Australian wholesale power costs soaring despite Morrison government’s budget claims

Australia’s wholesale power costs are soaring, with prices for most of the national electricity market running at double the rate promoted by the Morrison government in last month’s budget.

April prices are forecast at $175 per megawatt-hour in Queensland, the most among the major east coast states, ASX futures data shows. New South Wales isn’t far behind at $173/MWh, while South Australia at $150 and Victoria just above $100.

The prices – which are one factor affecting household power bills – are at odds with the Morrison government’s claims as recently as last month’s federal budget that it had lowered electricity prices.

“The government is delivering on its commitment to a secure, affordable, and reliable energy supply and has achieved its goal of wholesale electricity prices under $70/MWh,” the budget said. “The government’s actions have helped reduce residential electricity costs by 8% and small business costs by 10% over the past two financial years.”

Guardian Australia approached energy minister, Angus Taylor, for comment.

Labor’s energy spokesperson, Chris Bowen, said: “It’s no wonder wholesale prices are double what the Coalition promised.”

“Renewables with storage is the cheapest form of reliable energy, and with Barnaby Joyce back running the Liberal’s climate and energy policy, new large-scale renewable investment has plummeted,” he said.

“Labor’s Powering Australia plan will get cheap, reliable electricity pumping through the Australian grid. This is the cornerstone of a strong economy,” Bowen said.

Chief executive of consultancy EnergyQuest, Graeme Bethune, said the spike in power prices was in part caused by coal-fired power plants cutting output. To fill the gap, generators were using more gas but that came at a sharply increased cost in the wake of Russia’s invasion of Ukraine disrupting global energy markets.

Coal-fired power was at a record low for this time of the year since the national electricity market was set up almost a quarter of a century ago. Generation was down 342 gigawatt-hours with coal’s share of the market 62% versus 66% a year earlier, he said.

“[I]n the middle of last year you had the Callide power station in Queensland explosions which knocked out half of it,” Bethune said. Coal plants were again struggling, with Liddell in the Hunter Valley formally closing one of its four units on 1 April, and two of Yallourn’s four units offline in Victoria.

For months to come, whole prices in most states in the National Electricity Market can expect prices well above $100 per megawatt-hour. (Source: ASX energy futures.) pic.twitter.com/HOhotMlMVO

— Peter Hannam (@p_hannam) April 18, 2022

“Certainly based on [those developments], the immediate outlook is certainly for high prices to continue,” he said.

Prices were “completely at hostage particularly to what happens with coal-fired generators,” Bethune said. “If everything goes well … and they all perform, then you’ve got less of a problem than if they start keeling over.”

Short-term gas prices have continued to rise for domestic users, rising 12% in Brisbane last month to $11.37 per gigajoule, EnergyQuest said. Southern gas prices rose by a similar 11.7% to $10.98/GJ.

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Australian-based gas producers, meanwhile, had shown little sign of increasing production. That’s despite resources minister, Keith Pitt, stating in January Australia “stands ready to assist with any request for further supplies” should Russia invade Ukraine.

According to EnergyQuest, Australian projects shipped 6.41m tonnes of liquefied natural gas in 94 cargoes last month, almost the same as the 6.42Mt shipped in February.

The consultancy estimates Australian LNG export revenue fell slightly in March to $5.47bn, down from $5.63bn in February, but 88% higher than in March 2021.

Australian LNG exports are showing no sign of increasing, despite record high prices and a scramble to source non-Russian gas. (Source: EnergyQuest, ABS.) pic.twitter.com/IgGEqNtTov

— Peter Hannam (@p_hannam) April 18, 2022

Signs Australia might be able to ship more gas to Europe, though, are increasing.

For one thing, China ramped up local production of coal and gas in the March quarter in response to higher prices, Bloomberg reported on Monday.

Sinopec, a quarter owner of the Australia Pacific LNG plant in Queensland, is also signalling a reduced demand for LNG shipments from Australia in part as Covid disruptions curb orders from Chinese customers.

“Their trading arm has apparently offered four spot cargoes for Europe,” Bethune said. “With high prices on the one hand and also with the Covid lockdowns, activity in China has fallen, and they find now they’ve got more gas than they need.”

Bethune said governments had limited scope to intervene for local electricity or gas prices, unlike fuel prices where the Morrison government halved the fuel excise for six months, lopping 22 cents off the price per litre in one move.

One likely outcome is that households and business users would face big price fluctuations in gas and electricity prices for some time, he said.

“One conclusion about energy prices is [they are] extremely volatile and highly uncertain,” Bethune said.

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