Bowen plays down power price fears, fans flames of hope and hype from gas lobby

Federal energy minister Chris Bowen says he expects the benchmark for wholesale electricity prices for the coming year to be “significantly lower” than previously flagged, thanks to the Albanese government’s introduction of gas and coal price caps in December.

The call from Bowen comes in stark contrast to mainstream media headlines predicting a “cripplingly expensive winter” ahead of the release of the Australian Energy Regulator’s draft Default Market Offer, due at any time this week.

The draft comes ahead of the AER’s final determination on the DMO, due in May, which will set the reference point for residential and small business retail electricity prices in New South Wales, South Australia and South East Queensland.

In an issues paper published in November, the AER said it “expected significant price increases … and
challenges for consumers and retailers” from July 01, 2023, as part of the ongoing fallout from the global energy crisis.

But Bowen says the federal government’s decision a month later, to impose temporary price caps on the supply of coal and gas to the energy market, had succeeded in pushing down forecast wholesale prices for 2023, thus potentially changing the AER’s 2023-24 outlook.

“While I’m not going to pre-empt the AER’s determination of this, I do want to give some new insight into exactly why the Government had to act in December,” Bowen told the Sydney Institute event.

“In November, the AER advised government that without action, the residential DMO would increase between 35 and 44 per cent in NSW; in SA – 51 per cent; in South-East Queensland, 41 per cent.

“We simply had to act,” Bowen said.

“I expect the draft DMO released this week to be significantly lower than the AER’s predictions pre-intervention.”

Bowen’s predictions of a bit less pain than expected – “cold comfort,” as he also described it – for households and businesses might not be worth getting too excited about, particularly considering they could be proved wrong at any moment.

But his equally non-committal comments about gas appear to have been afforded much more gravitas by some sections of the mainstream media.

Bowen said that while the previous government’s promotion of a gas-led recovery were “a fraudulent concept,” gas was currently still needed, both on the grid and in industrial processes.

“As aging coal-fired power stations leave the grid, that 18% [left over from 82% renewables] will increasingly be focused on gas,” Bowen said.

“Gas is a flexible fuel necessary for peaking and firming as we undertake this transformation. …There will still be a need for gas as a supporting fuel, especially for industrial and commercial users.”

To the AFR, this is the equivalent to a “vigorous defence of the need for additional gas supply” by Bowen who, the paper notes, has previously been “relatively reluctant to publicly champion the role of gas.”

But it’s probably also worth pointing out that the 82 per cent renewable target cited by Bowen is not a cap, and as more coal plants retire, they are more likely to be replaced by more wind, solar and storage.

Gas, AEMO has said, will play a role, but it will not be a significantly bigger one than it is now. South Australia, where the share of wind and solar is more than 70 per cent and the role of gas is decreasing rapidly as it heads to “net” 100 per cent is a case in point.

Bowen’s comments come as negotiations continue with the Greens, Independent MPs and the so-called “balance of power senator David Pocock” on federal Labor’s proposed Safeguard Mechanism reforms.

According to the latest reports, independent MPs Allegra Spender and Zali Steggall are pushing for the addition of an absolute cap or explicit objective that emissions must come down under the safeguard mechanism, while the Greens and, to an extent, Pocock are still pushing for some sort of tangible limit on new gas and coal projects.

“I understand the emphasis on possible new facilities in the public debate,” Bowen says in his speech.

“But this reform is about reducing emissions from all facilities: old and new, industrial and resources based.

“The fact is this: if our reforms are passed, there will be a scheme to ensure emissions come down from big emitters, whether they be old or new.

“If they don’t pass, there will be no such scheme.”