Coal news and updates

The anatomy of our "energy crisis"

Australia is in the midst of an “energy crisis” - some say the worst in 50 years. 

Energy Minister Chris Bowen and Treasurer Jim Chalmers have both warned the country is facing a “perfect storm” of limited gas supply and electricity price hikes.

Firstly, the wholesale price of power (that is, what it costs to generate it) is about 5x higher than last year, largely due to increasing coal and gas prices on international markets. Wholesale price usually represents about 35% of our household bill. 

Secondly, there is a shortage of gas on Australia’s east coast, mostly caused by the demand for heating in this cold weather and coal-fired power plants being offline over the last few months.

And it’s hurting our hip pockets. The Australian Energy Regulator lifted electricity prices by as much as 18% in SA, NSW, and Queensland last month. The price of electricity in Victoria also increased by 5%. Last week, some smaller energy retailers like ReAmped even told their customers to go elsewhere or pay double from July 1.

Electricity and gas prices are expected to stay high for at least two years, the Australian Energy Regulator has warned.

The “perfect storm” is all thanks to:

• Outages at coal-fired power plants mean gas-fired generators are being relied on more. 30% have been offline or not operating since April, for various reasons we go through at the end of the article. But gas generators are way more expensive to run, raising wholesale prices, and much of our gas is exported rather than kept for domestic consumption. One of these coal-fired units to stop running is at Australia’s biggest energy supplier, AGL - but more on that later.
• Europe does not want to use Russian gas and coal so they are going elsewhere including Australia. This means there's not enough supply to meet demand, which has raised global prices.
• Baby, it’s cold outside. The polar surge on the east coast has accelerated the need for electricity to heat our homes.

How’s this...

• Canberrans are somewhat sheltered from this power panic due to a decision that was made by the ACT Government 10 years ago to go 100% green on electricity - meaning they don't rely on coal and gas. Since 2012, they invested heavily in renewable energy, locking in deals with solar and wind farms. The catch is that due to the higher costs of these deals or contracts, Canberra households have been paying about $5.50 more a week for their electricity since July last year.
• WA is also doing alright. The WA Government reserves a certain proportion of its gas (15% of its export volumes) for domestic use, unlike the rest of Australia. In 2012, the Gillard government rejected a proposal to do this for the rest of the country. Back then, business leaders argued it would discourage investment and former PM Julia Gillard listened. 

The cost of living

This surprise spike in gas and electricity prices could push inflation beyond 6%, according to the international financial services provider Deutsche Bank. The inflation rate or CPI is currently at 5.1.

Deutsche Bank estimates that if wholesale prices in each region remain at their current level until the end of June, it will increase household electricity inflation to around 20% by the end of the year.

As a result, the Reserve Bank of Australia (RBA or central bank) could be forced to increase the interest rate by more and sooner. It is currently at 0.35%. Raising the interest rate is a method to reduce inflation