Electricity prices are still an issue for Albanese

As electricity prices have risen by double-digit rates across the past two years, the Albanese government has attempted to justify its pledge it would reduce costs by $275 a year by saying the rises were not as big as they otherwise would have been. With the Australian Energy Regulator announcing a small decrease in the default offer price for most electricity users from mid-year, Climate Change and Energy Minister Chris Bowen told federal parliament this was a result of getting more renewables into the grid “because renewables are the cheapest form of energy”.

When electricity prices were going up, Mr Bowen blamed rising energy prices on Russia’s invasion of Ukraine. He now says prices have moderated in wholesale markets partly in response to government subsidies that are costing taxpayers billions of dollars a year. As we report on Wednesday, as many as five million households will face big increases in their bills if taxpayer-funded subsidies do not extend into the new financial year.

The AER said most households could see electricity price reductions of between 0.4 per cent and 7.1 per cent from July 1. This follows two years of double-digit increases. Electricity prices have jumped by as much as $830 a year since the federal election in 2022, compounding cost-of-living pressures from global inflation and rising interest rates.

The bottom line is electricity prices have risen dramatically since Labor took office and there is no clear end in sight. The most obvious trend is the shift in costs from electricity consumers on to the government balance sheet. This will be the likely impact under Mr Bowen’s proposed Capacity Investment Scheme, which the renewable energy sector says is necessary to deliver the projects needed to replace supplies from coal-fired power stations when they are retired. Without it, the pipeline of projects reaching financial sign-off had dried up. Another reason is the lack of transmission infrastructure that will be needed to connect projects to the grid.

The AER says its latest determination reflects a moderation in the cost of generating electricity, offset partly by increasing network costs for the poles and wires. Transmission infrastructure costs make up a large component of retail prices, comprising about 40 per cent of the price. As well as the cost of generation, other costs include government environmental schemes and a retail allowance.

As coal-fired power stations exit the market, huge expenditure will be needed for new generation as well as the thousands of kilometres of new high-voltage transmission lines. Taxpayers increasingly are on the hook for both, with only a promise of cheaper electricity prices to come. The issue is compounded by the fact east coast gas supplies are expected to fall short of demand unless something is done to increase supply, something governments in NSW and Victoria have been reluctant or unable to deliver.

As investment in large-scale renewable energy projects has stalled, things are shifting into a new gear on the energy front. Victoria is removing the avenues through which landholders can object to projects they believe will have adverse community or environmental impacts. Poor planning is leading to acts of desperation. Given the obvious difficulties, the latest AER decision is likely to be a false dawn in the widespread hope of easing prices for electricity users.