of energy, you get cheaper energy prices … That is why (Australians) got solar panels on their roofs.”
It may as well be rocket science for the Prime Minister because he clearly doesn’t understand how electricity prices are set or the irrelevance of the example of the installation of small-scale solar panels by households.
…What has emerged recently, as the penetration of large-scale renewable energy has risen, is large variations in the wholesale price of electricity across the day. On sunny and windy days, the price can be low, sometime negative, during the day, but the price shoots up at night when the sun sets and the wind often dies down. At this point, renewable energy is not useful and only reliable or firming generation (coal, gas, hydro) can be used to meet demand.
Another feature of the electricity market is that these diurnal variations in the price undermine the economics of firming generation, particularly coal. Because coal-fired plants operate on a continuous basis, the losses they incur during the day need to be offset by profits made at other times for them to stay in business. But with many plants ageing and the price of coal rising steeply, the likely effect of more renewable energy is to hasten the exit of plants, which puts upward pressure on electricity prices. Indeed, the higher the penetration of renewable energy, the greater the increase in prices unless new reasonably priced firming capacity quickly enters the market.
We need gas for a long time yet or every Australian east of WA is going to get A LOT POORER.
