Australians are bracing for the first round of hefty power bills, after prices were hiked by as 20 per cent this month.
With families struggling and small businesses closing down under the financial strain, a blame game has begun over the source of the increase.
A plastics recycler in South Australia closed its doors in June, citing a crippling $180,000 monthly electricity bill as among the costs that prompted his “heartbreaking” decision to close the 38-year-old family business.
Business leaders in the state crippled by blackouts in late 2016 expect more closures to come as prices climb even higher, while pensioners across the country have expressed their fear of not being able to pay for heating over winter.
As the state’s Labor Government hatches a plan to build the world’s biggest lithium ion battery in partnership with billionaire Tesla chief executive Elon Musk, conservatives have hit out at climate change initiatives for adding to the cost of energy.
EnergyAustralia blamed a rise in wholesale prices following the closure of large coal-fired power stations, while Liberal MP Craig Kelly has singled out the $3 billion annual cost of renewable energy subsidies for the price hikes.
“That pushes up the price of electricity to the consumer,” Mr Kelly told ABC radio on Thursday, warning: “People will die.”
RENEWABLES ‘NOT TO BLAME’
But left-leaning think tank The Australia Institute countered with a study claiming to prove once and for all that renewables were not to blame for the price increases.
Instead, said study author Hugh Saddler, an energy economics expert from the Australian National University, the culprit is actually the domestic shortage of natural gas.
The report echoes the sentiments of climate change activist and former US Vice President Al Gore, who is in Australia this week for the Ecocity World Summit in Melbourne.
“Of course there’s a debate in Australia about the role played by natural gas being priced to the world price, and large exports now have driven up the price of gas, which may be the majority of the price increases,” Mr Gore told The Australian, while declaring that climate activists “are winning … [but] the remaining question is whether we will win it in time.”
WHAT’S GAS GOT TO DO WITH IT?
So why are gas prices impacting on electricity?
Although consumer may perceive them as being unrelated, gas is a back-up source of energy that is used to set the market price for electricity.
Because gas prices are now so high — two or three times their historical level — the wholesale price of electricity is rising.
The rise in domestic gas prices has been partly blamed on the increase in exports to lucrative markets overseas, and the power wielded by a so-called Australian “gas cartel”.
Dr Saddler said the reason why prices were particularly high in South Australia was that the state did not have the large, cheap coal resources of other states and was “completely lacking in significant hydro resources”, and that it relied on backup power generation from gas.
“There is absolutely no positive relationship between the share of wind generation in supply
and wholesale electricity prices in the state — in fact a negative correlation,” he wrote.
By contrast, he said, there was “a very strong positive correlation between wholesale gas prices and wholesale electricity prices” in the data analysed.
“It is therefore concluded that price increases in SA, and to a large extent in other states also,
are almost entirely the consequence of high wholesale gas prices.”
WHAT IT MEANS FOR THE NATION
Dr Saddler said the South Australian analysis could be used to explain electricity price hikes nationally, as it mirrored what happened in the market at large.
“A similar, though less stark effect is seen in the other mainland national energy market states. This is not a malfunction of the market, but precisely how it was expected to operate,” he wrote, hitting out at “ill-informed commentators” eager to attack renewable energy generation.
“The launch of the market in 1998 was followed by a rush of construction of gas turbine power stations in Queensland, NSW and Victoria and even in Tasmania, accelerated in Queensland by a gas generation mandate policy introduced by the state Labor government,” he wrote.
“It was envisaged that both the much lower greenhouse gas emissions and the superior operational flexibility of these power stations compared with coal would make them ideally suited to supplying hour-to-hour and day-to-day variations in demand for electricity, while also reducing emissions, by using a then relatively low cost source of fuel.”
Dr Saddler predicted that South Australia’s “abundant wind and solar resources” would eliminate, and potentially reverse its status as the state with the highest energy costs “as the electricity system transitions to renewable generation”.