May 2017

The Australian energy crisis – is it still a crisis or just the new norm? 

In the last four month’s we’ve seen an abundance of news documenting the Australia Energy Crisis. This followed a string of Government announcements including a 90 million dollar placeholder in the budget to focus on:  

  • A bioregional assessment program ($30.4 million) 
  • $28.7 million over four years to encourage and accelerate development of onshore gas for the domestic market  
  • $6.6 million to the ACCC to undertake inquiries into competition in retail electricity and gas markets 
  • $19.6 million over four years to the Gas Market Reform Group to facilitate gas trading 
  • $7.95 million to the Australian Energy Regulator  

In the months and years leading up to the energy crisis industry groups, business leader, consultants and market experts were all talking about the impact of LNG exports, the need for certainty around energy and carbon policy settings and our ageing coal fired assets. Unfortunately, corrective actions were pretty much ignored and here we are, we have a crisis.  

At present - the crisis is reaping havoc on Australia industries that heavily rely on affordable energy supply. The situation has become so bad that it will significantly impact the viability of some industries.   

One of my best friends (Google) tells me the definition of a crisis is “a time of intense difficulty or danger” however for obvious reasons it doesn’t define the timeline that crises occur. With respect to the Australia Energy Crisis I think the question we need to ask now is - are we still in a crisis or is it the new norm? 

The Government intervention into the domestic gas market to ensure security of supply is a small win, however we’re yet to see any return to what would historically be considered normal gas and electricity pricing. Although, in the last month it does seem that the east coast whole electricity markets may have plateaued, when I say plateaued what I really mean is pricing is squatting on top of a very tall mountain and behaving badly while up there.  


 

I wouldn’t call myself a market expect by any means, but examining the first half of April the Queensland futures market saw prices swings of over $5/MWh which is quite alarming. Not only is the price at historical highs, it’s also extremely volatile.   

 

 

Figure 1: data source, AEMO website https://www.aemo.com.au/Gas/Short-Term-Trading-Market-STTM/Data 

On top of that, the average east coast wholesale gas price has started the year well above the last 5 and we haven’t even hit winter yet. With increasing reliance on gas fired generation in the National Electricity Market (NEM) large gas and electricity users are now snookered into a situation that seemed so avoidable.  

I have faith that Australia Businesses are good at embracing change, however its near impossible for large organisations to react as quickly as the market has changed and that’s a key issue.  

At least at the time of carbon pricing businesses were clear about the cost and knew it was coming, not that anyone is talking about that. 
So, are these new market conditions the economy will need to navigate until we have enough renewable generation online (both utility scale and behind the meter projects)? 

If it is, the best advice I can offer to business leaders is: 

  • Get help: If you’re a large energy user and don’t have an energy expert, get one, either internal or external (or both). It will be an investment that will pays dividends.  
  • Invest: review your options and invest as much as sensible in energy productivity and renewable energy projects.  

Author: Carl Duncan - Director of Smart Business Hub. 

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