Investor News

Something has gone terribly wrong with electricity prices

It's unusual for the ABC to point out the unintended consequences of otherwise well-intentioned climate policy.

The below article, featured today, highlights the outcome of attempts to lower our emissions intensity.

Since 2008 power prices have risen 117 per cent, more than four times the average price increase across sectors.

There was only one brief reprieve in 2014 after the carbon tax was repealed, but that hip pocket relief was short-lived.

The problem appears to be the result of the 'energy trilemma'.

Affordability. Reliability. Low emissions. Pick any two.

Add to this the impact of increased reliance on gas-fired power due to coal plant closures at a time that's also seen gas prices skyrocket due to poor policy outcomes, and you have a perfect storm.

Network cost hasn't helped either. Gold plating has contributed significantly to the issue.

The Federal Government's response to the problem is the National Energy Guarantee (NEG). It seeks to mandate reliability and meet emissions targets with the aim of restoring investment certainty and it claims to do so in a technology-agnostic manner.

Taking a closer look at the details tells us that this claim of agnosticism may not be as objective as we've been led to believe. For instance, the penalty for not meeting reliability targets is $10 million. Failing to meet emissions targets is up to $100 million. Given the choice between the two, electricity retailers will let the lights go out rather than over-emit.

This is trading the carrot (subsidies for wind and solar) for the stick (penalties for using CO2-emitting technologies).

Right now, the Federal Government is fighting to get the states to support the NEG. There will be a compromise. And we suspect that compromise will result in more of the same outcomes - high prices, lower reliability - as states ignore the energy trilemma and seek to impose their own emissions targets, even as countries like China and India increase their total emissions in coming decades, negating our relatively minuscule absolute reduction.

Chart of the day: Something has gone terribly wrong with electricity prices

18 July 2018 | ABC News | Joshua Byrd

Electricity prices are shooting off the charts, up more than four times the overall inflation rate in the past decade.

Source: Chart of the day: Something has gone terribly wrong with electricity prices - ABC News (Australian Broadcasting Corporation)