ENERGY: by Peter WestmoreNews Weekly
High electricity prices to soar: study
, April 14, 2012
For decades, Australian families were able to rely on the ready availability of low-cost electricity, based on an abundance of low-cost coal, to maintain their standard of living.
No longer. A study commissioned by the Energy Users Association of Australia (EUAA), and released last month, shows that Australia’s electricity prices have risen in recent years to near to the highest in the developed world, and seem certain to reach the highest.
The study, Australian Electricity Prices: An International Comparison, was conducted by the energy economics consultancy, Carbon + Energy Markets (CME).
The study is an exhaustive examination of consumer prices of electricity in each Australian state and territory, and a comparison with similar countries, provinces and states overseas.
CME attempted to compare commercial and industrial electricity prices as well, but were unable to get up-to-date figures for Australia. (Most other countries publish such figures.)
The study looked at how electricity prices around Australia had changed from 2002 to 2007, then at what had happened since 2007, and compared current prices with those in about 90 other countries, states or provinces.
It then looked at what is projected to happen over the next two years.
In the five-year period from 2002-2007, CME found that the average price of electricity for households in Australia was approximately constant in real terms. But in the next four years, prices rocketed upwards by about 40 per cent in real terms.
In contrast, the price of electricity in Japan and Canada has been approximately constant in real terms since 2002, while the price in the US has risen by just 10 per cent.
The CME report concluded: “As a result of these increases, average prices in Australia are now about 10% higher than average prices in Japan, 20% higher than the EU, 70% higher than the US, and 130% [higher] than Canada.”
Little wonder Australian manufacturers have great difficulty surviving against overseas imports.
The report charted the retail price of electricity in the Australian states and territories in 2011, and compared it with about 90 other electricity markets, including all the nations of the European Union, many states of the US, New Zealand, Canada, Japan, Scandinavia and a number of countries of Eastern Europe.
Significantly, household prices for electricity in the Australian states were clustered at the top end of the chart, with South Australia, New South Wales, Victoria and Western Australia just below the highest-priced countries, Germany and Denmark, where the price of electricity is approaching 30 cents per kilowatt hour (kWh).
Electricity prices in Queensland and Tasmania are considerably lower because of, respectively, the abundant supplies of open-cut black coal in Queensland and the availability of abundant hydro power in Tasmania. The Greens have opposed both sources of power.
Despite the introduction of emissions trading schemes and subsidies for alternative energy across Western Europe, Australian electricity prices in 2011 were above those in most parts of Europe.
In contrast, energy prices across the United States and in Canada were significantly below those in Australia.
The CME report also examined electricity prices, based on 2007 prices, to see whether the appreciation of the Australian dollar against the US dollar and the euro had distorted the recent price rise. It found that currency variations had an influence, but, even using 2007 exchange rates, electricity prices in Australia were higher than the average in the European Union and Japan, almost double those in the United States, and almost three times as expensive as household electricity in Canada.
In releasing the report, the Energy Users Association of Australia said, “The electricity reforms of the 1990s supported our competitive advantage in energy but little has been done since.” These reforms included the privatisation of electricity generation and distribution in most states.
However, these reforms helped create the recent price surge, by creating a national wholesale electricity market, which pushed base-load power prices so low that the main generating companies had no incentive to expand base-load power, and every incentive to expand peak-load output, which could be sold at far higher profits.
The fact is that the regulatory system put in place at the time failed to expand base-load power supplies to keep up with demand.
This has now been compounded by the rush to subsidise “green energy”, and a failure to build new base-load coal-power stations, or expand older ones.
While the report suggested that Australia’s electricity prices have been rocketing upwards since 2007, worse is to come.
The Australian Energy Markets Commission estimated that, in the past two years, average electricity prices in Australia had jumped from 19.3 cents/kWh to 24.8 cents/kWh, and would rise to almost 30 cents/kWh over the next two years, as a result of the introduction of the carbon tax, the mining tax and long overdue infrastructure investment.