Soaring cost of power bills a shocker for small business
Australia faces a new cost-of-living shock, with electricity prices set to soar by up to 29 per cent in a fresh hit for small business.
Australia faces a new cost-of-living shock, with electricity prices set to soar by up to 29 per cent in a fresh hit for small business, as corporate chiefs demand Anthony Albanese wind back energy market interventions to avoid crippling power shortages in coming years.
As households grapple with a string of interest rate hikes and soaring inflation, the nation’s energy regulator said a steep bill hike would land from July 1, despite the government’s efforts to calm markets through a series of emergency interventions.
Households face rises of up to 25 per cent for their power bills while small businesses could face a slug of up to 29 per cent, sparking warnings that employers face a choice of paying bills or hiring staff.
The Prime Minister on Thursday blamed the price hikes on “unreliable coal plants and high fossil fuel prices” as his cabinet defended the government’s gas-price intervention. “What we have seen in the price increases today have been driven by unreliable ... coal plants, high fossil fuel prices,” Mr Albanese said in question time.
“So that transition to clean energy is critical to bringing down prices. What we are seeing is that the contracts retailers buy for the coming financial year have fallen quite a bit after the intervention in the coal and gas markets in October last year. So they are about 40 per cent lower than they were for October last year.”
The power price increase from July will add to future inflation figures, putting pressure on the Reserve Bank to increase interest rates.
The RBA this month said energy prices would add a quarter of a percentage point to headline inflation in the 2023-24 financial year.
The spike in energy bills will intensify pressure on the government, which has blamed a global energy crunch for soaring electricity prices. Labor has proposed a two-year extension of a $12-a-gigajoule price cap on gas but the industry said ongoing intervention in the sector might crush the development of new supplies.
Australia’s east coast faces gas shortages every winter until 2026 on the back of last year’s shutdown of the national power market in an attempt to ease an electricity crunch.
Business Council of Australia chief executive Jennifer Westacott used the power price jump to ramp up calls for an exit strategy from Labor’s intervention.
“We know the increase in electricity prices will have a huge impact on households as well as businesses – both large and small. We need to settle on a long-term plan as we transition to a net-zero future to create a certain investment environment,” said Ms Westacott.
“The resilience of our energy system is already under severe global strain. We need a price cap exit strategy … (the price cap) right now is deterring the investment we need in order to deliver lower prices over the longer term.”
While the Albanese government intervention succeeded in lowering prices earlier this year, traders said wholesale prices had edged back in recent weeks amid unseasonable weather and a supply crunch following outages and the retirement of AGL Energy’s coal power plant.
Higher wholesale prices now will feed into price increases from July 1, 2024. One senior energy trader said: “The government was out there patting itself on the back earlier this year, and now wholesale electricity futures are near the peaks of last year. We haven’t reached winter yet.”
Australian Chamber of Commerce and Industry chief executive Andrew McKellar said small businesses were already struggling to survive before the regulator’s shock electricity price figures were released.
“We are now hearing of small businesses that are having to choose between paying their power bills and hiring more people – this is a totally unsustainable situation,” Mr McKellar said.
While some of the increased costs could be passed on to customers, Mr McKellar said small businesses would be unable to maintain their competitiveness as he called on the government to find a solution.
Details of a mandatory gas code of conduct are expected to be released soon despite widespread warnings from the industry that they may throttle investment and the addition of new energy supplies into the market.
Data released by the Australian Energy Market Operator at the end of April showed average wholesale spot prices fell 11 per cent to $83 a megawatt hour in the March quarter, following a 57 per cent decline in the December quarter.
Grattan Institute energy program director Tony Wood said: “I think the intervention has worked. Prices aren’t going up as much as they predicted, but with gas prices stabilising, maybe that would have happened anyhow.”
The government has said it is working to bring more renewable energy into the National Electricity Market, while record levels of power generated from rooftop solar and grid-scale renewables have been driving down wholesale electricity prices.
The government has offered some concessions, striking a deal with states and territories to see some households receive rebates, but confirmation of the price increase will likely intensify anger at the Prime Minister.
Jim Chalmers and Energy Minister Chris Bowen said the government intervention and rebates had limited the worst of the forecast price rises.
“While Australian families have been shielded from the worst of the energy price hikes, we know that any increase to bills is difficult for Australian families and businesses,” the Treasurer and Mr Bowen said in a statement.
“Which is why the government has targeted millions of households doing it tough with additional energy price relief rebates, and is investing in cleaner, cheaper energy over the medium and long term.”
