Australia’s energy woes are mounting with the market operator warning of potential gas supply shortages on Thursday, one of the largest generators issuing a profit warning and more retailers turning away customers as wholesale power prices soar.
Just hours after new treasurer, Jim Chalmers, warned of “this perfect storm of energy price spikes … doing enormous damage to our employers, to our households, and to our national economy,” spot power prices were soaring towards $1,000 per megawatt hour in most of the east coast grid after an alert – now cancelled – that Victoria was facing evening reserve shortages.
Nudging $1000 per megawatt-hour in the National Electricity Market this evening (even as the Lack of Reserve, level 1, was cancelled for Victoria.) (Source: @AEMO_Energy ) pic.twitter.com/Ff35qNhL2b
— Peter Hannam (@p_hannam) June 1, 2022
More concerning, though, was a separate warning by the Australian Energy Market Operator (Aemo) that it had identified a possible shortfall of gas supplies in Victoria, South Australia and Tasmania on Thursday amid an ongoing burst of cold weather.
The potential gap was due to low reserve conditions linked to pipeline capacity “or market conditions and generators running on liquid fuel due to lack of gas supply”, Aemo said. The regulator is convening a conference of relevant parties to assess the issues.
Regulators intervened on Monday to cap gas prices in Victoria’s wholesale market at $40 per gigajoule, or about four times the typical prices, because of unusually high demand as the cold snap arrived. A separate price fixing was made in Sydney and Brisbane after the exit from the market of gas retailer Weston Energy on 24 May.
Australia’s exposure to the global leap in energy prices in the wake of Russia’s war on Ukraine and subsequent sanctions is one factor pushing up energy prices in Australia. An additional issue has lately been outages at major coal-fired power plants in the eastern states – with as much as 30% of capacity offline – that has required the burning of more high-cost gas.
Households and small businesses were warned last week that their standard power prices would rise as much as 18% from July mainly because of those steepling wholesale prices that doubled in the year to March and have doubled again since.
The annual reset of the default market offer was postponed from its usual 1 May release after the Morrison government changed the regulations so that it landed after the 21 May federal elections.
“These are the costs and consequences of almost a decade now of a government with 22 different energy policies, failing to land the necessary certainty to improve the resilience of our energy markets,” Chalmers said. “This is the chickens coming home to roost when it comes to almost a decade now on climate change and energy policy failure from our predecessors.”
Chalmers said there was “no simple medicine that would immediately take the pressure off … If there was one, then somebody would have already reached for it”.
More evidence of fallout from the market surfaced on Wednesday with Origin Energy, one of the big three energy companies along with AGL and EnergyAustralia, issuing a stock market alert warning of erratic coal supplies to its Eraring power station in New South Wales.
The 2,880-megawatt plant, Australia’s largest generator, has seen its coal supplies deteriorate “significantly” in recent weeks from its Mandalong mine. Origin lowered its projected profit forecast by about a third for this financial year, cutting it from $450m-$600m to $310m-$460m.
It also scrapped its 2023 financial year earnings target, saying there was “a very high degree of uncertainty” in part because it was still finalising its coal contracts.
Investors reacted sharply, sending Origin’s shares tumbling almost 14%, wiping about $2bn off the company’s market value in the process.
More retailers could also follow the course of ReAmped Energy, which on Wednesday told its 70,000 customers across multiple states they should find a new retailer or face a doubling in their bills.
Amber Energy, another retailer, is telling its customers that they understood many “may be looking around at what other energy providers have to offer”.
“It’s important to understand that what’s happening in the energy market is affecting all retailers and many retailers are likely to raise their prices in July, when the new financial year begins,” it said.
Ranya Alkadamani, a spokesperson for Amber, said the company has “hedges in place to make sure that we can protect our customers with our price guarantee, which sets the maximum average prices we’d charge over a 12-month period.”
However, customers with solar and batteries, especially those on SmartShift, who were earning the same price for their power as large coal and gas generators by exporting to the grid, could actually do well during this period, she said.
Diamond Energy, another retailer, was delaying taking on more customers under its “Switch4Good” program.
“With the significant increases in wholesale electricity prices, we are expecting to increase our rates and amend our discounts and solar feed in tariffs,” it said. “If you are seeking to switch to us from another electricity retailer, we will delay your transfer until we notify you of our new rates.”
Analysts warned that conditions could still get worse. “It’s a world of pain, basically,” said Gavin Dufty, an energy analyst with St Vincent de Paul.
Customers forced to find a new retailer if theirs goes under would have to pick up a charge under the Retailer of Last Resort provisions, Dufty said. They could also find themselves on worse deals or some retailers may reject them if they have debts outstanding.
“On top of all that, particularly in Victoria, once you change retailers, you’ve got to reapply for all your concessions,” he said. “They don’t follow you around.”
Paul McArdle, managing director of consultancy Global-Roam, said the market had not experienced such turmoil since the end of the millennium drought in 2007-08 and the abrupt closure of Victoria’s Hazelwood power plant in 2017.
Among the culprits for the present problems was the connection of the east coast to the international market. Many warned this would make the local market “more susceptible to this sort of thing, and the government’s didn’t listen”, he said.
Pradeep Philip, lead partner of Deloitte Access Economics, said “we shouldn’t be surprised that we’re starting to see the effects of a disorderly transition” off fossil fuels.
“We’ve let this thing drift too long,” Philip said. “Now the market’s exacting a price.”