AS POWER prices skyrocket it looks like another war on renewables and climate change action is set to be fought.And consumers are likely to be the losers once again, with everyone pointing fingers about who’s to blame for rising prices.
While former prime minister Tony Abbott once boasted that abolishing the carbon tax would provide instant relief from rising power prices, the impact was short lived with prices now higher than they have ever been in all cities except in Hobart, Darwin and Melbourne.
Power prices jumped on July 1 after three major retailers announced increases of up to 20 per cent and $600 a year for the average customer in some states.
The truth is there are many reasons why electricity prices have been increasing in Australia, and some of them don’t have anything to do with climate change.
Here’s what you need to know.
WE MAY BE GETTING GOUGED BY ELECTRICITY COMPANIES
If you ask the energy companies who’s at fault they’ll point the finger at the closure of coal-fired power plants and blame the rising cost of gas.
But at least one expert believes this excuse is a “total con” and price gouging is to blame.
“Our research shows that the cost of gas makes up just 3 per cent of your final bill and coal just 5 per cent,” The Australia Institute’s senior researcher David Richardson told The Daily Telegraph this week.
“It in no way explains why bills have gone up by 183 per cent on average over the last two decades.”
He’s not the only one who is just a little sceptical, which is why the Australian Competition and Consumer Commission is now investigating prices in Queensland, NSW, Victoria, South Australia, Tasmania and the ACT.
The behaviour of the retailers is especially relevant for residential customers because network charges, or what’s called the “poles and wires”, generally make up about 40 per cent of their bills.
The situation in each state does vary depending on many factors including whether there’s enough competition.
In NSW for example, three electricity companies Origin, AGL and Energy Australia control 90 per cent of the market.
These retailers also own the three largest electricity generators in NSW, giving them a lot of control over how much power is produced and how much it’s sold for.
The ACCC had flagged its concerns back in 2014 when AGL wanted to buy Macquarie Generation, which owned two power stations in the Hunter Valley, but the Australian Competition Tribunal approved the sale.
With complaints about rising power prices increasing, the ACCC will now take a fresh look at prices, profits and the level of competition across many states with a preliminary report due on September 27. A final report will be delivered by June 30, 2018.
It is also hosting public forums around Australia to speak directly to customers about their concerns and experiences. Topics include pricing, switching retailers and competition.
Consumers can compare electricity providers in their area on the government-funded website Energy Made Easy.
BUT IT’S TRUE, GAS PRICES ARE GOING UP
Something that most people agree on is that rising gas prices is driving up prices for electricity.
But again many people cite different reasons for why the price of gas is climbing.
It’s partly because people don’t like fracking and opposition to exploration has meant new gas sources are not being developed in states like Victoria, NSW and the Northern Territory.
The gas companies say they need more gas exploration and this is partly because gas produced on Australia’s east coast is now being sent overseas.
ACCC chairman Rod Sims has said previously that demand for gas on the east coast had “tripled virtually overnight” after the opening of new liquefied natural gas plants in Queensland to freeze the gas for shipment overseas.
This has pushed prices up and it doesn’t help that there is little competition in Australia so companies can charge higher prices locally.
But it’s hard to know whether we really need this gas. The government can’t force the companies to reveal how much gas is in the reserves they already have access to.
Some experts have also claimed supply of gas on the east coast is controlled by a “cartel” consisting of a handful of companies, which may also control pipelines used to transport gas around the country.
The Australian Petroleum Production & Exploration Association (APPEA) has rejected this and said an ACCC investigation found no misuse of market power. But it did accept recommendations for improvements to market transparency and monitoring.
CLOSURE OF COAL FIRED POWER STATIONS
The closure of the Hazelwood power station in Victoria’s Latrobe Valley this year followed other shutdowns including in South Australia and placed more demand on other sources of stable supply like gas, which has unfortunately skyrocketed in price.
Some have blamed the renewable energy target for the closures, which saw coal become less financially competitive compared to solar and wind. The abrupt closures have also created problems with the stability of the system.
Chief Scientist Alan Finkel said Australia’s energy market was not equipped to deal with the transition, and this could impact reliability and security.
But he said the country’s coal fleet was old and coming to the end of its design life, with about 68 per cent of existing coal generating plants reaching 50 years of age by 2035.
Some have argued that the lack of a clear energy policy in Australia has actually driven up power prices.
Mr Finkel believes introducing a Clean Energy Target, which would provide incentives to encourage new wind, gas and other low emissions generators to enter the market is the best way to bring down prices and stabilise the market.
Former prime minister Tony Abbott has slammed the proposed target as “a tax on coal” but other experts have backed it, saying uncertainty in the market was actually more destructive.
Energy consultants Jacobs Group (Australia) have done modelling that a CET or Emissions Intensity Scheme would actually keep coal contributing to the energy market for longer than if no model was adopted.
This is because the lack of a clear energy policy means coal plant owners have less incentive to invest in upgrades and maintenance to keep their plants going.
It is also discouraging investment in wind and solar power, which would also reduce wholesale prices.
But what’s becoming increasingly clear is that power prices are not going to return to the levels they once were — no matter what the politicians say.
Director of the Grattan Institute’s Energy Program, Tony Wood has told news.com.au that while coal was historically a very cheap way of producing electricity, costing about $40 per megawatt hour, new efficient coal-fired power stations would cost double that, about $80-90Mwh.
Gas is even more expensive, hovering about $110Mwh and even if this dropped due to policy changes, would still likely be about $90Mwh.
“So the only obvious conclusion is we’re not going back to $40Mwh any time soon,” Mr Wood said.
“In some ways the negligence of the government is to seek to blame somebody else and not the recognise and communicate to consumers that this is where we are, and we can’t turn back to the good old days.
“We have no choice but to move forward as affordably and reliably as we can.”