31
Jan
2019

Can Electricity Prices be Reduced?

Will Electricity Prices Be Allowed by Governments to Fall?

The improvement in the Coalition’s Newspoll on 29 January (still down at 47/53 TPP) has almost been forgotten and questions continue as to whether Morrison is able to address the “two big things” (quit Paris accord and slash immigration) needed to give the Coalition a chance. The need for quitting the Paris accord has been enhanced by what has happened under heat waves in Victoria, South Australia and now NSW.

Since my 29/1 Commentary the possibility of the Coalition establishinga policy which would, as promised, allow lower electricity prices to happen and be sustained continues to be highly unlikely– except of course if government controls are able to be imposed legally and producers/retailers are compensated for a proportion of  the existing higher costs which would otherwise be met by consumers of electricity, but with taxpayers then having to pay the costs. As indicated in the this article (Forward Electricity Prices Increase), at present futures markets are operating on the basis that the increasing reliance on renewables under announced policies will mean that there will be periods when major shortages of supply occur given that states have policies which will rely on up to 50 per cent of power coming from renewable and prices will have to increase to choke off a proportion of demand (the discussion in the article is confused because the author and the AFR itself supports existing policy).

This is basically what happened during last week’s heat wave and little wind power and which led to a sudden major increase in costs. It is reported that Victorian and South Australian consumers of electricity had to pay additional costs of about $1bn for just two days last week, which indicates the frailty of existing policies operated by those two states (see Power Costs Increase by $1bn in Two Days) and which other states also operate. Indeed, NSW has today experienced blackouts which appear less than in  Melbourne but which include outages (and additional costs) in hospitals (see Blackouts in NSW Too).

Note that Federal Resources Minister Canavan  said that this occurrence “justifies investment in reliable sources of power, such as coal-fired power”. But he fails to recognise that the private sector will not make any such investments under the existing climate change policy which aims to reduce usage of coal. Note also that the climate “expert” employed by The Australian, Graham Lloyd, comments that  “Renewable energy might be the cheapest option to build but it makes sense only if there is power available when it is needed”(see Graham Lloyd on Renewable). But he doesn’t canvass a reduction in usage of renewable or a basic problem with policies.

The “solution” of course is to withdraw from the Paris accord which Turnbull signed on our behalf (sic) and, instead, adopt a climate change policy which preferably eliminates any target for using renewable or reducing carbon emissions but at least reduces such targets to a major extent. Properly handled, that would provide a major weapon with which to fight the election given that Labor has adopted an even larger bunch of targets to use renewable and to reduce carbon emissions.  But Morrison has first to indicate that his government is now not in agreement with CC policies adopted under Turnbull.

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