Could the current energy crisis speed the shift to renewables?
As millions of Australians face gas and power shortages, the Energy Users Association of Australia (EUAA) chief executive Andrew Richards calls it “Australia’s biggest energy crisis in 50 years”.
Whilst the new Federal Energy Minister Chris Bowen announced the Government’s 11 Point Plan to manage this energy crisis; he suggests that there’s no “silver bullet” for the current situation, at least in the short term.
The energy crisis isn’t good news for Australians, who now face a significant rise in living costs with the price of gas, electricity and petrol all surging.
It’s also not good news for our environment, with a recent report stating that despite the growth of renewable energy, Australia’s per capita coal emissions of 4.04 tonnes a year is nearly four times the global average. ^
The impact that our energy consumption and pricing is having on the affordability of living in Australia and the destruction to our environment signals yet again the need to shift focus to renewable energy sources as a long term solution.
What is causing the crisis?
Roughly 40% of Australia’s electricity supply is reliant on coal. While Australia extracts enough coal and gas to sustain its own needs, it is also part of the global trading market which sees us export most of our fossil fuels overseas.
Australia has worldwide supply agreements in place to export to foreign markets. These agreements can not be reduced or revoked in the short term,, even if Australia is facing shortages and increased demand. This means that Australia is almost entirely dependent on imported energy which makes us vulnerable to global supply pressures, disruptions and price hikes.
With coal and gas (and oil) prices increasing worldwide and the cost to transport going up, it has resulted in the cost of generating energy and electricity from these fossil fuels is also rising, driving the increase in wholesale energy prices in Australia.
A combination of short and longer-term local and global economic, political and weather-related events have contributed to the rising energy price spikes. These spikes result from sharp, unpredictable increases in demand, resulting in a higher cost of wholesale electricity for retailers and consumers.
Locally, this has resulted from unplanned outages at coal-fired and gas plants that aren’t running at total capacity, with many facing forced shutdowns to maintain outdated facilities and technology.
The recent extreme weather that saw flooding events in New South Wales and Queensland also affected the coal supply, and the interruptions have flow-on effects.
Compounding this globally is the war in Ukraine. As Russia is one of the world’s biggest energy suppliers, the war in Ukraine has seen sanctions put in place that restrict the import of Russian oil and gas to Australia (as well as the US and Europe). Globally, there’s a much higher demand for gas, coal and oil from other countries forcing the price increase for those commodities.
The impact on pricing for us as consumers during this energy crisis
These events have all impacted wholesale electricity prices, which is the price that retailers pay for the electricity that they then supply to their customers.
To protect customers, the Australian Energy Regulator (AER) has updated its default market offer, which is essentially a cap on how much electricity retailers can charge customers. But even with this protection in place, future increases are likely, at least in the short term.
What does it mean for the future of Australia’s energy market, and could it speed a shift to renewables?
The adoption of renewable energy sources could help reduce energy prices, but unfortunately, it isn’t a quick solution or fix.
The transition of Australia’s energy production away from coal-fired power plants to renewable energy generation is a long term strategy. The transition stage of moving from fossil-fuel generation to renewables requires significant investment into new infrastructure and technology. With the likelihood of more extreme weather and higher demand, we are likely to see large price fluctuations during the period it takes to transition away from fossil fuels. Experts suggest that increasing energy prices are likely to continue until there is sufficient hydropower development and battery storage that meet government targets.
It’s time for Australia to move towards greener energy sources and energy solutions that tackle lower emission standards.
So, what can you do in the short term to save on electricity?
With future increases likely, now is a good time to shop around to compare pricing between energy providers.
The Australian Energy Regulator (AER) suggests, “Residential customers can currently save around $443, or 24 per cent, off their bill, and small businesses can save around $1,308 or 29 per cent by switching,” through switching providers.
You can use their tool to compare prices in ACT, NSW, Queensland, SA and Tasmania.
If you live in Victoria, you’ll need to use a separate comparison site to compare prices in Victoria.
It may also be an excellent time to review your energy consumption habits and become savvier with saving electricity at home or work. If you’re looking for simple tips on saving on your electricity bill, the ABC has some good advice.
This blog is published by Verve Superannuation Pty Ltd (ABN 65 628 675 169, AFS Representative No. 001268903), which is a Corporate Authorised Representative of True Oak Investments Ltd (ABN 81 002 558 956, AFSL 238184).
Verve Superannuation Pty Ltd and True Oak Investments Ltd are not licensed to provide personal financial advice. The information contained in this blog, including any financial guidance, is general in nature. You should consider seeking independent legal, financial, taxation or other advice to ensure that your financial decisions are suited to your unique circumstances.