Government caps energy prices - but will your power bill drop?
Global energy demand and prices have skyrocketed, forcing the Australian government to intervene via a National Cabinet deal to limit coal and gas prices.
Key Points
- Energy prices forecast to increase 56% over two years.
- Australian Government has proposed intervening in the gas and coal markets to cap prices.
- Cap does not mean lower bills but could slow price increases.
National Cabinet agreed to the following measures to reign in rising energy prices:
- Gas price will be capped at $12 a gigajoule for a year for uncontracted gas with the ACCC responsible for policing the cap.
- A mandatory code of conduct will be established to force gas to be sold at “a reasonable price.”
- New South Wales and Queensland Governments have agreed to put a ceiling on the price of coal used for electricity generation at $125 a tonne.
- $1.5 billion has been committed to provide power bill discounts, especially for low-income consumers.
- Establishment of a Capacity Investment Scheme to support $10 billion of private and public sector investment in clean, dispatchable storage and generation.
Household bills expected to remain high, but the rate of increase slowed as a result of these measures.
Some critics describe the measures as “reckless” and “radical”, claiming it will increase the risk of blackouts by killing exploration and cutting supply.
The proposed code of conduct has sparked fierce opposition from the gas industry, describing it as near nationalisation of the industry.
However, Treasury said the code will “guide participants’ behaviour” and the plan would “ensure that our wholesale gas markets deliver adequate supply at reasonable prices and on reasonable terms to domestic users”.
In the face of these threats, government has raised the ante, suggesting it might consider making the code of conduct permanent and put in place a gas reserve policy, as is operating in Western Australia.
Meanwhile energy intensive industries, such as large aluminium smelters, have welcomed the market intervention in the face of crippling energy bills.
The Business Council of Australia has also welcomed the price relief for households and small business but have warned. “Without careful management, the long-term consequences of dramatic intervention could end up making the problem much worse.”
Clearly, energy politics are unlikely go away despite this government intervention.
As the Australian Financial Review noted, government’s ability to transition the energy sector to renewables faces an uphill battle if the current events result in rising energy prices for consumers.
Government needs to do all it can to reign in price rises if it wants to keep inflation and cost of living pressures in check.
