Jumping electricity prices – It’s a gas, gas gas

Thanks to our embrace of rooftop solar, more of our summer peaks are being satisfied by this clean, cheap energy. But the markets are again finding themselves at the mercy of the gas cartels who can manipulate pricing by abusing the one advantage of gas generation – fast response.

I penned an article back in February 2016, forecasting a price increase after this summer and it looks on-track to be bigger than imagined.

The average spot price this January hasn’t dropped below 8.3 c/kWh in NSW, and in Queensland it is sitting at an incredible 23c/kWh. The chart below shows a snapshot of prices for the first half of January and it isn’t a pretty sight.

We will focus on Queensland as this is a standout in gas driven, price gouging as the lack of government regulation sets the cartels loose on residents and industry. A typical residential bill per $100.00 is made up as follows:

• Network (connection) charges $48.00
• Retailer costs (churn, billing, profit) $21.00
• Metering costs (now in addition to network costs) $ 3.00
• Green Schemes $ 3.00
• Wholesale energy prices $25.00

Total            $100.00

According to AEMO, the average wholesale electricity price in Qld for last January was $0.052 and annually it was $0.06 per lWh. At $0.23 per kWh this month this represents a four-fold increase in prices so the flow-on effect is sure to be significant, and it’s all because of Gas.

According to AEMO data, the scheduled generation for 19^th January for Qld is 7.5 GW, the actual demand is approaching 9 GW, so who takes up the slack? Unscheduled gas.

Because gas generators don’t need to run constantly to keep the boilers hot they don’t need to commit to generating power, so they simply sit back and wait for the demand to rise before punching up spot prices, knowing full well that they can charge what they like given they don’t have to generate anything if they don’t want to, leaving the state in an energy crisis.

This is like selling rice to a starving person at a premium because you become the only source, and the government is the main beneficiary, through majority ownership of these generators.

As mentioned last year, there is a genuine capacity for 3 gigawatts of solar in Queensland. This capacity is currently being displaced by what should be peaking or reserve gas generation, however gas is now a baseload contributor at peaking prices, there is something very uncompetitive about this situation and if the government didn’t benefit something would be being done about it!

Generally, the effect on households is expected to push the price of a kilowatt hour close to 30 cents, for business however the effect is going to be much more significant.

Where large consumers paid basically a low contract rate close to the wholesale rate for their energy plus a demand charge of around $23.00/kvA , energy prices made up only a small portion of the bill.

In the last two years saw 40% rises in forward supply contracts and are likely to see a similar increase this year a whopping jump from 5-7c to 12-15 cents! This is great for the future of rooftop solar for commercial premises, but an increased uptake of commercial solar will only serve to exacerbate the situation in terms of gas gouging as less coal fired power remains in the mix.

Unless the government intervenes soon and both regulate these gas barons and get some serious large scale built, Queenslanders will remain stooges for tax by stealth on both network and supply charges, and have no fear that the same situation will be played out across the National Electricity Market in years to come.

Rob Campbell is director of Vulcan Energy.