Renewables Force Up Power Price by Extortionate 20 Percent
Despite the Federal Government’s repeated claims that renewable energy would bring down power prices, the Australian Energy Regulator (AER) has announced that the benchmark default price for household electricity will rise over 20 percent from July 1.
The rate of increase in electricity prices is three times the current inflation rate. The AER is a federal government agency.
Inevitably, the surging price of electricity will feed into higher consumer prices over the year ahead, putting further strain on distressed low-income families and businesses.
The premature closure of coal-fired power stations and the higher cost of renewables has ratcheted up prices enormously.
The AER sets the default price, called the default market offer (DMO), which is the maximum price an electricity company can charge customers on standard retail plans, and sets prices in South Australia, New South Wales and south-east Queensland.
In Victoria, the default price is set by the Essential Services Commission. It will lift prices in Victoria by 25 percent – even higher than in the other states.
According to the AER, the default price is based on the cost retailers pay generators for electricity and to have it transported to Australian homes and businesses along poles and wires, as well as the cost of complying with government environmental schemes and the cost to serve customers.
On a year-to-year basis, these costs should be at or below inflation.
Power Station Closures
However, the premature closure of coal-fired power stations and the higher cost of renewables has ratcheted up prices enormously.
The AER said that the largest component of the price increase came from the wholesale price of electricity supplied by generating companies to retailers, making up 30 to 40 percent of the retail price.
The AER identified five factors that have led to the surge in electricity prices:
- Reliability issues with ageing coal-fired generation assets creating expectations of higher future wholesale energy costs.
- The closure of the Liddell Power Station in New South Wales in April this year, which had been factored into supply and price expectations by the market for some time.
- More expensive electricity futures contracts that were traded before the Government began to signal in October 2022 an intention to intervene in the form of temporary price caps.
- Relatively stronger coal and gas costs compared with previous years.
- The increasingly “peaky” shape of customer demand.
Apart from changes in customer demand, all the other factors are directly or indirectly shaped by the shift from baseload coal generation to intermittent wind and solar power, and the problems of maintaining supply in this situation.
Since the Federal Government moved to shift from coal-fired power generation to renewables, power companies that own coal-fired power stations have had no incentive to properly maintain, let alone upgrade, their power stations.
Reliability issues are therefore inevitable.
The fact is that Australia has vast supplies of readily available brown and black coal, which have been used to generate affordable electricity across Australia for the past century.
Interestingly, environmental costs on electricity providers (that is, the cost imposed by governments to meet their environmental policies) were around $20 per megawatt/hour, a substantial amount.
Because both the Government and the Opposition are committed to phasing out baseload power and relying on renewables, the AER did not specifically point the finger at renewable energy sources as the cause of surging electricity prices. Shades of the Emperor’s New Clothes!
Cold Comfort
However, AER chairwoman Clare Savage was apologetic for the rises imposed on families and businesses.
“We know households and small businesses continue to face cost-of-living pressures on many fronts, and that’s why it’s important the DMO provides a safety net for those who might not have shopped around for a better power deal,” Ms Savage said.
“In setting the DMO price this year we have sought to protect consumers from unjustifiably high prices and at the same time allow retailers to offer consumers better deals than their standard plans.
“No one wants to see rising prices, and we recognise this is a difficult time, that’s why it’s important for consumers to shop around for a better deal by using the free and independent bill comparison website www.energymadeeasy.gov.au and to check rebate and concession eligibility.”
The electricity price shock comes just a year after Prime Minister Anthony Albanese, as leader of the Opposition, promised Australian families that Labor’s energy policies would cut electricity bills by $275 within three years. In fact, average electricity prices will increase by almost $1,000 over the next year alone.
Albanese has not commented on the latest electricity price surge.
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Originally published in News Weekly. Photo by Kelly.
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