Already expensive electricity will rise

Lack of significant Government intervention in the gas market could lead to households in Queensland, New South Wales and Victoria facing hefty electricity bill increases says the McKell Institute.

While Australia may become the world’s largest producer of LNG this year, the report states up to 70 per cent of East Coast LNG is exported; leaving shortfalls here at home and boosting the price of gas locally.

“It is ironic that Australia, as the eminent world leader in gas exports, is subject to the world’s highest gas prices,” says the new report from McKell.

The Institute states the impact of wholesale gas prices on consumer energy costs is greater than gas-fired power generation’s contribution to Australia’s energy mix as these generators are often the marginal supplier and as such, set prices.

In June last year, the Federal Government announced reforms intended to address domestic supply issues – the Australian Domestic Gas Security Mechanism (ADGSM). However, the McKell report states the reforms to federal gas policy have not translated into price reductions and there are concerns the ADGSM isn’t nimble enough to meet immediate shortfalls.

“While the introduction of the ADGSM is one step towards guaranteeing more certainty in the Australian domestic gas market, it is likely insufficient in providing long-term certainty, and is certainly not a panacea for escalating wholesale gas prices on the East coast,” states the report.

Based on ACCC advised figures of where the wholesale gas price should have been last year, current Government policy settings and price and consumption trends, McKell forecasts the following increased annual electricity costs over “realistic and desired rates” by 2019.

  • New South Wales: +$434
  • Queensland: +$312
  • Victoria: +$254

Under a worst-case scenario (gas at $19/GJ) , the outlook is much grimmer:

  • New South Wales: + $660
  • Queensland: +$579
  • Victoria: +$443

To avoid this scenario, further action is required to guarantee domestic supply and put downward pressure on gas prices say the authors.

The McKell Institute report, commissioned by the Australian Workers Union, can be downloaded here (PDF).

The report is at odds with the Australian Energy Market Commission’s outlook published in December last year. The AEMC believes electricity prices should drop in the three states over the 2017/18 to 2018/19 and 2018/19 to 2019/20 periods.

In related news, RenewEconomy’s Giles Parkinson reported yesterday the Tesla big battery in South Australia is already bringing Australia’s gas cartel to heel.