Rising energy prices in Australia have been hit by the “perfect storm”, and this is being felt in homes across the country.
But an 11-point plan by Australian energy ministers released after Wednesday’s meeting will not cut prices soon, with federal energy minister Chris Bowen saying there is no “silver bullet”.
So what is this new plan about? And are there quick fixes? Let’s break it down.
What happened to energy tariffs?
Wholesale energy prices have been hit hard on the east coast. Because?
A cold pot, rising fuel prices thanks to the invasion of Ukraine by Russia and, back home, the old coal-fired power plants that were disconnected have combined to put pressure on the markets: l called the “perfect storm.”
And none of that will end soon.
Federal Treasurer Jim Chalmers referred to it in a speech last week, as gas prices in Victoria rose 50 times more than normal.
“Unfortunately, this is a perfect storm of conditions and challenges in our energy market,” Chalmers said.
And once the Australian energy regulator transmitted these big increases to compare the prices of the “perfect storm” energy?
Tariffs, known as default market bids, rose from 8.5% to 18.3% in New South Wales to 12.6% in South East Queensland and 9 5% in South Australia.
This meant that some retailers were facing large price increases to supply their customers.
A smaller energy retailer, ReAmped, even wrote to its customers and offered gift vouchers to urge them to leave while they could “still get a better deal.”
So what’s in this government plan?
The urgent meeting with the state, territorial and federal energy ministers gave 11 points and of these, these are the most striking.
Part of the plan would be for energy retailers to pay energy suppliers to maintain surplus energy capacity if needed. This is called the capacity mechanism.
Chris Bowen said there is no “silver bullet” on energy prices. (ABC News)
It’s something that could have helped these smaller retailers, according to former head of the Australian Energy Security Board, Dr Kerry Schott.
“I’m partly frustrated that if the capacity mechanism had been established, we wouldn’t be in as bad a position as it is,” Dr. Schott said.
“And we wouldn’t have small retailers who want to get rid of customers because they can’t supply them.”
The capacity mechanism was originally planned for 2025, but has now been accelerated with this plan.
Chris Bowen said work on this was already “very advanced” and that the Energy Security Board would have a draft of it in the “next few days”.
But there could be obstacles.
Bowen said it should include “new technologies, renewable energy and storage” in the combination, but did not explicitly rule out coal.
Under the Coalition, some state energy ministers had refused to support it because they wanted to include coal-fired power plants; the Victorian government called him “CoalKeeper.”
Bruce Mountain, director of the Victoria Energy Policy Center at the University of Victoria, said that if the mix includes fossil fuels, this could be difficult.
“It has nowhere to go [in the past] because states have said they don’t give money to coal, gas and oil, “said Professor Mountain.
What else is on the table?
Bowen stressed that while there will be no quick fixes, there is now a plan to let the regulator buy gas and keep it stored for times like the last few weeks, when prices have skyrocketed.
Mr Bowen said it was one of the most important points and would allow the gas to be stored for a “crisis situation”.
Origin head of Energy Frank Calabria says this would help ease the pressure on supply and be a step in the right direction.
“There was no immediate solution to the high prices, but there are some immediate actions that are included in the plan that I think can be alleviated,” he said.
Liddell Coal Power Plant is being shut down and shut down in April 2023. (ABC News: John Gunn)
But despite rising gas prices, Bowen said it had not been a “gas-led crisis.”
“It has been a crisis caused by a lot of circumstances. Probably the main thing is the coal light cuts, the fleet is very old and we have had floods in the coal mines,” he said.
“When you depend on a particular form of energy, as we have traditionally been in Australia with coal energy, you are very exposed.”
Other ideas, such as an extraordinary tax on energy companies, have been ruled out by the federal government.
But Professor Mountain said that is something that should be reconsidered, in light of the benefits that come from higher prices thanks in part to the war in Ukraine.
“The idea of the extraordinary tax is to recognize that the profits of the coal and gas companies are not entirely made by themselves,” Professor Mountain said.
“I think it’s still something the government could consider.”
He said encouraging 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 as not to depend on coal and gas,” he said.
“It simply came to our notice then [already]we would face much lower bills than we have now.
“We are seeing in the prices the consequences of having stopped for a long period of time.”
What about stopping gas exports?
This is the so-called “gas trigger”, which allows the federal government to conserve some of the gas that had to be exported, for use in the Australian market.
Why didn’t they pull it off?
It takes six months to get started, but that’s something the new federal government is investigating.
Bowen said it is a “fairly strong instrument at the moment” and would not help in the current crisis.
“It would not come into force until January 1, even if the minister responsible for the trigger was in office today,” he said.
“We talked about gas and gas reserves, but this is totally a matter for the Commonwealth and yesterday we focused on issues of joint responsibility.”