Soaring electricity prices in Australia have been hit by the “perfect storm”, and it is being felt in households across the country.
But one 11 point plan Australian energy ministers released after Wednesday’s meeting won’t bring prices down anytime soon, with federal energy minister Chris Bowen saying there is no “silver bullet”.
So what is this new plan all about? And are there any quick fixes? Let’s break it down.
What happened to energy prices?
Wholesale energy prices have been hit hard East Coast. Why?
A cold spell, rising fuel prices thanks to Russia’s invasion of Ukraine and, at home, the decommissioning of old coal-fired power plants have combined to put pressure on markets – the so-called “perfect storm”.
And none of this is ending any time soon.
Federal Treasurer Jim Chalmers referred to it in a speech last week, as petrol prices in Victoria jumped 50 times more than normal levels.
And once Australia’s energy regulator passed those big increases on to benchmark power prices from the ‘perfect storm’?
Rates, called default market offers, increased between 8.5% and 18.3% in New South Wales, up to 12.6% in South East Queensland and 9.5% in South Australia.
This meant that some retailers faced huge price hikes to supply their customers.
A small energy retailer, ReAmped, even wrote to its customers and offered them gift certificates to entice them to leave while they could “still get a better deal”.
So what is in this government plan?
The urgent meeting with state, territory and federal energy ministers came up with 11 points and of those, these are the ones that get the most attention.
Part of the plan would see energy retailers pay electricity providers to maintain reserve energy capacity when needed. It’s called a capacity mechanism.
It’s something that could have helped these small retailersaccording to the former head of the Australian Energy Security Board, Dr Kerry Schott.
“I’m partly frustrated that if the capacity mechanism had been in place, we wouldn’t be in as bad a position as it is,” Dr Schott said.
The capacity mechanism was originally scheduled to come into effect in 2025, but it has now been accelerated under this plan.
Chris Bowen said work on this was already “well advanced” and that the Energy Security Council would have a draft in “the next few days”.
But there could be obstacles.
Mr Bowen said to include “new technologies, renewables and storage” in the mix, but he did not explicitly exclude coal.
Under the Coalition, some state energy ministers had refused to support it because they wanted to include coal-fired power plants – The Government of Victoria dubbed him “CoalKeeper”.
Bruce Mountain, director of the Victoria Energy Policy Center at the University of Victoria, said if the mix included fossil fuels it could be difficult.
“It has nowhere [in the past] because the states have said they don’t give money to coal, gas and oil,” Professor Mountain said.
What else is on the table?
Mr Bowen stressed that while no, there will be no quick fix, there is now a plan to let the regulator buy gasoline and keep it in storage for times like the past few weeks when prices have skyrocketed.
Mr Bowen said this was one of the most important points and would allow the gas to be stored for a period “crisis situation”.
Frank Calabria, director of Origin Energy, said this would help ease pressure on supply and be a step in the right direction.
“There was no immediate solution to the high prices, but there are immediate actions included in the plan which I think can provide some relief,” he said.
But despite soaring gas prices, Mr Bowen said it was not a “gas crisis”.
“It’s a crisis caused by many circumstances. The coal power outages are probably the biggest, the fleet is very old and we’ve had flooding in the coal mines,” he said.
Other ideas, such as a windfall tax on energy companies, have been discarded by the federal government.
But Professor Mountain said it is something that should be reconsidered, in light of the benefits coming from rising prices, partly thanks to the war in Ukraine.
“The idea of the windfall tax is to recognize that the gains of coal and gas companies are not entirely their doing,” Professor Mountain said.
“I think that continues to be something the government could consider.”
He said incentivizing a renewable energy storage target was the “missing ingredient” in the plan so far.
“We need to move our surplus to other times of the day so that we are not dependent on coal and gas,” he said.
“If we had done this [already]we would face much lower bills than we currently have.
What about stopping gas exports?
It’s the so-called “gas trigger”, which allows the federal government to conserve gas that was to be exportedfor use in the Australian market.
Why hasn’t it been removed?
It takes six months to get started, but that’s something the new federal government is looking at.
Mr Bowen said it was a ‘rather crude instrument at the moment’ and would not help in the current crisis.
“We have discussed gas and gas reservations but that is entirely a Commonwealth matter and yesterday we focused on joint liability issues.”
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