Millions of Australian households have been warned to brace for wild hikes in their electricity bills after prices in the country’s biggest electricity market soared to the highest levels on record.
Key Points:
- Wholesale prices in the national electricity market averaged $264/MWh in the three months to June 30.
- The figure was double the previous highest quarterly average and three times more than a year ago
- Rising wholesale energy prices have prompted warnings that consumers face huge bill hikes
In a report released today, the Australian Energy Market Operator (AEMO) said wholesale energy costs soared to unprecedented levels in the three months to June 30 amid the crisis that engulfed the energy system.
Average prices for the quarter were $264 per megawatt hour, up a whopping 203 percent in the first three months of the year, and about six times the long-term trend.
It was a similar story in the eastern states gas market, which AEMO noted saw a record average price of $28.40 per gigajoule (GJ) for the quarter, compared with $8.20 for GJ of the same period last year.
The unprecedented highs prompted warnings from industry experts that consumers would see massive price hikes as electricity providers try to recoup rising costs.
Unlikely to be a “one off”
Bruce Mountain, director of the Victoria Energy Policy Center (VEPC) at the University of Victoria, said households and businesses had only just begun to feel the effects of spiraling wholesale costs and that sales were much worse.
This year’s market was hit by outages at coal-fired power stations, including Mount Piper in NSW. (Supplied by EnergyAustralia)
“We’ve never seen prices reach these levels,” Dr Mountain said.
“That’s about two to three times higher than the highest quarterly average we’ve ever seen and that highest quarter was singled out.
“I’m not sure that this quarter stands out as unique.
In today’s Quarterly Energy Dynamics Report, AEMO cataloged a series of crises that culminated in the takeover of the national market in June, the first time it had taken such a drastic step.
While noting there were many reasons behind the upheaval, AEMO said one of the biggest was the lack of coal-fired power generation at various times.
It said coal fleet production fell nearly 10 percent in the quarter, reducing system capacity as demand increased during a cold spell.
Market ‘impossible’ to operate
According to AEMO, the shortfall in coal capacity meant that gas-fired generation played an outsized role in the market at the same time as fuel prices reached stratospheric levels.
National Energy Market wholesale prices jumped disproportionately in the June quarter. (Provided by: AEMO)
It also contributed to AEMO’s decision to impose market-wide price caps to protect users from even higher prices.
“The scale of interventions required to manage the extent of reserve shortfalls made it impossible for the market to function,” AEMO said in its report.
AEMO has since lifted the market suspension, but faces compensation claims from generators.
The claims are believed to be worth hundreds of millions of dollars.
Earlier this year, the Australian Energy Regulator (AER) and its counterpart in Victoria increased benchmark prices, known as default market offers, by up to 18.3% to account for increased wholesale costs.
But Dr Mountain said the decision was made before the National Energy Market, which serves more than 10 million customers on the East Coast, descended into chaos.
VEPC director Bruce Mountain fears much worse to come for Australian electricity consumers. (ABC News)
He noted that many smaller retailers with a large exposure to the wholesale market had since been forced to increase their retail prices by up to 100%, with a number facing ruin.
Dr Mountain said the AER and other regulators would come under pressure to allow further benchmark price increases to keep electricity suppliers afloat.
Consumers may need a rescue
Mountain described it as a “very, very worrying situation” for consumers, whose electricity bills could rise by similar margins to those seen in other crisis-hit markets such as the UK and Europe.
“It’s a nightmare for a lot of customers,” he said.
“Small customers have been insulated from the worst effects so far, unless you were a customer of one of the smaller retailers who had an excellent deal.
“I was one and I’ve seen my double bill, but that’s just the beginning.
“For large customers whose contracts are ending right now and they’re looking to get power back two or three years into the future, they’re facing extraordinary increases.”
Mountain said Russia’s decision to further squeeze gas supplies to Europe could exacerbate the situation by keeping pressure costs higher.
Recent actions by Russian President Vladimir Putin have indirectly pushed up gas prices in Australia. (Reuters via Sputnik: Mikhail Metzel)
He said consumers would end up paying the price for the chaos and suggested government intervention would soon be needed to help vulnerable households.
“I think there are going to be a lot of customers who can’t afford electricity at these prices and governments are going to have to bail them out,” Mountain said.
“Australian governments will be under pressure to do something for the most exposed households.”