Climate inaction lifts cost of energy

Canberra Times
Monday 14/12/2009 Page: 1

This year's hefty electricity price rises across the country may be just the thin edge of the wedge, as uncertainty over climate change policies and rising operating costs push up household power bills, the peak regulator warns. The Australian Energy Regulator's annual State of the Energy Market report says ACT households face an increase in electricity prices this financial year of up to 6.4%, one of the more modest increases around the country. In NSW, typical retail electricity prices will rise 18-22% by mid-2010. Western Australia's Office of Energy's proposed 52% increase was rejected last year, but homes in that state have faced several double-digit price increases already this year.

Financial modelling prepared for the federal Treasury says a carbon emissions price of $35 a tonne will lead to a further 23% increase in household electricity bills, if adopted in future climate change legislation. The Australian Energy Market Commission raised concerns in October that uncertainty over climate change legislation may be holding back investment in much needed electricity generation. But the report notes that the debate over a low-carbon future is pushing demand for network improvements, such as smart meters that help householders monitor and cut their energy use.

Energy generators appear to have grown impatient with the drawn out debate over whether Australia will introduce an emissions trading scheme and what form it will take. Many appear to have decided that natural gas-fired electricity generation, which produces about 60% less carbon dioxide emissions than coal-fired power plants, represents their best investment bet in the immediate future. After almost a decade of minimal investment in new facilities, generators committed to 2400MW of new gas-fired capacity during 2008-09, a significant rise on previous years. But the renewed favour of natural gas as a cleaner alternative to burning coal may create its own problems as its popularity grows.

"There will be substantial opportunities for the natural gas industry, although rising demand for gas - both for electricity generation and for likely liquefied natural gas exports from eastern Australia - may increase gas prices in the longer term and partly neutralise its cost advantages," the report said. Australian Energy Regulator chairman Steve Edwell said the growing cost associated with ageing distribution networks would also put pressure on electricity bills. "We have seen renewed growth and diversification in the natural gas industry with new transmission pipeline investment allowing Queensland coal seam gas to compete for the first time with gas produced in the Cooper and Victorian gas basins.

"Network investment is also rising to meet the challenges of soaring peak demand, ageing assets and more rigorous licensing requirements to improve network security," Mr Edwell said. The recent debate and ultimate rejection of the Government's emissions trading scheme in the Senate does not appear to have dampened enthusiasm for investment in wind energy, largely seen as the cheapest renewable energy source.

The regulator would investment in wind energy remains strong, particularly in South Australia, where wind energy now accounts for about 20% of the state's generation capacity. Prime Minister Kevin Rudd officially opened one of the country's largest wind farms near Bungendore last month. The report said the Federal Government's expanded renewable energy target, passed in August this year, would likely farther stimulate investment in wind generation.