Monday, February 21, 2011

Get set for higher power prices, with or without a carbon price

A delay will make things worse

Electricity and gas prices are set to soar with or without a carbon price according to new study, and Australian businesses are ill-prepared to cope.

The Australian Industry Group says by 2015 electricity will be more than double its 2008 price and that eastern states gas prices will eventually climb to international levels after at first slipping.

"One of the factors keeping Australian gas prices relatively low has been our isolation
from world gas markets," the report says. "However once the infrastructure is in place to liquefy gas for export, domestic wholesale prices will increasingly converge with global prices as has already happened in Western Australia."

"Four large LNG export projects are planned in Queensland. Convergence with world prices would be likely across the eastern gas market. However, construction of the plants will take years, and there will be a large supply of 'ramp-up gas' on the domestic market as production increases dramatically before the LNG terminals are complete."

"Thus while in the medium term LNG exports will raise domestic gas prices, in the short
term prices may be depressed substantially."

The report finds coal fired power will become more expensive whether or not Australia gets a carbon price as international prices for Australian coal climb. Paradoxically, weak international climate change policies could push Australian coal prices still higher...

An "investment drought" has made new investment in generators urgent, but without clarity about when or how Australia will get a carbon price, investors are likely to err on the short-run more expensive and less carbon efficient solutions.

In what it says is a "sobering" finding the study reports that two-thirds of the Australian Industry Group members surveyed have made no improvements in their energy efficiency over the past five years. A further 7 per cent have gone backwards.

More than half expect to make no improvement in the two years ahead, a finding the Group says suggests energy efficiency "is not currently a high priority, whether because of limited options, the small role of energy in some companies' cost structure, policy uncertainty or barriers to uptake".

"This is a worrying result," said Australian Industry Group chief executive Heather Ridout. "We are going to have to adapt. Energy prices are going up with or without a carbon price. A well-designed price would soften the blow, but it would remain a big hit."

Published in today's SMH and Age

Energy shock_ confronting higher prices

Related Posts

. Don't do it! Julia is walking into a carbon trading trap

. Earth to supporters of an ETS - we have a problem

. "We've got to reduce our dependence on foreign oil" - Jon Stewart