Homes and businesses on the eastern seaboard will be hit with hundreds of dollars in electricity bill increases and face the growing threat of gas shortfalls this winter as authorities warn that dwindling gas supplies could plunge the market deeper into turmoil.
The Australian Energy Regulator on Wednesday released its draft decision on increases to the main caps on consumer energy bills from July 1, lifting standard power bills by 20-31 per cent.
Adding to pressure on households amid intensifying cost-of-living pressures, the changes will increase “default market offers” – caps on what retailers can charge customers that do not take up special deals – by between $300 and $564 a year.
“Energy prices are not immune from the significant challenges in the global economy right now,” Australian Energy Regulator chair Clare Savage said. “That’s why it’s more important than ever that we strike a balance in setting the default market offer to protect consumers as well as allowing retailers to continue to recover their costs and innovate.”
The looming retail power bill hikes are being driven by last year’s sharp rises in the cost of wholesale electricity across the east-coast grid. The spike was caused by a spate of ageing coal-fired power plants breaking down during peak demand periods, as well as sharply higher costs for coal and gas needed to generate power due to the war in Ukraine driving up global demand and prices.
The hikes, although significant, were not as severe as the rises of up to 50 per cent the AER forecast in December, before the Albanese government intervened in the energy market. In December, the government introduced emergency laws capping the price of domestic gas at $12 a gigajoule for 12 months and domestic coal at $125 a tonne, reducing the cost of running power stations and cutting wholesale prices.
Concerns about east-coast energy prices are set to be brought into even sharper focus this week as the Australian Energy Market Operator (AEMO) releases new forecasts projecting Victorian gas demand could outstrip supplies by as early as this winter in the event of extreme weather conditions.
As gas output from the 50-year-old Bass Strait fields is rapidly drying up, AEMO has become increasingly worried that Victoria could have insufficient available gas during winters from 2023 to 2026 if cold weather drives up electricity and gas demand for heating at the same time as a slump in power generation from wind farms or broken-down coal-fired power stations.
Without new projects, east-coast gas demand is expected to outstrip supply by 2027.
“There is forecast to be a 16 per cent reduction in production capacity this winter compared to 2022 in Victoria, which increases supply pressure in the southern regions,” AEMO chief executive Daniel Westerman said.
AEMO’s report raises the prospect that Queensland’s three exporters of liquefied natural gas (LNG) could be forced to hold back more supplies for the domestic market instead of offering shipments for sale overseas.
LNG producers have told regulators they expect to export 88 of the 146 petajoules of gas they still have available for sale in 2023 to the international market. However, AEMO said if they export that much it could create a domestic shortfall of up to 33 petajoules, a significant proportion of the east coast’s typical annual gas demand of 550 petajoules.
To minimise shortfall risks, AEMO said options included bringing on new gas fields and building infrastructure such as gas storage, pipelines and specialised shipping terminals capable of importing LNG from other parts of Australia or overseas.
Conservation groups insist projection of shortfalls later this decade leaves ample time for governments to develop a strategy focused on reducing gas demand, such as switching appliances from gas to electric and prohibiting new residential gas connections, rather than lifting supply.
State and federal governments are investing in a range of initiatives to cut household use of gas, encouraging people to switch from gas-fired heaters and stoves.
However, AEMO said the increased usage of electrical appliances would nearly double the demand for gas-fired electricity generation by 2042.
A spokesperson for Climate Change and Energy Minister Chris Bowen said gas will be needed to provide backup power for renewable energy, which is providing increasing amounts of electricity to the grid.
They said the government had made a number of moves to ensure sufficient local gas supply, including reforms to deals with gas exporters forcing them to ensure there were no shortfalls in the domestic market.
Social services groups on Wednesday said the looming price hikes would be devastating for low-income Australians and worsen the cost-of-living crisis.
Australian Council of Social Services called on the federal government to update the regulator’s guidelines to lower retail margins, lift JobSeeker payments to at least $76 a day and provide an emergency energy relief payment of up to $2000 for customers in hardship.
Opposition climate change and energy spokesman Ted O’Brien said the rise in power bills showed the government was failing on its election commitment to lower prices by $275 by 2025.
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