NSW government considers increasing coal royalties, says power prices shouldn’t increase

A potential increase to coal royalties ahead of a price cap expiring next year would likely have a “negligible impact” on power prices, one state says.

The NSW government will investigate increasing royalty rates on the coal industry ahead of next year’s expiry of a price cap.

On Thursday, NSW Treasurer Daniel Mookhey announced he would write to stakeholders in NSW’s coal sector, including 16 coalmining companies, four power station operators, two unions and key trading partners.

The coal cap was introduced during an emergency sitting section of parliament in December 2022 following a national directive from the federal government.

NSW Treasurer Daniel Mookhey will consult stakeholders in the coal industry on potential changes to the royalty system. Picture: NCA NewsWire/ Nikki Short

Since December 2022, coal sold to domestic power stations has been capped at $125 a tonne, with the safeguard to run out on July 1, 2024. As a concession, royalty rates for coal companies were also frozen for the duration of the cap, costing the state budget between $100m to $200m.

The cap was implemented when inflationary pressures due to Russia’s invasion of Ukraine caused coal prices to surge beyond $500 a tonne, inflating power prices.

Energy Minister Penny Sharpe said wholesale prices had since fallen, allowing the government to investigate industry changes.

It’s estimated the cap eased power bills by $300 to $400 for households and $700 to $900 for small businesses.

“We need to look at futures and we need to work with the industry and everyone in the game to actually work through how we support households and businesses to get efficient energy into their systems but also one that’s affordable,” she said.

Although the government is seeking consultation from industry stakeholders, Mr Mookhey said lifting royalty rates would not impact power prices.

“The preliminary advice we’ve received is that any changes to royalties has a negligible impact on prices, but we want to test that advice,” he said.

A quarterly update from the Australian Energy Regulator earlier this month confirmed that the closure of the AGL-operated Liddell coal power station in April inflated wholesale prices, with average costs in NSW increasing by $148 per MWh since the previous quarter.

The report said this was due to higher demand for electricity, a seasonal decrease in solar generation and a reduction in the state’s coal capacity.

Although these rising costs won’t immediately impact consumers, it could affect future power bills if energy providers pass them on.

Originally published as NSW government considers increasing coal royalties, says power prices shouldn’t increase