No easy fix for soaring electricity bills, power sector warns

Australia’s power generators say there are no ″⁣preferable solutions″⁣ to address soaring electricity prices and business leaders warn market intervention can have unintended long-term consequences as the prime minister flags drastic measures.

As rising east coast power prices are forecast to jump another 30 per cent by the middle of next year, the federal government has been debating a range of temporary measures including setting price limits on the cost of gas and coal supplied to power stations, cash handouts to bill-payers or new taxes on resources companies.

East-coast power prices are expected to keep rising into 2024, the Australian Energy Regulator says.Credit:Paul Jones

Treasurer Jim Chalmers has said the government’s preferred form of market intervention is to cap the price of gas and coal sold to power stations, last week reiterating he was reluctant to impose a windfall profits tax and warning handouts would drive inflation.

The Australian Energy Council, an industry group representing the nation’s key electricity suppliers including Origin Energy, AGL and EnergyAustralia, acknowledged that a mix of local factors and a global energy crunch had driven coal and gas prices higher since the start of the year, but has called on the federal government to proceed with caution.

“In this scenario, there are no ‘preferable’ solutions’,” chief executive Sarah McNamara said. “No approach is straightforward or without negative consequences, so governments should carefully weigh their options when deciding whether or not to intervene in the market.”

Opponents of the proposed price caps, including the coal and gas companies whose sales revenue stands to be affected, have cautioned the government that such a move could deter investment needed to develop new sources of domestic supplies that would be crucial to putting downward pressure on prices in the longer run.

The energy crisis is being exacerbated by the war in Ukraine, boosting prices and driving huge spikes in sales revenue for Australian coal and gas exporters. But it is also unleashing economic pain in Australia’s domestic energy markets, as gas prices have more than doubled in the past year and wholesale electricity costs have reached their highest levels on record.

Prime Minister Anthony Albanese said on Monday that other countries were taking unprecedented steps to address energy prices and he was prepared to do the same.

“Whether that be in the United Kingdom or other countries, [they] are all taking action. Action that perhaps wouldn’t have been contemplated in what would be normal circumstances. I’ve said that we are prepared to take action.”

Albanese would not be drawn on whether both gas and coal prices would be capped.

The Australian Energy Regulator forecasts high prices will continue flowing through to retailers and pushing up bills for at least the next two years.

The manufacturing industry, which depends on gas for energy and as a raw material, has been advocating for the government to set a $10-a-gigajoule cap on wholesale gas prices, which are presently trading at more than $20 in Australia’s south-east. There are reports in the industry of long-term gas supply contracts being offered at more than $40 a gigajoule.

Australia’s coal-fired power stations, which supply up to two-thirds of the east-coast electrical grid, typically source their coal from local mines under long-term agreements at prices ranging from $80 to $120 per tonne. This means many operators have not faced prices rising as high as export coal, which surpassed $US400 a tonne this year. However, after months of wet weather disrupted mining and supply chains, the Australian Energy Regulator says power generators have been forced to source more coal than usual on the spot market at elevated prices.

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