Why energy prices are really going up

The Australia Institute has released its 15th annual instalment of the country’s largest and longest running research on attitudes to climate change and energy.

The survey of 2691 people found most Australians blame rising electricity prices on the privatisation of generation and supply, the profit margins of energy companies and excessive gas exports making domestic supplies expensive.

The release of the left wing think tank’s report comes as the federal government faces pressure to bring down energy prices amid a row between NSW and Western Australia over gas policy.

The Albanese government’s first budget forecast a 56 per cent increase in electricity prices over the next two years, with gas prices also tipped to rise 44 per cent in the next 18 months.

Outages at coal-fired power stations, as well as the war in Ukraine and corresponding sanctions on Russian fossil fuels, have combined to drive a sharp increase in the wholesale price of gas over the past six months.

Wholesale electricity and gas prices in the National Energy Market tripled during the June quarter compared to a year earlier.

Supply shortages and soaring prices have developed even though Australia is one of the world’s biggest producers of liquefied natural gas.

The Australia Institute’s energy director Richie Merzian said the contradiction had arisen because successive governments had left the country vulnerable to high energy prices.

“We’re the third largest exporter of fossil fuels in the world after Russia and Saudi Arabia – we should be enjoying the benefits of ample supply,” he said.

“But that’s not the case and this is not a quirk — it’s a design feature.

“We’ve designed our power system to be completely vulnerable, at least on the east coast. We don’t have a gas supply problem. We have a gas export problem.”

Mr Merzian said Australia’s east coast was open to gas exports without the government ensuring a proportion of the supply be reserved for domestic use as it was in WA.

WA requires 15 per cent of its gas production be kept for its market, keeping prices in the state well below the national average.

Mr Merzian said research showed the federal government had broad support to intervene in the market to lower prices and shore up supply for Australians.

He said there was a “strong appetite” to introduce a windfall tax on coal and gas exporters’ profits and also to strengthen the petroleum resource rent tax (PRRT) to collect more revenue from these companies.

The survey found most Australians believed the PRRT contributed 11 per cent to the federal budget in the 2021-2022 financial year.

In reality, the PRRT contributed just 0.3 per cent.

The Australia Institute is pushing for a much faster transition to renewable energy.

Mr Merzian suggested in the meantime the federal government cap the amount gas exporters could charge electricity generators to use their product, which would have a flow-on effect to Australians paying their energy bills.

The government has not been able to say when energy prices will come down.

Labor is mulling a range of interventions including price caps, increasing the PRRT and making a voluntary code of conduct for the gas industry mandatory.

Another proposal on the table is capping gas exports from the east coast when energy prices in Australia reach a certain level.

Infrastructure Minister Catherine King has shut down NSW Treasurer Matt Kean’s calls for a national gas reserve that would force WA to distribute some of its supplies to the east.

Anthony Albanese would not say on Wednesday when the government would make a decision on any new policies, despite being warned by the Australian Energy Market Operator that time was running out.

“We understand that there are a range of proposals out there. We want to make sure that we get it right,” the Prime Minister said.

Assistant Treasurer Stephen Jones said the government had sent a “pretty clear message” to exporters that it expected Australian‑based businesses to look after Australian consumers first.

“And that’s what our measures will be doing,” he told Sky News on Wednesday.

“We don’t want to rush into something only to discover that something that has been designed to provide some short‑term relief is actually going to create a bigger problem than the one it was trying to fix.”

Australian Competition and Consumer Commission chair Gina Cass-Gottlieb has reportedly backed a mandatory code of conduct to toughen gas market regulation.

“We recommended a set of steps to make those commitments binding and enforceable,” she told a conference hosted by the University of Melbourne and The Australian newspaper on Wednesday.

“One option … is a mandatory code rather than a voluntary code. So we do provide evidence and data from 2017 where we’ve been tracking these questions.”

Former Australian Competition and Consumer Commission chair Rod Sims has urged the government to threaten the gas market with export controls if they fail to reserve enough supply to bring down domestic prices.