Australian Energy Regulator's power price shock fuels political point-scoring but few real solutions

Beware politicians promising cheaper power.

That is the message from one of the country’s most experienced energy experts, who says Australia must face the reality that power prices will continue to rise until all parties work together to find a solution.

The warning comes as the Australian Energy Regulator (AER), which sets default electricity prices for South Australia, New South Wales, and south-east Queensland, warns residential customers to expect increases between 2.5 per cent and 8.9 per cent, depending on their region. Small business customers could see rises of between 4.2 per cent and 8.2 per cent.

Opposition Leader Peter Dutton seized on the announcement, calling for Energy Minister Chris Bowen to be sacked for failing to deliver Labor’s election commitment to reduce power bills by $275 by 2025.

“I think it’s abundantly clear to all Australians now that the government’s renewables-only energy policy is a disaster for families and for small businesses,” Mr Dutton said.

“Frankly, today, if the Prime Minister doesn’t sack Chris Bowen, I don’t know when he would sack him. He deserves to lose his job over forcing up electricity prices for Australians yet again.”

However, Tony Wood, energy and climate change program director at the Grattan Institute, said extravagant promises to lower power prices had been a feature of multiple governments.

“The current government promised price reductions, but the previous Coalition promised price reductions. Peter Dutton is promising lower prices in 2040 with nuclear,” Mr Wood said.

“The promises these governments, of all politicians, have made, most of them are not going to happen and the real problem is that a lot of the things that really cause issues to do with power prices often aren’t even under control of government.”

The AER cited “multiple and varying factors” as reasons for the price hikes, but Mr Wood said the key drivers were the rising cost of network administration — including expanding transmission lines to renewable energy zones — and a jump in wholesale energy costs.

Wholesale prices have been volatile, he said, driven by outages at coal-fired power stations, extreme weather events affecting renewable energy supply, and the need for expensive backup gas to fill the generation gap.

Compared to two years ago, when wholesale prices surged by 20 per cent due to coal mine flooding, outages at ageing coal-fired power stations, and increased gas usage, this year’s five to eight per cent projected increases were less severe, he said.

“The biggest price driver today is wholesale electricity costs, primarily due to ageing and unreliable coal-fired power stations. While connecting renewables requires investment in transmission, renewable generation itself is cheaper,” Mr Wood said.

“The issue is that we haven’t invested quickly enough in the necessary grid upgrades and storage to ensure reliability as we transition away from coal.”

With electricity output failing to meet demand, cost-of-living relief measures — such as federal and state government energy rebates — could become a key election issue. Mr Wood said he was hearing that both major parties were discussing energy relief as part of their election strategies.

Asked about the possibility of further support, Mr Bowen told reporters the Government would “consider what more can be done.”

“There’s a budget coming soon, and we’ll continue that approach of considering what more we can do,” Mr Bowen said.

Structural issues require long-term solutions

Energy demand is expected to nearly double by 2050, according to the Australian Energy Market Operator (AEMO), as consumers increasingly switch from gas to electricity for home heating and cooking, and as electric vehicle uptake rises. The rapid expansion of data centres is also expected to put additional pressure on the grid.

AEMO forecasts that 90 per cent of Australia’s coal-fired power plants will be closed by 2035, and all will be shut by 2040. Replacing them will require a six-fold increase in grid-scale solar and wind, a four-fold increase in rooftop solar, and 15 times more battery storage.

Connecting 127 gigawatts of new grid-scale renewables by 2050 will require almost 10,000km of new transmission lines, at a projected cost of $16 billion.

Mr Wood said that given the scale of the transition, all energy options should remain on the table, including lifting the moratorium on fracking coal-seam gas in Victoria and exploring small modular nuclear reactors — should they prove viable.

“There are no commercial small modular nuclear reactors anywhere in the world, but there’s lots of people working on it, so we’ll see. That’s not going to deliver anything in the next 10 to 15 years, and maybe not even 20. And if this is really going to be a cost-of-living election, it’s not going to affect the cost of living people are worried about.”

Replacing ageing coal fleets also makes little economic sense, he said.

“These power stations have been very loyal friends for so long, but they’re now at the end of their economic life, and replacing them is more expensive (than renewables). All the numbers I’ve seen, and those numbers are from people who are not fundamentally against or for coal will say that,” Mr Wood said.

Rooftop solar’s impact on coal and grid stability

The rapid uptake of rooftop solar is another reason new coal plants don’t stack up economically. Australia’s east coast energy prices regularly go negative during the day as households dump excess solar power into the grid.

Griffith University energy economist Paul Simshauser’s analysis of the Queensland grid found that “non-curtailable ... uncontrollable rooftop solar PV” output was straining ageing coal plants, which need to maintain minimum loads to avoid turbine breakdowns.

Mr Wood said demand for rooftop solar had not slowed, meaning more capacity would continue to flood the market during the day, further exacerbating grid stability issues.

Given the strong consumer appetite for rooftop solar, he said a better use of taxpayer funds would be supporting greater uptake of household batteries and electrification of appliances.

The politicisation of energy is harming the transition

The politicisation of energy prices was becoming a disaster for the country, Mr Wood said, with ideology interfering with good policy. He cited Labor’s ban on nuclear, the former Victorian Napthine government’s moratorium on fracking to protect landholders, and Tony Abbott’s rejection of climate action.

He argued that no country had fully “got it right” when it came to the energy transition, but many were now looking to Australia for leadership.

“The thing that frustrates me is we are not having the political debate around the really important issues. We’re having what (politicians) think are politically clever but not the issues that are really substantial if we’re going to make this transition,” he said.

Could a hung parliament improve energy policy?

Asked whether the growing influence of the teal independents could lead to better policy outcomes, Mr Wood said he had recently provided a briefing to them on nuclear energy.

“To be honest with you, a few years ago, I would have said, look at these. ‘All these independents do is they screw something just for their own personal purposes, out of government and life goes on’. I couldn’t be changing,” he said.

“You know, I think the Greens, they’re not really a political party, they’re a group of very passionate advocates, so they don’t know how to compromise.

“I think the current generation of independents, including the teal independents, David Pocock, are very smart, capable. They’re very committed to what they’re trying to do.

“There’s a number of issues. I mean, climate is one of them, but there are two or three others, as you would know, maybe they will have a real influence on getting a better outcome, and maybe they will be the ones who helped join this together in a way that is not so acrimonious.”