Government urged to find solution on energy transition

Rising energy prices have sparked the need for the government to find a fit-for-purpose solution to prevent a potential energy crisis.

8 June 2022 

The Labor government has been under pressure from business and industry groups to address the growing cost of energy, which has been pushed up by both international and domestic factors.

Climate and Energy Minister Chris Bowen had met with state and territory energy ministers, the Australian Energy Market Operator and the Australian Energy Regulator on Wednesday to discuss the current energy crisis and help determine the government’s policy response and next steps.

The last week has seen a dramatic escalation of warnings about an energy price crisis for residential and business consumers in many parts of the country. 

The Climate Council Councillor and former President of BP Australasia Greg Bourne, said consumers, manufacturers and everyone in the economy was now being squeezed by soaring fossil fuel prices.

“We knew this was coming. The oil and gas market has always been geopolitical, with inherent extreme price volatility, which rocks the world in times of crisis,” he said.

“Previous responses have been to explore and develop more oil and gas, setting ourselves up for the next crisis in which the oil and gas companies reap super profits while consumers reap the misery. When will we learn?

“We must turn our back on traditional self-serving responses and accelerate our investments in renewable energy and storage to help protect ourselves from volatility, lower our emissions, create new industries and become more self-sufficient.

"The Albanese government has a strong mandate for game-changing climate action. We need to see them put that into action now, to protect households and businesses from future price shocks and to strengthen our economy into the future."

Australia was seeing astronomical energy prices due to high international coal and gas prices driven by sanctions on Russia.

This combined with local constraints due to problems with ageing coal-fired power generators and supply issues were significant causes of the price spikes.

David Leitch, principal, ITK Services said electricity prices had also risen firstly because La Niña had disrupted NSW and QLD coal supply. 

“Supply to NSW generators is just 60% of the level two years ago and coal exports are down,” he said.

“The coal supply shortages, power generator breakdowns, coal prices at five times historic levels and seasonally weak renewable energy, has increased demand for gas by 15% of normal east coast demand. This has pushed gas prices very high.

"So in short, rain, high international prices, old coal generators and winter have seen electricity prices rise. The good news is that when the rain stops and spring comes things will improve a bit."

Institute for Energy Economics and Financial Analysis lead research analyst, Johanna Bowyer, said solutions to this situation required increasing the energy efficiency of households.

"This includes accelerating the build-out of renewables, storage and transmission, facilitating an orderly exit of increasingly unreliable coal generators, and protecting domestic gas users from being exposed to high international gas prices by redirecting a small proportion of exports to the domestic market," she said.

Meanwhile, the Australia Institute Climate & Energy Program Director, Richie Merzian said Australia did not have a gas supply problem, it had a gas export problem. 

“As long as Australia remains dependent on gas and coal, Australian consumers will be over the barrel of global fuel prices influenced by events beyond our control," Mr Merzian said.

“Allowing global coal and gas companies to export vast quantities of our resources may have seemed like a good idea at the time, but it has locked us into exposure to volatile global prices, making Australians vulnerable to price shocks from global circumstances beyond our control.

“As a matter of urgency, the newly sworn-in Minister for Climate and Energy should examine options to curtail gas exports to safeguard a sufficient affordable gas supply for Australians in the short term. 

“In the medium term, this government should look to do everything possible to speed up electrification, helping households get off expensive gas. This would not only save households from skyrocketing energy bills, but free up gas resources for industries that will take longer to transition.

“The only long-term solution to expensive fossil fuels is to get off them and that requires political leadership.”

Carbon Market Institute CEO John Connor said the current energy crisis was a stark reminder of some of the pain points Australia was going to see as part of the transition to net zero emissions and the need for planning to manage this transition. 

"Clearer guidelines are required for energy providers and broader industry to guide a smoother transition and assist their decarbonisation journey," he said.

“Stronger productivity and energy efficiency initiatives will certainly be required in the short term, but policies such as a strengthened safeguard mechanism will also be important in guiding longer-term investments into clean technologies and reducing exposure to some of the volatilities in coal, oil and gas.”

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