Consumers warned of looming ‘nightmare’ as AEMO reports record wholesale electricity costs

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Millions of Australian households have been warned to brace for savage hikes to their power bills after prices in the country’s biggest electricity market rocketed to their highest levels on record.

In a report released today, the Australian Energy Market Operator (AEMO) said wholesale power costs soared to unprecedented levels in the three months to June 30 amid the crisis engulfing the energy system.

Average prices for the quarter were $264 per megawatt hour — an extraordinary 203 per cent increase on the first three months of the year, and about six times higher than the long-term trend.

It was a similar story in the eastern states gas market, which AEMO noted posted a record average price of $28.40 a gigajoule (GJ) for the quarter, compared with $8.20/GJ for the same period last year.

The unprecedented highs sparked warnings from industry experts that consumers would see massive price hikes as electricity providers sought to recover surging costs.

Unlikely to be a ‘one-off’

Bruce Mountain, Victoria Energy Policy Centre (VEPC) director at Victoria University, said households and businesses had only just begun to feel the effects of spiralling wholesale costs, and much worse was coming.

“We haven’t ever seen prices reach these levels,” Dr Mountain said.

“They’re about two to three times higher than the highest quarterly average that we’ve ever seen and that highest quarterly stood out as a one-off.

“I’m not sure that this quarter is going to stand out as a one-off.

“This is unprecedented.”

In today’s Quarterly Energy Dynamics Report, AEMO catalogued a series of crises that culminated in it seizing control of the national market in June — the first time it had taken such a drastic step.

While noting there were many reasons behind the upheaval, AEMO said one of the biggest was a lack of coal-fired power generation at various times.

It said output from the coal fleet was down almost 10 per cent for the quarter, which slashed the capacity of the system as demand surged during a cold snap.

Market ‘impossible’ to operate

According to AEMO, the shortfall of coal capacity left gas-fired generation playing an outsized role in the market at the same time as prices for the fuel reached stratospheric levels.

It also contributed to the decision by AEMO to impose price caps across the market to shield users from even higher prices.

“The scale of interventions needed to manage the extent of reserve shortfalls made operation of the market … impossible,” AEMO said in its report.

AEMO has since lifted its suspension of the market but is facing compensation claims from generators.

The claims are believed to be worth hundreds of millions of dollars.

Earlier this year, the Australian Energy Regulator (AER) and its counterpart in Victoria raised benchmark prices, known as default market offers, by up to 18.3 per cent to account for rising wholesale costs.

But Dr Mountain said the decision was taken before the National Energy Market, which services more than 10 million customers across the eastern seaboard, descended into chaos.

He noted many smaller retailers with heavy exposure to the wholesale market had since been forced to jack up their retail prices to as high as 100 per cent, with a number facing ruin.

Dr Mountain said the AER and other regulators would subsequently come under pressure to allow further benchmark price rises to keep electricity providers afloat.

Consumers could need bailing out

Dr Mountain described it as a “very, very concerning situation” for consumers, whose power bills could increase by margins similar to those observed in other crisis-hit markets, such as the United Kingdom and Europe.

“It’s a nightmare for many customers,” he said.

“Small customers have been insulated from the worst effects so far, unless you were a customer with one of the smaller retailers that had an excellent deal.

“I was one and I’ve seen my bill double, but that’s just the start of it.

“For large customers whose contracts come to an end right now and are seeking to resecure power for two or three years in the future, they’re facing extraordinary increases.”

Dr Mountain said Russia’s decision to further squeeze gas supplies to Europe was likely to aggravate the situation by maintaining upward pressure costs.

He said consumers would ultimately end up paying the price for the chaos and suggested government intervention would soon become necessary to help vulnerable households.

“I think there will be many customers that cannot afford electricity at these prices and governments will need to bail them out,” Dr Mountain said.

“Australia’s governments will be under pressure to do something for the households that are most exposed.”

By energy reporter Daniel Mercer (Original ABC Article)