PERTH (miningweekly.com) – The federal government on Friday announced a temporary cap on both gas and coal prices as part of its Energy Price Relief Plan.
Prime Minister Anthony Albanese said the urgent action being taken by the federal government, in partnership with state and territory governments, would shield Australians from the worst impacts of price increases, and deliver responsible and targeted relief to families, small businesses and manufacturers.
“Extraordinary times call for extraordinary measures. We are taking urgent action to shield Australian families and businesses from the worst of these energy price spikes,” Albanese said.
To tackle the high gas prices, the Commonwealth is introducing a 12-month emergency gas price cap, to be set at A$12 per gigajoule on new wholesale gas sales by east coast producers, subject to consultation.
A mandatory code of conduct will also be introduced for the wholesale gas market that includes a reasonable pricing provision, accelerating the introduction of the Australian Domestic Gas Security Mechanism, and boosting resources for the Australian Competition and Consumer Commission for implementation, monitoring and enforcement.
Meanwhile, the New South Wales and Queensland governments are taking action by effectively setting ceilings for the price of coal used for electricity generation to A$125/t, with the Commonwealth to contribute to costs.
“The reality is that due to global circumstances and a decade of energy policy mismanagement, Australians will continue to still see high energy prices for some time. The average family will be A$230 worse off next year if we do not take action with the Energy Price Relief Plan,” the government said in a statement on Friday.
Combined, these gas and coal measures are estimated to dampen predicted gas price increases by two percentage points in 2022/23 and 16 percentage points in 2023/24.
It is also expected to reduce the impact of forecast electricity price increases of 36% in 2023/24 by 13 percentage points, preventing a A$230 increase that the average Australian household would have seen if these actions were not taken, and reduce expected inflation in 2023/24 by around an estimated half percentage point.
In addition, the state and federal governments have also reinforced the commitment to implement the Capacity Investment Scheme to unlock around A$10-billion of private and public sector investment in clean, dispatchable storage and generation to ensure reliable and affordable electricity supply and reduce exposure to high coal and gas prices over the medium and long term.
“Firmed renewables are the cheapest form of energy. The current coal and gas price crisis makes that reality even more stark. Rewiring the Nation and the Capacity Investment Scheme will drive investment in Australia’s future as a renewable energy superpower.
“Governments around the country are working together to provide relief to families, businesses and manufacturers, along with longer term measures that increase capacity and reliability for renewable energy,” the government said.
The Australian Petroleum Production & Exploration Association (Appea) has criticised the lack of consultation with industry before the gas cap and mandatory code of conduct were announced.
“A gas price cap will force prices higher for households and businesses because it will kill investment confidence and reduce future supply,” Appea CEO Samantha McCulloch said.
“Less gas will ultimately mean higher prices while threatening Australia’s energy security, our emissions reductions goals and the enormous economic benefits that the industry delivers for Australians.
“This heavy-handed, radical intervention has been conducted with no prior consultation with industry to consider specific measures and warn of potential risks to Australia. Today’s decision is the opposite of what should have happened, the government should be providing confidence to the market with positive policies that promote investment in new supply that can put downward pressure on prices and secure all the other benefits of having more gas production.
“Recent gas supply agreements with manufacturers for competitively priced gas showed the market was working. But with this decision the government has not given the Heads of Agreement with east coast exporters and the Australian Gas Industry Code of Conduct – both announced only 71 days ago – a chance to work,” said McCulloch.
“The Code, announced in September, was subject to two years of extensive consultation with government and customers, yet this sudden new direction has not had any consultation.
“The introduction of a regulated price for gas in the mandatory Code of Conduct is of particular concern and a fundamental departure from Australia’s open and market-based economy.”
McCulloch said analysis by EnergyQuest showed price caps would have the opposite impact of what was intended, ultimately leading to higher prices down the track by reducing investment confidence and future supply as investors went elsewhere.
“From negative impacts for exploration to development of gas resources, the economics of gas storage in Victoria and the viability of liquefied natural gas imports on the east coast, EnergyQuest found a price cap could have substantial long-term economic implications,” she said.